Bob Graham

Mr. GRAHAM

Mr. GRAHAM. I say to the Senator, I will just conclude by saying his responses to my questions and his analysis of this, I think, raises even further reasons why it is so critical that we adopt his amendment and treat Social Security as a trust fund, as a contract, as a sacred responsibility between the American people and their Government and not have it mindlessly commingled with the rest of the Federal budget.

Mr. GRAHAM. In answer to one of the Senator's questions earlier when he asked some of the policy implications of having Social Security integrated with the Federal budget, I said that one of those was that it was going to make it more difficult to deal with some of the real problems Social Security has because there will be this cloud of suspicion that we are doing it not to help Social Security but to raid Social Security. And I suggested that one of those real problems is that the Social Security funds today are invested in U.S. Treasury instruments, for which there is no prudent plan of investment, and essentially the Social Security fund is going to have to come to the Congress in about 25 years, hat in hand, asking that these IOU's be converted into real dollars that can be used to pay the Social Security benefits to real Americans. My own feeling is that we ought to be looking for ways in which to reduce that level of dependence on Federal Government borrowing, as, I might say, collaterally, have most of the countries which have a social security system analogous to the United States, such as in Europe and Canada. They are using a broader investment pool than just their national treasury. It seems to me that this language is going to make it politically much less attractive for us to consider those other alternatives to strengthen Social Security, because we are going to have a strong incentive to want to borrow every dollar we can from Social Security, since those dollars do not have to be subject to a debt limit, whereas the dollars that were borrowed from virtually everybody else are subject to a debt limit.

Mr. GRAHAM. That would seem to me, then, to create a situation in which, if this and future Congresses wanted to borrow money, it would be more appealing to borrow money from the Social Security trust fund or other funds like it than it would to borrow money from the general public, corporations, or other potential lenders, since borrowing from the public would require a three-fifths vote to do, whereas we could borrow without limit from the Social Security trust fund without such a restraint.

Mr. GRAHAM. So this would say, for the future, we would ignore that portion of the debt that is held by Social Security and for other similar governmental trust funds and that would not count in terms of what the limit on the Federal debt would be.

Mr. GRAHAM. the Senator has raised a point in his last comment, in reading from one of the letters he had received, that I do not think has received adequate attention as relates specifically to Social Security. Let me state my concern and see if I have accurately understood him. Section 2 of the amendment, which is the section that will require that a three-fifths vote of the whole number of each House--that is the whole number of persons elected--will be required in order to change or to increase the debt limit of the United States held by the public. And the key phrase is ``by the public''. It is my understanding that today when we deal with the debt limit, we are dealing with the debt limit of the United States and all of those persons or entities which may hold a portion of that debt, including the Social Security trust fund, which today holds approximately $400 billion of the debt of the United States or a shade under 10 percent of the debt.

Mr. GRAHAM. Mr. President, I ask the Senator if he would yield for a question.

Mr. GRAHAM. I thank the Senator very much.

Mr. GRAHAM. I am afraid of that. There are some, such as the Chair of the House Judiciary Committee, who in fact spoke about the reason that he opposed taking Social Security out of the rest of the Federal budget, which was for exactly that reason. It is going to make our task in the next few years more difficult if we are not able to unmask the extent of the deficit by these Social Security surpluses. He is absolutely right. It will make our task more difficult. That is one of the reasons I am suggesting that we extend the period by 3 or 4 years. But I do not believe the purpose of this ought to be to meet our comfort level in the next decade. I think it is interesting--and I know the Senator is aware of this because we discussed it last week--there have been, I believe, some 27 amendments to the U.S. Constitution since it was first adopted, and only one of those amendments has ever been repealed once adopted. That was prohibition. What that says to me is that we are about very serious and long-term business. When the first 10 amendments, the Bill of Rights, were written, people were not thinking about, ``Well, what kind of right of assembly or what type of right of freedom of the press do I want to have for the next 10 years, because I am running a newspaper and I want to protect myself for the next decade?'' They were thinking for the indefinite future. And we are the beneficiaries, 200-years- plus-later, of their vision. We need to think in the same way about what we are doing here this day, this week, this month, this year; that is, if we pass a balanced budget amendment, we should assume that it is going to be part of the Constitution of this country for the indefinite future, and should attempt to structure it in a way that best meets those long-term needs of our Nation.

Mr. GRAHAM. Absolutely. The reason is because there will be so much distortion in Federal expenditures and receipts because of the size of Social Security today--20 percent of expenditure and 25 percent of income--and even more so because of the way in which those revenues and expenditures are taken in and disbursed based on the desire to meet a generational shift in demographics.

Mr. GRAHAM. Yes. I have indicated one thing that I think we are going to have to do if we do not agree to the Reid amendment; that is, we are going to have to go away from a surplus system of Social Security to a pay-as-you-go, which I think would be a serious step backward and will put in political, if not economic, jeopardy the future of Social Security because of the generational conflicts that it will create. One of the purposes of this surplus system was to avoid exactly those generational conflicts. The people who are going to be benefited after the year 2019 are paying the taxes that are building the surplus. So, essentially, they are making a payment for themselves. I do not believe we can continue that system if we require a balanced budget which integrates Social Security with the rest of the Federal budget. I believe if the Senator's amendment is adopted that a change that we should make would be to rethink the year that we should attempt to reach balance. Currently, we are going to be reaching balance in the year 2002. We do that in large part because we have these significant Social Security surpluses to take into account. My calculations are that if we adjusted that from 2002 to 2005 or 2006, we would be in exactly the same economic position as we will be with the year 2002, minus the distorting effect of these Social Security surpluses, and we will be able to reach balance in a prudent period of time that will not cause unexpected shocks to the economy. No one wants to be part of passing a constitutional amendment and then find out that we are charged with having contributed to a national recession or depression because of the too-rapid pace in which we tried to bring a 30-year, out-of-control spending pattern into balance. So if we do not agree to the amendment, I think we are going to have to move away from the current pattern of financing Social Security. If we do agree to the Senator's amendment, which I strongly urge my colleagues do, then I think we should adjust the date from 2002 to 2005 or 2006.

Mr. GRAHAM. We should have such amendment. But it should be a thoughtful, sensitive--frankly, a smart amendment, not one that is just a mindless sledgehammer. And I believe part of that intelligence is to use a scalpel and remove Social Security from the balanced budget amendment, treat it as a separate item, and then balance the remainder of the Federal budget.

Mr. GRAHAM. I do. These really relate, not specifically to the Social Security issue, but rather to the general question of should we have a constitutional amendment requiring that we balance the Federal budget, a proposition that I support. We should have it.

Mr. GRAHAM. I would, but----

Mr. GRAHAM. Mr. President, I think the future of Social Security, if it is held within this balanced budget amendment as part of an integrated Federal budget, will mandate major change. For instance, I think we will have to go back to a pay-as-you-go approach to financing Social Security. In my judgment it is incompatible to have a combination of, one, a surplus approach to financing Social Security and, two, a constitutional mandate that Social Security revenues and receipts be integrated, commingled with everything else that the Federal Government does and, third, that the result of that Federal budget is an equilibrium, a balance of expenditures and revenues. Those three principles are, in my judgment, incompatible. So I think we will have to go back to a pay-as-you-go Social Security system and therefore will face, as the Senator from New York stated, intensified intergenerational conflicts as we are going to be asking a smaller and smaller pool of Americans--particularly after the year 2019--to be paying for the costs of a larger and larger group of American retirees.

Mr. GRAHAM. In my opinion there are some very powerful considerations. Let me just mention a few of them. One is the fact that Social Security, as the Senator from New York indicated, is going to have some serious challenges in and of itself. As an example, there is an assumption among many Americans that the surplus that we have been building up is being invested in some type of security that will be sacrosanct, will be protected, will be prudently managed so that when we need the money--beginning in approximately the year 2019--the Social Security administrators will be able to go to a third party and say, ``Here is the money that I invested in you way back there in 1995. We need the money now in order to pay off the rights, the aspirations, the expectations of our current generations of retirees. Would you please liquidate this instrument so we can make these payments?'' Well, the person to whom that question is going to be asked--``Ask not who that person is, because he and she is us.'' We are spending that money now, not investing it prudently for future years' needs. We are spending it to finance the deficit. There is no pool of money that is being prudently managed. So when the year 2019 comes, the Social Security Administrator is going to come to us, those who will be in these seats, and say: I need approximately $40 billion, which is the amount beyond what we will take in this year in order to meet our obligations. Please write us a check for $40 billion. We are going to have to either raise taxes or cut spending somewhere another $40 billion, or some combination, in order to meet those obligations. That is a very serious issue. We need to be able to deal with that issue. We need to be able to deal with it, in my opinion, as a separate, discrete issue, not commingled with the question of whether we are trying to do it, really, as an under-the-rug way of balancing our Federal budget demands this year. I think as long as we have Social Security integrated with the rest of the Federal budget, we are going to be frozen in our capacity to deal with some of the real, fundamental issues facing Social Security because there will be this cloud of suspicion that we are doing it, not to protect and solidify and make more reliable Social Security, but are just doing this as a means of balancing the Federal budget on the back of Social Security. So I think that is just one policy reason why we ought to remove Social Security from the rest of the Federal budget as it relates to this constitutional amendment to require balancing and be able to treat with the real needs of the Social Security system as an independent trustee would do, not as politicians subject to the cynical charge they are doing it in order to balance the rest of the Federal budget on the savings of our Social Security beneficiaries.

Mr. GRAHAM. The Senator has made a very good point, Mr. President. Let me just put some approximate numbers behind that. This year the Federal Government will spend approximately $1.6 trillion--$1.6 trillion. Of that $1.6 trillion of expenditures, approximately $320 billion will be Social Security expenditures. So Social Security represents, more or less, 20 percent of all Federal expenditures. In terms of Federal income, the Federal Government will take in this year approximately $1.4 trillion--the difference being the $200 billion of deficit that we are currently scheduled to absorb this year. Of that $1.4 trillion of income, Social Security represents $400 billion. So Social Security represents well over 25 percent of our income into the Federal Government. It represents 20 percent of our outgo. So it is an enormous proportion of our Federal fiscal activity. That large scale and this peculiar spending pattern--which is dictated by demographic considerations, the surge of births in the population over generations--are the factors that, in my opinion, not only justify, but mandate that Social Security be removed from the rest of the Federal Government and treated as it should be, as a separate fund representing a special trusteeship responsibility between the American Government and the American people.

Mr. GRAHAM. Well, it does in a very dramatic way. If Social Security were on a pay-as-you-go basis, it could be melded easily into the rest of the Federal budget because each year you would be taking in approximately the same amount that you would be expending. However, with Social Security, since it is structured to have large surpluses followed by enormous deficits, it will have a very distorting effect on the rest of the Federal budget if you attempt to arrive at a balanced Federal budget. Let me just pick a couple of years as an example. In approximately the year 2010, the Social Security system will be running a surplus of close to $200 billion a year. Now, under the way in which the Federal budget is constructed today and in which this amendment will constitutionally require it to be constructed for all times, all Federal revenues and all Federal expenditures are merged together. That is, a dollar spent on Social Security and a dollar spent on paper clips has exactly the same impact on the Federal deficit. Now, the consequence of that is that the $200 billion of surplus that Social Security will be running in approximately 15 years effectively becomes a subtract factor from the rest of Federal expenditures, that is, the Federal Government can run a deficit of up to approximately $200 billion in the year 2010 and it will not have any effect in terms of a balanced Federal budget because you will be able to subtract the Social Security surplus against the deficit that you are running in the rest of the budget and it ends up at zero. Therefore, you have met the constitutional requirement of a balanced Federal budget. Let us just take another year, 10 years further down the stream in the year 2025, when we will be running not a surplus in Social Security but a deficit of approximately $400 billion. Let me just point out to my colleagues that the structure of this surplus plan is that at a point in about 2019 we will reach a maximum surplus of $3 trillion plus or minus, and then in a period of 10 years we will spend that $3 trillion. Every one of those dollars represents a contribution to an enhanced Federal deficit. So our colleagues who will follow us here in the year 2025 will start their budget deliberations $400 billion in the hole because that is the amount of expenditures over income in the Social Security system in the year 2025. I submit to my friend and colleague from Nevada that the Social Security pattern of surplus and then spendout is incompatible with its amalgamation with the rest of the Federal expenditures. It is such a large and such a distorting factor and its structure is so antithetical to the rest of the Federal budget that in my opinion it will be impossible to balance the Federal budget during this period from the year 2019 to 2029 if we mandate Social Security be integrated with the rest of the Federal budget.

Mr. GRAHAM. Yes.

Mr. GRAHAM. Mr. President, I appreciate the question that has been asked by my friend and colleague from Nevada, and it follows on very appropriately after the comments that have just been made by Senator Moynihan, who was here for the restructuring of Social Security. As Senator Moynihan indicated, up until the late 1970's, Social Security was like most Federal trust funds, a pay-as-you-go system. It took in enough money each year to meet the obligations for that year. But beginning in the late 1970's, it became apparent that as demographic changes were occurring in our country, it would be necessary to change the structure of Social Security. What were those demographic changes? Demographic changes were not a new phenomena. They occurred throughout man's history and our national history, that is, the rate of births is influenced by historic, economic, and social factors. I do not know the exact birth date of the Senator from Nevada, but I believe that he and I are approximately the same age, which means we were both born during the period of the Depression. If that is correct, that would indicate both of us were born at a time of relatively low birth numbers in the United States. There were not a lot of parents having children in the period of the 1930's. So we represent a small percentage of the total population of the United States. Conversely, in the period immediately after World War II, large numbers of persons who had suffered through the Depression and then World War II came back, formed families and large numbers of children were born from the late forties up until the mid-1960's, the so-called baby boom era. Those demographic highs and lows are going to have significant impact on the demand of the Social Security system. When Senator Reid and I retire, if we do, at around 65, we and our cohorts and aides will not be putting too much of a demand on Social Security because there are not that many of us. Conversely, when our children retire, they will be putting a very substantial demand on Social Security because there are so many of them. So beginning in the late 1970's and particularly with a revision of the Social Security System that occurred in 1983, Social Security shifted from a pay-as-you-go system to a surplus system, and the theory was that amounts beyond those necessary to meet immediate demands would be raised primarily through the payroll tax for Social Security and would build up surpluses until you reached the point that the large number of persons who were born in the post-World War II period reached retirement, and they would then draw upon those accumulated surpluses to meet their needs. And so this first-blue-then-red line indicates the structure of the Social This structure is not a mistake. It is not an aberration. It is not something where part of the machinery went bad. This is the way it is supposed to operate. And so the system is that this year we will have a surplus of revenues in the Social Security over expenditures of approximately $80 billion.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, Florida and America have lost a big- hearted better: Glen Woodard of Jacksonville, FL. Mr. Woodard was 77 when he died late last month in Jacksonville after a long illness. A vice president at Winn-Dixie Stores, Mr. Woodard was ``the last of a breed,'' his friend Bill Birchfield said admiringly. Mr. President, I submit the following eulogy to Glen Woodard, delivered by Robert O. Aders in Jacksonville on January 28, 1995:

Mr. GRAHAM

Mr. GRAHAM. Thank you, Mr. President. Mr. President, I am moved by the eloquence of our colleague from North Dakota. He is talking about the way in which our elderly were treated prior to the establishment of programs such as Social Security and Medicare, programs that gave the elderly dignity and respect. I was born in November 1936. My father was elected to the Florida State Senate in November 1936. The reason that he ran in that year was in large part because he had the occasion to visit some of the Florida State mental hospitals. The term mental hospital was a misnomer for those Florida institutions in the mid-1930's. They were really places where people put their aged, those who they could not afford to maintain, those who needed special help more than mental health concerns. They were warehoused in our State's mental institutions. The words ``snake pit'' were appropriately applied to those institutions. One of his goals in running for the State Senate was to bring some greater degree of dignity to indigent older Floridians by providing them a somewhat adequate monthly stipend in their old age. That limited effort was then subsumed in the national effort to create social security, which has, in a period of now almost three generations, given what had been the poorest group of Americans, older Americans, the ability to live the balance of their lives with some degree of dignity and respect. We should be proud with what we have accomplished since 1935 in terms of making that kind of opportunity available for millions of Americans, and the prospect of it being available for millions of Americans in the future. But before turning to the specific issues that I think are raised in this constitutional amendment as it relates to Social Security, I would like to make a few comments on the underlying amendment itself. I have in the past spoken and voted in favor of propositions which would provide for a constitutional requirement that there be a balanced Federal budget. I shall do so again with the same degree of disappointment that I have done in the past. Passing a constitutional amendment to require us to balance the Federal budget is a blatant statement of failure. We are admitting our inability, without this type of discipline, without this constitutional shackle, to do what we should have done and what, frankly, most generations of Americans have done, and that is, to exercise fiscal responsibility. Up until 1980, the U.S. Government had accumulated a national debt of slightly over $900 billion. We fought World War II, World War I, we lived through the Great Depression, just to mention three events of this century. We lived through all of these events and accumulated a national debt of $900 billion. Since 1980, we have added to the national debt approximately $4 trillion. We will soon be asked to vote on a national debt limit that would allow us to exceed the $5 trillion level in terms of national indebtedness. We have had a free-fall of excess in terms of our national fiscal policy. I wish I could say that I saw something on the horizon that indicated we were about to reverse that pattern, and that we would not need a constitutional amendment to require us to do what our forefathers had been able to do without a constitutional amendment. I am afraid, however, Mr. President, that I do not see any indication that we are about to reverse this policy of the last 15 years. In fact, to the contrary, I see new evidences of irresponsibility. To mention one, the Contract With America contains provisions for a series of tax would like to pay less toward the cost of Government. It has, however, been a pleasant period in the United States, in which Americans have experienced high levels of services, relatively moderate levels of taxation, and a series of tax cuts over the past 15 years, all while letting our grandchildren pay the bills. The Contract With America would continue that. It calls for over $700 billion of additional tax cuts in the next 10 years; $700 billion would be added to our already staggering estimated deficits for the next 10 years. To me, that is just one indication of the fact that we do not have any reason to believe that we are about to exercise voluntary discipline. Therefore, it will be necessary for us to impose upon ourselves and the future of America a constitutional requirement to do what we ought to be doing. It is a matter of our generation's responsibility. I believe that there are several important objectives to be accomplished by this constitutional amendment. One of those is to reestablish the principle of generational responsibility. When I was born, we were not leaving to our future generations massive debts. Our parents and grandparents and great-grandparents had paid their own bills. They believed in the principle of generational responsibility. That will be reestablished with this constitutional amendment. We will also heighten our sense of accountability, that it is our responsibility to be accountable for how we handle the Nation's fiscal affairs. How do these principles, these goals, relate to the issue of how Social Security should be treated in a balanced budget amendment? As previous speakers have so appropriately and eloquently stated, Social Security is a contract, a contract between the Government of the United States and the people of the United States. It is a very solemn trust that we hold. The lives of millions of Americans are affected very directly by their belief in our trusteeship and how, in fact, we carry out that trusteeship. Giving Social Security special treatment within this constitutional amendment would be a statement to the American people of our understanding of that trusteeship. Mr. President, there is also another factor--I apologize if what I am about to say is a little bit tedious and technical, but I think it bears repeating--and that is the special financial structure that we have created for Social Security and how that financial structure relates to the issue of the appropriateness of having Social Security excluded, treated separately, for the purposes of the balanced budget amendment. Prior to 1983, Social Security was like most other trust funds in the United States. It was a pay-as-you-go system. As, for example, with the highway trust fund, dollars are collected each year based on the amount that is paid in gasoline tax. That money goes into a trust fund. Those trust funds are then appropriated to States or to specific transportation projects. There is an in-go and out-go that is balanced almost on an annual basis. That was the way Social Security was treated up until 1983. In the years prior to 1983, there was a recognition that Social Security was facing some very serious financial problems. One of those problems was that the Social Security system was very much the captive of the change in the U.S. birthrate. I happen to have been born in 1936, a period of relatively low births in the United States. Not very many babies were born proportionately during the Depression. Therefore, as my generation enters the time when it will become eligible for Social Security benefits, we are not going to impose a very heavy burden on the Social Security system. Conversely, when my children, who were born in the 1960's, a time with a relatively high birthrate, enter Social Security, there will be a very heavy demand imposed on the system. And so the fundamental change made in 1983 was to move Social Security from a pay-as-you-go system to what is referred to as a surplus system, much like other forms of life insurance or annuities. That is, dollars were to be built up during the period of low demand on Social Security, so that when we reach the point that there would be heavy demand, there would be the resources available to pay those benefits. This chart, Mr. President, illustrates how that Social Security surplus system is intended to work. Beginning with this year, 1995, we will have a surplus of something in the range of $70 to $80 billion. We have had a surplus built up since 1983 of approximately $400 billion. We are going to be adding substantially to that amount over the next 20 or so years, reaching a peak of having a surplus of approximately $3 trillion. Then, in about the year 2019, we will start a rapid draw-down. In a period of a decade, we will deplete that $3 trillion of surplus and zero out the account to meet the demands of that large group of Americans who will reach retirement age in approximately 2019 forward. Now what is the significance of this structure of Social Security financing, which represents approximately 25 percent of the expenditures of the Federal Government? What are the implications of this financing structure to the balanced budget amendment? I describe the implication as being the mask and then the hammer. From now until the year 2019, because the way our deficit is reported, where annual surpluses constitute a subtraction from our stated deficit, the surpluses will mask the Federal deficit. We talk about the deficit in the current budget as submitted by the President as being approximately $190 billion. That is not totally correct. Actually, the deficit for the Federal Government in 1995-96 will be $190 billion plus $80 billion, the Social Security surplus. Because the way we report under our accounting system, that $80 billion of surplus in the Social Security trust fund is subtracted from the overall deficit. It would be somewhat like a family which had an income of, let us say $40,000, but had expenditures of $50,000. It would appear as if they were running every year $10,000 in the red. But they had a rich uncle who had died and left them a trust fund which each year gave them for the next 10 years $20,000 out of that trust. If they reported in their accounting that they made $40,000, spent $50,000, but had $20,000 in the trust fund, it would appear as if they actually had a $10,000 positive each year. Of course, the problem is, when the trust fund runs out in 10 years, they are going to be back to where they were initially, except probably worse off because they had become accustomed to having this $20,000 trust fund. We are somewhat in that same situation. We are masking the real extent of our fiscal problem by every year pumping in the novocaine of a substantial Social Security surplus. And what is the hammer? The hammer is what happens after the year 2019 when every year we are going to start our Federal accounts with a deficit of, in some years, in the range of $350 to $400 billion. How would you like to be sitting here in the year 2023 with a constitutional amendment that says you have to balance your books every year and you begin the process with a deficit of $350 to $400 billion because of the enormous outflows from the Social Security trust fund? I believe, Mr. President, that if we write into the Constitution that we must have a budget system that consolidates Social Security, representing 25 percent of our expenditures, into all the rest of the financial activities of the Federal Government, that under this structure, we are going to be leaving our future generations with an enormous, impossible task, particularly in these outyears. And let me point out, this is not an aberration. This outline of surpluses and then deficits of Social Security is not a mistake. This is the way the system was planned to operate. It mirrors the demographics of the country--relatively low numbers of persons in retirement age at the beginning of the 21st century and large numbers of persons in retirement age in the second quarter of the 21st century. This is the way the system is supposed to work. When you apply that against the mandate of a balanced budget, if Social Security is consolidated into every other account in the Federal Government, you will create a fiscal impossibility. Next, if Social Security is on budget, it is going to create a temptation to masking the extent of our financial problems. To use one example. It was only a couple of years ago that there was serious discussion in this Chamber of eliminating the cost-of-living adjustment for Social Security beneficiaries. I think, wisely, that proposal was rejected. But why was it being proposed? It was being proposed because, if you eliminated the cost-of-living adjustment, which amounts to approximately $20 to $30 billion a year in terms of Social Security expenditures, if you eliminated that cost-of-living adjustment, you would have artificially made the surplus appear that much larger. If we did not pay a COLA out in 1995, we would not be talking about a surplus of $80 billion. We would be talking about a surplus of close to $100 billion. That would mean that our stated deficit would be $20 billion less. So with that one action, we would have cut the reported Federal deficit, the deficit for purposes of meeting this constitutional requirement, by $20 billion. That is the temptation that we are going to have because it is will be such an easy, disguised way, in which to meet the standard that we are setting for ourselves of a balanced Federal budget. Next, I think that the consequence of what I just described--the temptation to use Social Security with this kind of a financing system to artificially reduce the stated Federal deficits--the consequence of that is to increasingly shift the cost of other areas of Federal responsibility to the Social Security financing system, which means shifting it to one of the most regressive sources of Federal revenue-- the payroll tax. The payroll tax is a straight tax on the payroll of most Americans, without regard to their ability to pay or other considerations. There are no deductions, there are no credits, there are no other recognition of special circumstances with the payroll tax. And as we give into the temptation to use Social Security as a means of meeting our other responsibilities, we continue to add to the extent by which Government is being financed by its most regressive form of revenue. Next, I believe that one of the positive benefits of taking Social Security out of the general revenue budget of the United States--doing as Senator Reid proposes--is that we will have the happy prospect of actually running a surplus in terms of our overall Federal condition once we are able to balance our general revenue books. Once we are able to get the rest of the Federal Government into a balance situation, with Social Security operating at a surplus, then we will be able to begin to reduce the amount of the national debt which is held by the general public. We will begin to get some of those benefits that a positive surplus in our fiscal accounts will bring, such as lower interest rates, or stable interest rates, the benefits that will come in terms of stronger economic growth. Finally, Mr. President, I believe it is important that we separate Social Security from the general revenue because we have a lot of work to do on Social Security. I have outlined briefly what the structure is. There is an implicit assumption in that structure; that is, that the surplus funds that we are accumulating, what will eventually amount to $3 trillion of surplus, is being invested in an area that will be available for liquidation and used to pay these benefits that are going to be due after the year 2019, just as a private pension fund takes the money that it collects every year from employers and employees, however it is structured, and invests it in stocks, bonds, public instruments, or private funds so that when people retire there will be some real money there to pay their pension. The assumption is that something like that has happened with Social Security. Wrong. What is happening with the Social Security surplus is it is being used to finance the very deficits that we are trying to eliminate. One of the benefits of having Social Security and the rest of the Federal Government's financial problems separated is it allows the Senate to focus attention on dealing with Social Security, making it the kind of solid, predictable, reliable, sustainable source of economic security for older Americans that we have represented it to be. As long as the two are melded together, I think we will be constantly under the microscope of suspicion that we are doing it not to help Social Security but to raid Social Security. We, as good physicians who need to make accurate diagnoses and prescriptions for Social Security, need to be in a surgery ward where we are not subject to the attack or criticism or suspicion that we are not doing this out of the desire to raid Social Security, that we clearly are doing it for only the purpose of making Social Security strong, healthy, vigorous, and able to carry out its contractual responsibilities. Mr. President, I believe this is an extremely important issue that we are discussing and that it is imperative that we adopt the amendment as offered by the Senator from Nevada if we are to carry out our responsibilities not just for today, but particularly for the long future. We have only amended the U.S. Constitution a few times in our 200- plus year history. It is interesting that only one of those amendments, once adopted, was repealed. That was the amendment on prohibition. Every other amendment, once adopted, has stayed in the Constitution and stayed in the original form. We are not doing this just for 1996 or 1997; we are doing this for the years 2096, 2097. What is in the best interest of Americans over that long, indefinite future? I believe it is in the best interest of Americans to adopt the discipline of a balanced budget amendment, but to exclude the one- fourth of our Federal expenditures that represent Social Security, for the reasons that I have outlined, but particularly for the mask and the hammer we are about to leave for future generations if we require, constitutionally, that Social Security be consolidated with the rest of the Federal Government. Let me conclude with a few recommendations. One, if we exclude Social Security from the consolidated budget, I think that we need to look at the question of whether the year 2002 is still an appropriate year for a mandated balanced budget. I believe that we should stretch that period out probably an additional 2 to 4 years, recognizing the fact that we are not going to have the Social Security surpluses as a means of offsetting deficits, and that we do not want to create an undue shock to our economic system and create the possibility of unintentionally putting the United States into a recessionary period. If we do not adopt Senator Reid's amendment, I think we will need to think seriously about going back to the pay-as-you-go approach to Social Security that we had prior to 1983. I do not believe that the current system is sustainable within a consolidated Federal budget and a constitutional mandate that budget be balanced beginning in the year 2002. Mr. President, I appreciate the opportunity to make these remarks. I commend the Senator from Nevada and also the Senator from California and others who have brought this matter so appropriately and so vigorously to our attention. It is an extremely important matter. It is not one that needs to be treated as if it can be dealt with by a cosmetic or other surface resolution. This is a fundamental issue of our future ability to treat Americans who have relied upon the ``contract with America''--that is, Social Security--and to be able to give to our future generations a financial plan for which they will be able to achieve the objectives, including balancing the general revenue budget of the Federal Government, the benefits of having the surplus from the Social Security fund to be used to invigorate our economy rather than to mask our profligate spending, and to give Members an environment in which we can do those things which will be necessary to assure the long-term strength of Social Security. Mr. President, I urge my colleagues to adopt the amendment. Mrs. FEINSTEIN addressed the Chair.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, many people count the death of health care reform as being in 1994, when the Congress failed to adopt the proposals that had been adopted as submitted by the itself, by some groups that were external to the Congress. I personally think that is the wrong date for the death of health care reform in America. I believe the appropriate date for health care reform's demise occurred 20 years earlier, in 1974. Prior to 1974 we in fact had a very vibrant, innovative, creative set of health care reform initiatives. They all had one principal characteristic, they were emerging from the States. We had a decentralized federalized system of health care innovation. The State of the Presiding Officer was one of those States involved in those early efforts of health care reform, as was my State and the State of Oregon, the State of our colleague, Senator Hatfield. Maybe the best known example of those innovations that occurred prior to 1974 was the State of Hawaii. The State of Hawaii set some objectives in terms of increasing the percentage of its population covered, to reduce the cost of health care, and to focus attention on the prevention of illness rather than crisis intervention. Hawaii, as an example, has achieved almost all the objectives that were established two decades ago. But in 1974 the Congress began to restrict the capacity of States to serve as the laboratories for health care innovation through restrictions on the ability of States to secure waivers from Federal laws such as Medicaid, the health care program for indigent Americans, and the restrictions on the States' ability to innovate as it related to persons who secured their insurance through a place of employment, the so-called ERISA restraints. States, for 20 years, have largely been restricted from their role of serving as centers of innovation, of field-based experience on what would actually work in terms of improving the health of Americans. The legislation we are going to introduce today seeks to reverse that 20-year period of sterility. As Supreme Court Justice Louis Brandeis once said, It is one of the happy incidents of the Federal system that a single, courageous State may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country. We propose to restore that opportunity of States to serve as that novel laboratory to try things to see if they work; if they do, to enlarge them; if they do not, to discard them--but not put the entire Nation at risk as we experiment with new approaches to achieve the objective of better health for all Americans. There are some principles behind the bill that Senator Hatfield and I will introduce, and those principles include the concept of incrementalism. Incrementalism is not just a synonym for drift and indecision that you move willy-nilly from one step to the other. Incrementalism infers that you have a clear set of goals, destinations, and then you understand the steps that are required to get from where you are to that destination. While these goals can be defined with greater specificity--and they shall be--the basic goals that we seek to attain with this legislation are: First, to increase the access of Americans to health care services; Second, to contain the level of increase of the cost of health care services; Three, to reduce the incidence of illness and disease by a greater investment in those things that we know will tend to maintain a state of good health. A second principle of our proposal is decentralization. One of the common elements of all of the health care legislation considered in 1994, no matter how much they differed in specifics, is that they all shared one thing in common; that is, they assume that the solution to health care was a centralized solution. There was an assumption that health care can be dealt with by one-suit-fits-all approach. Senator Hatfield and I believe that is fundamentally flawed--that in a Nation that is as large and diverse as the United States of America the attempt to have a central health care system for all of our almost 260 million citizens is an inherent prescription for failure. The differences just between let us say a State such as Wyoming, which has large land area and relatively few people who have a principal problem, is how to provide not the financing but just the actual access to health care professionals in such a diffused population compared for instance to a highly urbanized State such as New Jersey where the issues are fundamentally different. To attempt to have such a health care approach to such extreme circumstances is in our opinion not a logical beginning point for health care reform. Finally, we believe in the concept of partnership, that States and local communities and individual citizens will bring a great deal to the table. They are the ones who are most directly affected by gaps in our current health care system. They are the ones who are most likely to have precise reality-based prescriptions to fill those gaps and current concerns with our system. We believe that the sense of arrogance that has sometimes pervaded Federal-State relations--in which we assumed that we knew what the solution was and it was only for others to accept our infinite wisdom-- those days are over, and we need to have a respectful relationship. Let me, Mr. President, just briefly review the principal titles of our legislation. I will submit the legislation for introduction as well as a section-by-section analysis of the proposal. But the bill contains a title which relates to insurance reform. In this area, we are building on a very successful recent experience which related to problems including out outright fraud that existed in the sale of so-called Medigap insurance policies. These are the policies that extend the normal reach of Medicare. The way in which the Congress chose to go about dealing with the problem of Medigap insurance was to ask the State insurance commission to work together to develop a standard set of principles to govern those types of insurance policies. Each State must then be required to adopt the basic principles that have been developed by these State officials. Each State deserves the right to go beyond what the standard set of principles were. We are proposing a similar policy as it relates to health insurance. We are going to call on the 50 insurance commissioners of America to develop the programs on portability, on preexisting conditions, on the other gaps in health insurance coverage that have caused such anxiety and loss of insurance coverage to American families. The second title is State innovation. It has two basic approaches. One, we are going to seek relief for States from some of the shackles that have been imposed upon them for 20 years so that they will have the ability to innovate. We want to make it easier for States for instance to get waivers from a risk, easier for States to get waivers from Medicaid, easier for States to shape their own approach to what they believe will best meet the needs of their people. We are going to go beyond this in that we are going to provide grants, grants over the next 5 years totaling $50 billion to States which apply and which can demonstrate that they have a plan that will move toward the three objectives of increased coverage, cost control, and provision. We believe this will give a positive encouragement to the States to accelerate a process of innovation that has been asleep for 20 years. Third, in the area of public health we are proposing for a significant increase in the Federal role in public health. The Federal Government used to be the primary level of government in public health. It is a partnership with the States. Our partnership has been faltering. States have been taking up a larger and larger share. With the States' financial constraints, one of the problems is we are going to see frays in our public health system. Tuberculosis, for instance, which is a disease that we thought had been eradicated, has made a resurgence and a significant part of the reason for that resurgence is laid to the fact that we have gaps in our public health service that have allowed that to occur. We also are proposing, in the next title, increases in assistance to medical research. Again the States will have a major role since many of the most significant health care training and research institutions are hospitals and medical centers which are associated with State government. We also are proposing increased funding for the National Institutes of Health. We believe increase our knowledge, and therefore ability to arrest adverse health care conditions. Finally, we come to what may be the bitter pill of that; that is, how we pay for it. We are proposing a $1 per unit increase in the tax on tobacco products as a means of financing these initiatives in State innovation, public health, in medical and health research. We believe this is appropriate in terms of the contribution that reduction in the use of these products will have on the health of America. It also will raise approximately $68 billion over the next 5 years which will be necessary in order to finance the various initiatives that we have outlined. Finally, we have a provision that relates to fraud and abuse. I want to particularly commend Senator Cohen of Maine whose ideas are heavily involved in this particular title. He has done outstanding work in the area of Medicare fraud and abuse, and has helped to bring to the Nation's attention the shocking level of abuse in terms of inappropriate services, services not rendered, overbilled services which are estimated to be costing us $1 out of every $10 in our Medicare expenditures. But fraud and abuse is not limited to Medicare. It also occurs in other governmental programs such as CHAMPUS, which is the program for the Department of Defense. It occurs in Medicaid with the State-Federal partnership program, and it occurs in many private insurance programs. We believe that the frontal assault on fraud and abuse is an important element of this health care reform effort. I close, Mr. President, by quoting a fellow Floridian, columnist and editorial writer of the St. Petersburg Times, Martin Dyckman, who stated that this approach that we are suggesting to health care reform is. * * * of course, is how most of this country's important social reform including public schools, child labor laws, anti-sweatshop legislation, wage-hour laws and workers' compensation, came into flower. They originated not in Congress but with the States. It is the genius of federalism. We seek to unleash that genius to the benefit of all of the American people. As we will learn more about what policies actually contribute to increased coverage, containment of cost and the prevention of illness, we will improve the lives of individual citizens within their States. And with that experience, we will have the opportunity to make better policies across America that will improve the lives of all of our citizens. Mr. President, during the long, arduous and extended debate over health care last session of Congress, Senator Hatfield and I were concerned that Congress had become fixed on thinking about health care reform from a single, centralized, one-size-fits-all, national model. In the bipartisan rush to attempt to solve the Nation's problems and federalize health care, Congress overlooked what may be the best opportunity we have--State-led reform. In fact, that has been the case for over two decades. In the early 1970's, many States were working on initiatives to develop health care infrastructure or were, as in the cases of Hawaii, Maine, and California, undertaking progressive reform proposals to expand coverage. Hawaii passed its Prepaid Health Care Act in 1974 and has been the only State to receive necessary implementation waivers from Congress. As a result, Hawaii has managed to cover 96 percent of its citizens and has costs below the national average. Unfortunately, most other State reform initiatives have been stalled by the overriding national health reform efforts of President Nixon and Congress in 1974, the growing federalization of Medicaid policy throughout the period and the passage of the Employee Retirement Income Security Act or ERISA in 1974. These three efforts to nationalize health care have worked together to stall or limit State health reform efforts over the past two decades. In fact, ironically, due to the very fact that very little experimentation or innovation occurred in the States over the last two decades, virtually all of the national health reform proposals--whether it was managed competition, single payer, employer or individual mandates, pay or play, vouchers, the expansion of Medicare or market reform--had as their centerpiece a variety of untested reform theories in American society. In short, past efforts to limit state flexibility paradoxically helped thwart Congress' reform efforts last year. As a result, on September 22, 1994, Senator Hatfield and I introduced legislation that would attempt to attain the goals of health reform-- expanded coverage and access, cost containment and improved quality-- with State innovation as an underlying theme. After working to improve the legislation over the recess, we are reintroducing the Health Partnership Act today. We introduce this legislation as a working document and encourage any and all comments to help further refine the proposal. First, the legislation recognizes that, in a nation as diverse as ours, one solution or means cannot be formulated for the wide range of health programs and needs in our country. For example, Florida, Pennsylvania, Iowa, Rhode Island, and West Virginia have 50 percent more elderly per capita than do Alaska, Utah, Colorado, and Georgia. Addressing the long term care needs and specific health care problems associated with aging would clearly be a greater point of emphasis in the former States than in the latter. As former Governors and as Senators from States that have enacted substantial health reform plans, Senator Hatfield and I believe the States have demonstrated some tremendous creativity and ability to implement innovative health care initiatives often in the face of stiff resistance from the Federal Government. As Supreme Court Justice Louis Brandies said in 1932, It is one of the happy incidents of the Federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country. To summarize the Health Partnership Act, the bill establishes increased coverage, cost containment, improved quality and decentralization as its overriding goals. Our proposal would achieve this through Federal-State partnerships in five areas: insurance reform, state innovation, public health, medical and health research, and fraud and abuse. Insurance reform The first title deals with insurance reform. Through recommendations from our Nation's State insurance commissioners, our bill would address the longstanding problems of portability, preexisting conditions, solvency standards, community rating, and other needed insurance market reforms. The State insurance commissioners would establish a set of national minimum insurance standards that would be approved by the Secretary of Health and Human Services. This is modeled after the Baucus amendment to the Omnibus Budget Reconciliation Act of 1990 that related to the development of the largely successful Medicare supplemental insurance standards or Medigap. In our bill, States that wish to do beyond the minimum standards established by NAIC could proceed with more progressive reforms. State Innovation Title II is concerned State and local innovation. Both States and localities would be allowed to submit health reform projects that--if they meet the health reform goals of expanding coverage, cost containment and improving quality--would enable them to receive broad flexibility in the Medicaid Program, Public Health Service programs, the maternal child health block grant and the social services block grant. To further improve the Federal-State partnership, our legislation would grant these waivers and greatly expanded flexibility through the vast reduction of process requirements and regulation. Instead, the Federal Government and States would jointly develop performance and accountability measures that specifically relate to the State's project. For example, if a State were to submit a children's health initiative as a health reform project, performance measures might include infant mortality, immunization rates or unnecessary pediatric hospitalization rates. Eligible States would also have available $50 billion in grants to enact their reforms over a 5-year period. The bill also gives states greater flexibility by clarifying the impact of recognize the desire by multi-State corporations to have uniformity in their employee benefit programs, it has gone beyond what is required for that purpose. The result has been the preemption of an increasing number of State laws. For example, it does not make sense to preclude States from having access to data, from establishing quality standards for HMO's and from raising revenue through providers to fund uncompensated care pools. In effect, States are prevented by ERISA from enacting some reforms that would reduce the numbers of uninsured, contain costs and ensuring, or enhancing quality. Our intention in the bill is to find a balance between the legitimate and proper interests on business and labor in ERISA and that of States. Consequently, the bill provides for the establishment of an ERISA Review Commission to study the issues affected by ERISA and to make recommendations on points of compromise between States, business, and labor. public health Title III promotes prevention, public health, cost effective treatment, and improved overall health through four distinct approaches: First, strengthening the partnership with and capacity of local and state public health departments to carry out core public health functions; second, expanding access to preventive and primary care services for vulnerable and medically underserved communities; third, supporting applied research on prevention and effective public health interventions, and fourth, addressing public health work force needs and access problems. At a time when tuberculosis, AIDS and other public health problems such as E. coli increasingly threaten the public's health, as investment in our Nation's public health infrastructure as necessary and overdue. Dr. C. Everett Koop and other members of the Health Project Consortium published an article in the New England Journal of Medicine in 1983 noting that 70 percent of all illness is preventable and that there are about 1 million deaths annually that are preventable. That amounts to in excess of $600 billion annually in costs. However, our Nation now invests less than 1 percent of our total health care costs on health care. The waste of both lives and money must be addressed. As a result, our legislation would increase the investment in public health by $9 billion over 5 years. medical and health research Title IV emphasizes medical and health research. Our initiative recognizes the importance of medical and health research and would provide $6 billion over a 5-year period in increased funding for that function. This builds on the excellent track record of medical research in our Nation's State-supported research and medical centers. In addition, if finding the cure for diseases such as AIDS, Alzheimer's, and cancer is to be achieved, such an investment is critical. fraud and abuse Title V is a section tackles the issue of fraud and abuse. Senator Bill Cohen, who has studied this issue at length and contributed to this section, recently said, As much as $100 billion is lost each year to fraud and abuse, driving up the cost of health care in America for million of patients and families--as well as for the American taxpayer. Losses over the last 5 years are almost four times the total costs to date of the entire savings and loan crisis. One of the provisions establishes closer coordination of fraud investigation among the Federal, State, and private sector. This would positively impact State and local governments as providers, payers, and employers. cost The bill's costs over a 5-year period would be $65 billion which Senator Hatfield and I propose to be financed with a $1 tax on tobacco products. This funding source, while providing funds for our proposal, would also discourage smoking and improve the overall health of Americans. why state-led reform? Why federalism or state-led reform? First and most obvious, the Federal Government failed and will continue to fail to truly address the agreed upon goals of this nation in health care. Second, the combination of Federal failure, hinderance of State flexibility through Medicaid regulations and ERISA, and anticipate budget cuts to Medicare and Medicaid this year would result in what I would call triple-negative health reform. We should break that downward spiral at the second point and grant State and local governments increased flexibility to improve our Nation's health care. The contrast would be further Federal inaction and abritrary budget cuts, neither prescriptions for improved health. Third, the diversity in our Nation dictates federalism. As St. Petersburg columnist Martin Dyckman said in a column endorsing our approach, This, of course, is now most of this country's important social reform including public schools, child labor laws, anti-sweatshop legislation, wage-hour laws and workers' compensation, came into flower. They originated not in Congress but with the States. It is the genius of federalism. Fourth, States have historically led in reform--Hawaii, Minnesota, Florida, New York, Maryland, Oregon, and Washington and others come to mind. States have led in reform because they can respond quicker to the rapid changing dynamics of health care. They are also more efficient. One look at the Medicare fraud problem in south Florida would shy anybody away from having Washington, DC, too involved in reform. Fifth, doing nothing is unacceptable. State and local governments continue to bear the brunt and serve as much of our Nation's safety net. As last year's Advisory Committee on Intergovernmental Relations report entitled ``Local Government Responsibilities in Health care'' noted, ``Local governments spend an estimated $85 billion per year on health care services--about one of every eight dollars spent by local governments.'' Failing to recognize this important contribution and failure to address it will only increase this heavy burden. Uninsured rates will only continue to increase, costs will continue to explode while problems such as infant mortality, where the United States ranks 21st in the world, are not going away. Finally, waiting for uniformity is a pipedream. As many of you know only too well. Medicaid regulation and ERISA have effectively preempted the ability of State and local government from enacting anything other than incremental reform for 20 years due to what everyone thought was impending national health care reform. Since that time, States have largely been held back from enacting reforms while Presidents Nixon, Ford, Carter, Reagan, Bush, and Clinton have all failed to enact comprehensive national health reform. Therefore, the purpose of our bill is to free the States to be innovative to addressing their specific health care needs and problem while providing States the resources to encourage and accelerate the process. Mr. President, I believe the time for State-led reform is now. Mr. President, I ask unanimous consent that the text of the bill and additional material be printed in the Record.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, it will be my intention to yield a portion of my time to my colleague and cosponsor of the legislation we will be introducing today, Senator Hatfield. (The remarks of Mr. Graham and Mr. Hatfield pertaining to the introduction of S. 308 are located in today's Record under ``Statements on Introduced Bills and Joint Resolutions.'') The PRESIDING OFFICER (Mr. Inhofe. Under the previous order, the Senator from Iowa is recognized to speak for up to 20 minutes.

Mr. GRAHAM

Mr. GRAHAM. Mr. President, I send a modification to the desk on my amendment No. 183.

Mr. GRAHAM. I think the Senator's staff has seen the modification.