FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. It's good to see so many old friends and distinguished thinkers in this area. If it will be lively and full debate that we will have going forward on the question of ensuring retirement security for all Americans -- it is in no small part because of the work of the people in this room.

We meet at an auspicious time. For more than a generation American politics has been weighed down by an inability to live within our means. The age of deficits have been a nagging obstacle to good policies. It has been an excuse for letting long-term challenges go unaddressed. But now, that weight has been lifted. Five years of sound finance and a remarkably strong economy have shrunk the deficit -- to the point, this year, of statistical insignificance. We may be on the brink of a new era of surplus.

Many things will change in this new era. Many things we considered impossible we may now see achieved. Many tasks we knew we ought to accomplish will become tasks that we can -- and must -- accomplish. And the President in the State of the Union Address has highlighted our top priority: Social Security comes first.

In an era of surplus we have the means and the opportunity to put all these years of discussions about Social Security reform to good use. We can prepare Social Security for the challenges ahead and protect the security of future generations of Americans. And we can do this fairly, in a way that serves both our economy and our values.

Let me spend my time today painting the main features of this new era we are entering; the remarkable state of the economy, the major challenge we face as our society ages, and the historic opportunity -- and responsibility -- this creates to protect Social Security. What the end result should be will be a matter of considerable controversy and debate. But it will be worthwhile noting the critical issues that will need to be discussed -- and some of the considerations that will frame that vigorous debate.

I. A Remarkable Moment For Our Economy

This is a special time for the American economy:

• unemployment, at 4.7%, and inflation, at 1.7 percent last year are among the lowest in a generation. And our economy is growing at its fastest rate in a decade.
• our rate of national savings, which had long fallen so far behind other major industrialized nations, has doubled in five years -- from 3.4 percent in 1992 to 7.2 percent today.
• we are investing ever larger amounts in American companies and their workers. Business equipment investment is growing at an annual rate of 12 percent -- and at 9 percent of GDP, accounts for a record share of our economy.
• real wages and household incomes have at last started to catch up the ground that had been lost since the 1970s.
• and, lest we forget, the budget deficit is no more. President Clinton will submit to Congress for 1999 the first balanced budget in 30 years.

As the President noted on Tuesday night, at the start of the first Clinton Administration the deficit for 1998 was projected to be $357 billion. Today, it is expected to be around $10 billion. As a result of the deficit reductions we have seen in this decade, more than one trillion dollars in capital that would otherwise have been invested in the sterile asset of government paper has instead been invested in America's future: in our productive businesses, in our workers, in our cities and in our homes.

II. An Historic Challenge for American Society

These good economic times could not have come at a better time for our nation. For if we look past some of those surpluses we can also see a new challenge fast approaching, in our country and around the world -- the challenge of an aging society.

When the first Social Security Act was passed in 1935, American life expectancy was 62 years. Today, I am told that in the cohort I and many of you are a part, a married couple of 65 year-olds has a one half chance of seeing a survivor pass the age of 90. As the President has said, a good many children born this year will live to see the 22nd century.

These improvements in life expectancy, and a decline in birth rates, have put us on a path of rapid declines in the number of employed workers for every retired American. In 1960 the ratio was 4.5 to 1. Today it is 3.3 to 1. In little more than 30 years time it will be just 2 to 1, and falling.

Rising dependency is an economic challenge for the nation for which we have to save. Longer retirement is an economic challenge for individuals for which they have to prepare. A time of prosperity, a time when a major challenge is ahead -- is a time to save and a time to prepare.

That is what why the President has proposed that we put Social Security first in deciding how our surpluses will be used. We must do it because it is the right way to ensure that the surpluses are not washed away as soon as they as they appear, but used to prepare for the challenges of tomorrow. And we must do it because it is the right way to strengthen and prepare Social Security to meet its future obligations -- to ensure that it is there for us, and it is there for our children.

III. Put Social Security First

It is too early for predictions or conditions. But the debate we have ahead of us will not be taking place in a vacuum. These past years there has been an enormous amount of careful study of this issue, by thoughtful people on both sides of the Congressional aisle and every part of the academy and broader policy community.

We have all read the report of the Social Security Advisory Council. It is fair to say that it outlined some of the critical issues that will need to be considered in protecting and strengthening Social Security -- issues that go beyond the use of the surplus. We will need, for example, to decide how we should deploy Social Security's resources -- to best ensure they will be available to protect future Americans. We will need to decide how it should reflect the changing realities of a changing workforce.

The complexity of the issues involved in this debate is highlighted by the subtleties of the Advisory Council's Report -- and their difficulty, perhaps, by the number of options outlined in its final pages. To be sure, the work of the Council and other serious studies have presented us with a wide spectrum of view.

But one part of the approach is plain. In an era of surpluses we have the means and the opportunity to protect Social Security for future generations of Americans. I'm not going to preview the numbers in the President's forthcoming budget here, but I think we can expect surpluses in the next ten years of $1 trillion or more.

As a rough approximation -- and, clearly, these are controversial issues, and I am not making any endorsements here -- but by way of illustration:

• every $100 billion of those surpluses that is transferred in Treasury bonds to the Trust Fund could delay the exhaustion of the Fund by around a year -- and reduce the actuarial deficit by around 5 percent.
• alternatively, some will suggest we invest the money in equities, which would provide an even higher return, but would be enormously controversial and clearly bring greater risks and uncertainties.

There is a whole range of options for strengthening the system that reserving the surpluses would allow us to consider -- changes that could enhance the pool of Social Security funds and increase the future rate of return for American workers.

Let me repeat, all of these examples are illustrations -- not prescriptions. We owe it to tomorrow's Americans to ensure Social Security will be there when they need it. But we owe it to today's Americans to have a national debate about the best way to achieve this. Everyone must have a chance to express their views and hear the views of others.

The first stage of that national dialogue began yesterday in Illinois, when the President challenged every American to attend one of many regional fora that are being planned to debate this issue -- or to organize and host one if there isn't one planned for a given area. The President and Vice-President will be attending several bipartisan conferences on Social Security organized jointly by the Concord Coalition and the Association of American Retired Persons, and will also be hosting a conference on private retirement savings in July.

Stage Two will come this December. The President will host a bipartisan White House Conference on Social Security bringing together the lessons and conclusions of many months' nationwide discussion.

Finally, in Stage Three, in January 1999 the President and his team will begin bipartisan negotiations with Congressional leaders over the reform of Social Security. We do not demand -- or imagine -- broad agreement today on precisely what form this legislation should take. The only point on which we must now all be agreed is that we tackle the issue first -- before discussing any other use of the surpluses-to-be.

IV. The Core Reform Challenges

We will be considering a great many reform options in the months ahead. And there'll be many questions that will be asked about these different options -- whether they ensure the solvency of Social Security in the 21st century and provides a benefit people can count on; whether they preserve Social Security as a basic public trust, and help lift millions of the elderly, the disabled and their survivors out of poverty; whether they preserve our hard-won fiscal discipline.

This dialogue will be addressed to the problems facing Social Security in the future -- but a large part of it will be about best to preserve the enormous accomplishments it has today.

This dialogue will be about finding the best way to ensure that people's benefits are there for them, and there for their children. In 1962, 69 percent of the elderly received Social Security. By 1994, the share was more than 90 percent. Today virtually every working man and woman in America is covered by Social Security. We need to be sure they will be able to count on Social Security as their parents and grandparents did.

This dialogue will be about finding the best way to ensure a public, cost-effective insurance for all. The Social Security system we have today provides a fair annuity that is indexed to inflation -- an asset that is difficult to obtain in the private market. And it is a living rebuke to those that say government is inefficient. More than 99 cents are paid in benefits by Social Security for every dollar that is paid in by workers and their employers. One recent study estimates that during the pay-out phase of privately-provided annuities the loss to overhead alone averages more than 8 cents on the dollar. In another, the American Council on Life Insurance found that on a per-dollar basis, private life insurers' expenses came to 11 percent of annual income, or 16 percent of contributions, of which nearly half went in selling costs, or agents' commissions. We will need to ensure that the value-for-money we receive from Social Security is preserved.

This dialogue will be about finding the best way to ensure that Social Security helps those who need it most. Today Social Security brings more than 40 percent of our elderly population out of poverty. And it is not just there for the elderly, it there for every working American, in the form of survivors and disability insurance protection. Fully one-third of all Social Security benefits paid each year go to nonretirees. And higher real rate of returns are earned by low-wage workers who will most depend on them.

This dialogue will be about finding the best way to ensure that Social Security continues to support this nations's fiscal health. By building up reserves for the years ahead, the Social Security Trust Fund has for some time now been making an enormous contribution to our future by increasing the pool of national saving. In choosing the way forward we will need to be consistent with that strong record.

In short, this dialogue will not be about whether to protect these and other important achievements of Social Security. It will be about finding how best to protect them.

A Social Security system is not worthy of the name if it reneges on its promises to future generations or can keep them only at the cost of spiraling deficits. But nor is it Social Security if it leaves every individuals' security in retirement entirely to the vagaries of the markets. We owe all our sons, our daughters and our grandchildren a good return. But we also owe them the guaranteed floor of protection that the program has been providing for all American workers and their families since 1940.

When we pose the issue this way it becomes all the more clear why the President's words on this subject on Tuesday night were so important. By ensuring that the surplus is reserved until Social Security is safe, we can help ensure that the Social Security system of the 21st century continues to protect generations of Americans -- and promote both our economy and our values. And we can help ensure that it continues to promote our hard-earned fiscal discipline.

Once we have addressed Social Security reform, we can explore other possible ideas for using the fruits of this new surplus era. What matters is that the surpluses should not be wasted -- but used to prepare the country for the next century. At the risk of repeating myself, what matters is that we put Social Security first. Thank you.