[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]





 SOCIAL SECURITY IMPROVEMENTS FOR WOMEN, SENIORS, AND WORKING AMERICANS

=======================================================================

                                HEARINGS

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                     FEBRUARY 28 AND MARCH 6, 2002

                           Serial No. 107-72

                               __________

         Printed for the use of the Committee on Ways and Means

80-831              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002
____________________________________________________________________________
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Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    Subcommittee on Social Security

                  E. CLAY SHAW, Jr., Florida, Chairman

SAM JOHNSON, Texas                   ROBERT T. MATSUI, California
MAC COLLINS, Georgia                 LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               BENJAMIN L. CARDIN, Maryland
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  XAVIER BECERRA, California
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.
                            C O N T E N T S

                              ----------                              
                                                                   Page
Advisories announcing the hearing................................     2

                               WITNESSES

Social Security Administration, Hon. Jo Anne B. Barnhart, 
  Commissioner...................................................     9

                                 ______

Armey, Hon. Richard K. a Representative in Congress from the 
  State of Texas, and Majority Leader, U.S. House of 
  Representatives................................................    80
Atwater, Frank G., National Association of Retired Federal 
  Employees......................................................    34
DeFazio, Hon. Peter A., a Representative in Congress from the 
  State of Oregon................................................   123
DeMint, Hon. Jim, a Representative in Congress from the State of 
  South Carolina.................................................   148
Dunn, Hon. Jennifer, a Representative in Congress from the State 
  of Washington..................................................    90
Entmacher, Joan, National Women's Law Center.....................    54
Etheridge, Hon. Bob, a Representative in Congress from the State 
  of North Carolina..............................................   143
Foley, Hon. Mark, a Representative in Congress from the State of 
  Florida........................................................    98
Independent Women's Forum, Nancy Mitchell Pfotenhauer............    48
Institute for America's Future, Hans Riemer......................    43
Janis, Anna, United Seniors Association..........................    31
John, David C., Heritage Foundation..............................    63
Jones, Hon. Walter B., a Representative in Congress from the 
  State of North Carolina........................................   146
Kolbe, Hon. Jim, a Representative in Congress from the State of 
  Arizona........................................................   115
Langevin, Hon. James R., a Representative in Congress from the 
  State of Rhode Island..........................................   160
McDermott, Hon. Jim, a Representative in Congress from the State 
  of Washington..................................................    95
Nadler, Hon. Jerrold, a Representative in Congress from the State 
  of New York....................................................   133
National Association of Retired Federal Employees, Frank G. 
  Atwater........................................................    34
National Women's Law Center, Joan Entmacher......................    54
Niesha M. Wolfe CPA Firm, Niesha M. Wolfe........................    38
Pfotenhauer, Nancy Mitchell, Independent Women's Forum...........    48
Pomeroy, Hon. Earl, a Representative in Congress from the State 
  of North Dakota................................................    93
Riemer, Hans, Institute for America's Future.....................    43
Rodriguez, Hon. Ciro D., a Representative in Congress from the 
  State of Texas.................................................   139
Schakowsky, Hon. Janice D., a Representative in Congress from the 
  State of Illinois..............................................   154
Smith, Hon. Nick, a Representative in Congress from the State of 
  Michigan.......................................................   137
Stenholm, Hon. Charles W., a Representative in Congress from the 
  State of Texas.................................................   117
United Seniors Association, Anna Janis...........................    31
Wolfe, Niesha M., Women Impacting Public Policy, and Niesha M. 
  Wolfe CPA Firm.................................................    38
Women Impacting Public Policy, Niesha M. Wolfe...................    38

                       SUBMISSIONS FOR THE RECORD

Baldacci, Hon. John E., a Representative in Congress from the 
  State of Maine, statement......................................   163
Bentsen, Hon. Kenneth E., Jr., a Representative in Congress from 
  the State of Texas, statement..................................   164
Chen, Yung-Ping, University of Massachusetts Boston, statement 
  and attachment.................................................   165
Clayton, Hon. Eva M., a Representative in Congress from the State 
  of North Carolina, statement...................................   162
Council for Government Reform, Arlington, VA, Charles G. Hardin, 
  statement......................................................   170
Forbes, Hon. J. Randy, a Representative in Congress from the 
  State of Virginia, statement...................................   155
Hall, Hon. Ralph M., a Representative in Congress from the State 
  of Texas, statement............................................   171
National Association of Orthopaedic Nurses, statement............   171
National Council of Women's Organizations Task Force on Women and 
  Social Security, and Institute for Women's Policy Research, 
  Heidi Hartmann, joint statement and attachments................   173
Stark, Hon. Fortney Pete, a Representative in Congress from the 
  State of California, statement.................................    89
Thompson, Hon. Mike, a Representative in Congress from the State 
  of California, statement.......................................   179

 
 SOCIAL SECURITY IMPROVEMENTS FOR WOMEN, SENIORS, AND WORKING AMERICANS

                              ----------                              


                      THURSDAY, FEBRUARY 28, 2002

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:10 a.m., in 
room B-318 Rayburn House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearings 
follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                                CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
February 21, 2002
No. SS-12

               Shaw Announces Hearing on Social Security

                  Improvements for Women, Seniors, and

                           Working Americans

    Congressman E. Clay Shaw, Jr. (R-FL), Chairman, Subcommittee on 
Social Security of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on Social Security 
improvements for women, seniors, and working Americans. The hearing 
will take place on Thursday, February 28, 2002, in room B-318 Rayburn 
House Office Building, beginning at 11:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Subcommittee and 
for inclusion in the printed record of the hearing.

BACKGROUND:

    Social Security faces serious financial challenges soon after the 
baby-boomers begin retiring later this decade. Making Social Security 
truly secure for the 21st century and beyond is a national priority for 
the public, Congress, and the President. However, efforts to strengthen 
Social Security cannot be done hastily or without bipartisan 
cooperation. While comprehensive reform may take time to emerge, many 
program improvements have been offered that could be made in the near-
term. These include: enhancing Social Security benefits for women, 
assuring seniors that promised benefits will be paid, and improving 
information provided to the public on Social Security's future.
      
    Enhancements to women's Social Security benefits would help ensure 
that Social Security continues to successfully reduce poverty for women 
and would better meet the evolving needs of women today. Without Social 
Security, over half of elderly women would live in poverty. Although 
vital to women's economic security, some aspects of the Social Security 
program have not kept pace with changes in women's participation in the 
workforce and trends in marriage and child-care. Many proposals have 
been made to improve Social Security benefits for women, ranging from 
minor adjustments to spouse and survivor benefits to improving widows' 
benefits to credits for years spent caring for young children. The 
impacts and costs of these proposals must be carefully assessed to 
ensure those most in need are helped first and to ensure that any 
effect on Social Security's long-term financing is minimized.
      
    Not just women, but all seniors depend on Social Security for 
income they can count on. Yet, increasingly seniors are concerned that 
proposals to strengthen the program may result in changes to their 
promised benefits. While both the President and the U.S. House of 
Representatives have expressed their commitment to fully preserve 
promised benefits for current retirees and those nearing retirement, 
legislation has been introduced to provide beneficiaries with a 
certificate to guarantee benefits.
      
    In some instances, seniors' concerns about changes in their 
benefits are fueled by conflicting information in the media and other 
sources about Social Security's financing shortfall. In order to make 
informed decisions about Social Security's future and their own 
retirement planning, Americans need to have a basic understanding of 
the Social Security program, its benefits, and its financing. The 
Social Security Statement, mailed annually to all workers age 25 and 
older provides basic information about individual benefits and limited 
information on Social Security finances. The Annual Report of the Board 
of Trustees provides detailed information on the financial status of 
the Social Security trust funds. To improve public understanding, 
proposals have been introduced to expand the amount of information 
included in the Social Security Statement and Annual Report.
      
    In announcing the hearing, Chairman Shaw stated: ``As we continue 
to work to find common ground on ways to secure Social Security's 
future, opportunities exist for us to forge a bipartisan beginning. 
Women make invaluable contributions to the growth of our economy and 
the stability of American families, yet despite a lifetime of hard work 
and sacrifice, many end up living in poverty during retirement. Seniors 
fear proposals aimed at saving Social Security will reduce the very 
benefit they count on to live. Information about Social Security's 
benefits and its future is out there, but some question whether such 
information is sufficient or widely understood. We should begin now to 
improve women's benefits, reassure seniors that their promised benefits 
are secured, and better educate Americans about Social Security.''

FOCUS OF THE HEARING:

    The Subcommittee will examine proposals to improve benefits for 
women, to guarantee promised benefits to seniors, and to improve public 
information about Social Security, its benefits, and its financial 
future.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610 by the close of business, Thursday, March 14, 2002. 
Those filing written statements who wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the Subcommittee on Social Security in room 
B-316 Rayburn House Office Building, in an open and searchable package 
48 hours before the hearing. The U.S. Capitol Police will refuse 
unopened and unsearchable deliveries to all House Office Buildings.

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov/.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call (202) 225-1721 or (202) 226-3411 TTD/TTY in advance of the event 
(four business days notice is requested). Questions with regard to 
special accommodation needs in general (including availability of 
Committee materials in alternative formats) may be directed to the 
Committee as noted above.

                               

            * * * NOTICE--SECOND HEARING DAY SCHEDULED * * *

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                                CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
February 27, 2002
No. SS-12-Rev

                  Shaw Announces Second Day for Member
              Testimony to Subcommittee Hearing on Social
               Security Improvements for Women, Seniors,
             and Working Americans Wednesday March 6, 2002

    Congressman E. Clay Shaw, Jr. (R-FL), Chairman of the Subcommittee 
on Social Security of the Committee on Ways and Means, today announced 
that due to Member interest, the Subcommittee hearing on Social 
Security improvements for women, seniors, and working Americans, 
scheduled for Thursday, February 28, 2002, at 11:00 a.m., in room B-318 
Rayburn House Office Building, will be extended to a second day 
reserved exclusively for Member testimony. Day two of the hearing will 
be held on Wednesday, March 6, 2002, at 10:00 a.m., in room B-318 
Rayburn House Office Building.

                               

    Chairman SHAW. Good morning. We seem to have a great deal 
of interest in today's hearing. I think it will be a most 
interesting hearing. I would like to welcome each and every one 
of you.
    Strengthening Social Security is a goal to many of us in 
this room. It is a most important program, and it provides 
income security to nearly 46 million American people that would 
not have it but for Social Security. It is particularly 
important to women, who live longer, earn less, take time away 
from the work force to care for kids, and have less pension and 
asset income than men do. Social Security's lifetime inflation 
adjusted benefits, spousal and survivor benefits, and 
progressive benefit formula provide critical protection for 
women, and without Social Security, more than half of elderly 
women--more than half--would actually live in poverty in their 
senior years.
    Ms. Janis, who will testify today, will share her 
perspective about the importance of Social Security and how it 
has affected her life.
    Although Social Security has successfully provided an 
effective safety net for two-thirds of a century, Social 
Security is facing serious financial challenges. Beginning in 
2016, payroll taxes will not be enough to cover promised 
benefit payments and Social Security will have to tap the trust 
fund in order to continue full benefit payments. In 2038, the 
trust fund will be exhausted and the payroll taxes taken out of 
the hard-earned wages of our working kids and grandkids will 
only be enough to cover 73 percent of the benefits and even 
less than that in the future years.
    If we fail to enact a plan to save Social Security, the 
consequences will be devastating for millions of Americans, 
especially devastating for women. For these reasons, restoring 
Social Security's solvency for the 21st century and beyond is a 
national priority for the public, for the Congress, and for 
this President. We need to set aside politics and demagoguery 
and get down to the business of saving Social Security.
    Our focus today, however, is to find common ground in 
advance of major reform to begin improving the program by 
enhancing Social Security benefits for women, assuring seniors 
that promised benefits will be paid, and better educating the 
American people. I would like to repeat the first part of that 
sentence. Our focus today is to find common ground in advance 
of major reform.
    There are numerous proposals for improving women's 
benefits, and while such proposals will cost tens of billions 
of dollars and increase the threat of insolvency, there are 
some inequities in the program that could be addressed now 
without jeopardizing the financial position of the trust fund. 
I believe that women should not have to wait for comprehensive 
reform for us to make some helpful changes. Today, we will hear 
from several experts who will offer opinions for us to explore.
    As we look to ways to improve Social Security for women, we 
must also assure seniors that strengthening Social Security 
does not mean weakening their economic security, and we must 
educate the public about Social Security's financial future. 
Conflicting facts reported in the print media and on television 
have made our job most difficult. It has fueled seniors' 
concerns that cuts to their benefits are imminent, despite 
commitments by the House of Representatives and by this 
President that their benefits will not be touched.
    Today, we will hear ideas on how to express the commitment 
to preserve seniors' full benefits and how to improve 
information provided to the public in the Social Security 
Statements and the Trustees' Reports. I hope areas of 
agreement, such as improving women's benefits, will form the 
foundation for the kind of bipartisan partnership we will need 
to save Social Security. The Subcommittee has a history of 
working on a bipartisan basis to change people's lives by 
removing barriers so individuals with disabilities can return 
to work, removing the earnings penalties for seniors, and 
combating waste, fraud, and abuse. I hope we continue in that 
spirit to build on our past successes and reasonably address 
ways to strengthen Social Security for the next generation.
    I now yield to the gentleman from California, Mr. Matsui.
    [The opening statement of Chairman Shaw follows:]

   Opening Statement of Hon. E. Clay Shaw, Jr., a Representative in 
   Congress from the State of Florida, and Chairman, Subcommittee on 
                            Social Security

    Welcome. Strengthening Social Security is a goal of everyone in 
this room. It is an important program that provides income security to 
nearly 46 million Americans.
    And, it is particularly important to women who live longer, earn 
less, take time away from the workforce to care for kids, and have less 
pension and asset income than men. Social Security's lifetime-inflation 
adjusted benefits, spouse and survivor benefits, and progressive 
benefit formula provide critical protections for women. And without 
Social Security, more than half of elderly women would live in poverty. 
Mrs. Janis, who will testify today, will share her perspective about 
the importance of Social Security in her life.
    Although Social Security has successfully provided an effective 
safety net for two-thirds of a century, Social Security is facing 
serious financial challenges. Beginning in 2016, payroll taxes won't be 
enough to cover promised benefit payments, and Social Security will 
have to tap the Trust Fund to continue full benefit payments.
    By 2038, the Trust Fund will be exhausted, and the payroll taxes 
taken out of the wages of our hard-working kids and grandkids will only 
be enough to cover 73% of benefits, and even less than that in future 
years. If we fail to enact a plan to save Social Security, the 
consequences would be devastating for millions of Americans, especially 
women.
    For these reasons, restoring Social Security's solvency for the 
21st century and beyond is a national priority for the public, 
Congress, and the President. We need to set aside politics and 
demagoguery and get down to the business of saving Social Security.
    Our focus today however, is to find common ground, in advance of 
major reform, to begin improving the program by enhancing Social 
Security benefits for women, assuring seniors that promised benefits 
will be paid, and better educating the public.
    There are numerous proposals for improving women's benefits, and 
while some proposals would cost tens of billions of dollars and 
increase the threat of insolvency, there are some inequities in the 
program that could be addressed now without jeopardizing the financial 
position of the Trust Funds. I believe women should not have to wait 
for comprehensive reform for us to make helpful changes. Today we will 
hear from several experts who will offer options for us to explore.
    As we look at ways to improve Social Security for women, we must 
also assure seniors that strengthening Social Security does not mean 
weakening their economic security, and we must educate the public about 
Social Security's financial future.
    Conflicting facts reported in print media and television has made 
our job difficult. It has fueled seniors' concerns that cuts to their 
benefits are imminent, despite commitments by the House of 
Representatives and the President that their benefits will not be 
touched.
    Today, we will hear ideas on how to express the commitment to 
preserve seniors' full benefits and how to improve information provided 
to the public in the Social Security Statement and the Trustees Report.
    I hope areas of agreement, such as improving women's benefits, will 
form the foundation for the kind of bipartisan partnership we'll need 
to save Social Security.
    This Subcommittee has a history of working on a bipartisan basis to 
change people's lives--by removing barriers so that individuals with 
disability could return to work, removing the earnings penalty for 
seniors, and combating waste, fraud and abuse. I hope we can continue 
in that spirit, build on our past successes, and responsibly address 
ways to strengthen Social Security for the next generation.

                               

    Mr. MATSUI. I thank the gentleman from Florida, the 
Chairman of the Subcommittee. I appreciate the fact that he is 
holding this hearing.
    I might, first of all, just point out that--and I 
appreciate the gentleman's remarks. I think working in a 
bipartisan fashion is critical and obviously it is very 
important because this is a very serious issue, one that 
undoubtedly all of us as Americans must really attempt to deal 
with in a very comprehensive way.
    My concern at the outset of this hearing is the fact that 
it seems to have changed its character. I knew we were going to 
talk about older women, and I think we should. It is a very 
major issue. On the other hand, up until about 7:00 p.m. last 
night, we did have 3 witnesses on the Chairman's side of the 
aisle, 2 of which were going to discuss the so-called 
certificates of guarantee, and we had 10 Democratic witnesses 
that were planning on testifying, and I know we are out of 
session now and as a result of that, there was some desire 
perhaps to expedite the hearing, and so the Chair suggested 
that the 13 witnesses, 10 Democratic witnesses and 3 Republican 
witnesses, not actually appear, and certainly that is 
understandable, particularly if they can come at some future 
time.
    But there is no question that the issue of the certificate 
of guarantees was on the table. In fact, I had written to 
Secretary O'Neill just 3 days ago suggesting that he have a 
position at the hearing, and perhaps Ms. Barnhart will be able 
to discuss that during her testimony. But the fact of the 
matter is that we understand that the certificate will probably 
be coming up sometime soon. I know that the Majority Leader, 
Mr. Armey, had talked about it. There has been some discussion 
that perhaps it could come up on the suspension calendar 
sometime in the next week or so.
    As a result of that, I think we do need to talk about this, 
because just as we had the lockbox, now we have a certificate 
of guarantee. We do need to really flesh out some of these 
issues. I think this is a very serious issue, and we do not 
want to handle it in a way that perhaps is treating it rather 
cavalierly and so I think we need to talk about it.
    I did get a Congressional Research Service (CRS) report and 
analyze Mr. DeMint's bill. They said it would confer no 
additional property rights nor contractual rights on anyone who 
receives these certificates, and so I guess the certificates 
will be about as valuable as the piece of paper they might be 
sent on. The intent of the DeMint legislation is to send it out 
to every recipient who is receiving Social Security at this 
time, guaranteeing their benefits for some indefinite future, 
and then any new recipient who goes on the rolls would also 
receive such a certificate. Mr. Armey really wants to do this 
badly because he thinks it is very important.
    I would treat this a little, Mr. Chairman, like the 
lockbox. We passed the lockbox, signed by the President on 
three separate occasions, locking up the surplus of Social 
Security. Now we invaded that lockbox. I might just show the 
consequences of that lockbox and what has happened over the 
last 14 months or so.
    When Mr. Clinton was President, we actually put that 
surplus to use by reducing the debt, and now we are invading 
the Social Security surplus in a rather substantial way, as the 
right-hand orange column will show. We are deeply into the 
Social Security surplus and the consequences of that is the 
next chart, if the gentleman will show the next chart.
    Essentially, families that are making $30,000 a year, their 
payroll taxes are going into the so-called Social Security 
Trust Fund. The first stimulus package that the Republicans 
passed last year would have provided Enron Corp. with $254-
million immediate tax relief by retroactively applying 16 years 
the alternative minimum tax, and that would have meant, had Mr. 
Daschle not stopped it--he is being criticized for stopping all 
these wonderful pieces of legislation, but had Mr. Daschle not 
stopped that legislation on the Senate side, then it would have 
taken, believe it or not, 130,000 families making $30,000 a 
year, their payroll tax money, their hard-earned payroll tax 
money that they thought was going into Social Security would 
have been just enough to pay for the $254-million tax cut for 
Enron Corp.. That is one of the consequences of breaking the 
so-called lockbox and invading the Social Security surplus.
    It is my hope, Mr. Chairman, because we really should not 
be spending our time with certificates and lockboxes and things 
of that nature, we should put the President's three proposals 
that were part of the Social Security Commission and put that 
in legislative language, Mr. Chairman, and then let us vote on 
those proposals that the President has presented. Let us vote 
on Mr. Armey's proposal that he is now touting as a very 
significant piece of legislation. I think it is important that 
we do real substantive work rather than tinker around with 
certificates that have no property rights or legal rights or 
contractual rights.
    I welcome these hearings. On the other hand, it is my hope 
that we really get into real issues rather than paper and 
lockboxes that no one on your side of the aisle had intended to 
keep.
    Let me conclude that if you do bring up the certificate of 
guarantee for every Social Security recipient, Mr. Chairman, I 
hope it is not put on the suspension calendar. I hope that you 
allow a full debate and offer amendments on the Floor so that 
we can really have an opportunity to talk about this. The mere 
fact that 10 of my colleagues on the Democratic side wanted to 
actually testify today on this issue indicates the interest 
that we in Congress have.
    I really welcome Mr. Armey's desire to debate this whole 
issue in the 2002 election--and it is his idea, not mine--
because I think the American public has to be involved. The 
President has said that as soon as these mid-term elections are 
over, he is going to move on privatizing Social Security, and I 
think we have an absolute right and obligation as Members of 
the Congress representing 260 million Americans to debate this 
issue so that when the decisions are being made in 2003, at 
least the American public will know exactly what we are doing 
and why we are doing it.
    Chairman SHAW. I would like to re-read two paragraphs of my 
opening statement. Our focus today, however, is to find common 
ground in advance of major reform to begin improving the 
program by enhancing Social Security benefits for women, 
assuring seniors that promised benefits will be paid, and 
better educating the public. This Subcommittee has a history of 
working on a bipartisan basis to change people's lives by 
removing barriers so that individuals with disabilities could 
return to work, removing the earnings penalties for seniors, 
and combating waste, fraud, and abuse.
    Now, the reason, and I would like to say this for the 
benefit of everybody here, there were 10 witnesses on the other 
side, and I am really looking forward to the Democratic 
witnesses because I am sure that there must be one of them out 
there that has a plan to save Social Security, and I am looking 
forward to them bringing that plan to this Subcommittee where 
we can have open and thorough discussion of it. Because of that 
and because so many Members will be leaving today because the 
House is through voting for the entire week, I have set 
Wednesday aside so that we can come in and hear from the 
Members.
    Also, just one comment with regard to the lockbox. It was 
never signed into law by the President because it was 
filibustered in the Senate by Mr. Daschle. Now, I think that 
all of us like to talk about the lockbox, but I think it is 
also important to say that even if it had become law, there 
were two important exceptions in that. One was the fact that if 
we went to war, the lockbox no longer would apply, or in the 
case of economic problems, and we certainly have a double-
header going here today.
    Ms. Barnhart, I would like to----
    Mr. MATSUI. If I may, Mr. Chairman----
    Chairman SHAW. Yes.
    Mr. MATSUI. Just to make a point of clarification, on the 
25th of February, just 3 days ago, we received from your staff 
a tentative witness list and Mr. DeMint, it says, will endorse 
certificate legislation in his testimony, sponsor of H.R. 3135, 
and then----
    Chairman SHAW. And I am sure he is going to be here 
Wednesday, just as----
    Mr. MATSUI. No, I understand that, but all of a sudden, 
since 7:00 last night, now we are talking about another issue. 
I mean----
    Chairman SHAW. No, at 7:00 last night, I offered to come in 
early this morning and have all of these witnesses by starting 
the hearing earlier, and as an accommodation to you, we decided 
to put the thing over until next week.
    Mr. MATSUI. No, that is fine. We have no problem with that. 
But I think what we are talking about here is the subject of 
the hearing, and there is no question----
    Chairman SHAW. Well, this hearing will be continued----
    Mr. MATSUI. The subject of this hearing was going to be on 
the whole issue of the certificates of guarantee. I do not know 
what changed your mind. It is wonderful that you have, because 
I do not think they mean anything, but the fact of the matter 
is that some witnesses may want to talk about this.
    Chairman SHAW. Well, I do not know what I changed my mind 
on, but I am hopeful that we will have a constructive hearing 
this morning and that we can try to depoliticize this issue, at 
least long enough to save Social Security for our kids and our 
grandkids and not get bogged down on this.
    I would like to welcome the new Commissioner of Social 
Security. This will be her first appearance before this 
Subcommittee, and I hope you will have a favorable impression 
of us. We are expecting great things from you, and believe it 
or not, despite some of the rhetoric that you have heard 
already this morning, we do try to work together on important 
issues, and we recognize the importance of the work that is 
before you. We are certainly looking forward to your testimony. 
Welcome.

STATEMENT OF THE HON. JO ANNE B. BARNHART, COMMISSIONER, SOCIAL 
                    SECURITY ADMINISTRATION

    Ms. BARNHART. Thank you very much, Mr. Chairman. Mr. 
Chairman, Congressman Matsui, and Members of the Subcommittee, 
I thank you for this opportunity to speak with you today on 
some important issues.
    We are now preparing for a national discussion about how to 
ensure that the Social Security system is financially sound 
when today's younger workers are ready to retire, but there are 
also some short-term topics to address. One is the importance 
of Social Security to women.
    The Social Security benefit formula has been structured to 
provide a higher replacement rate to low earners since the 
program's inception in 1935. And this feature is particularly 
important for women, who tend to have shorter careers and to 
earn less, on average, than men. Also, because women tend to 
live longer than men, Social Security's automatic cost-of-
living adjustments, or COLAs, can be vital for maintaining 
purchasing power for women. For example, a $100 monthly payment 
that began in 1975 would today be $347.
    Social Security benefits for family Members of retired, 
disabled, and deceased workers also can be especially important 
for women. Women are more likely than men to receive spouses' 
or widows' benefits because their lower earnings often mean 
that their benefits as a spouse or a widow are higher than the 
workers' benefits that they would receive based on their own 
earnings record.
    Divorced women also benefit greatly from Social Security 
protection. Today, a woman who was in a marriage that lasted at 
least 10 years could be entitled to retirement benefits based 
on her ex-spouse's work record. Before Congress changed this 
provision in 1977, 20 years of marriage were needed.
    Today, consideration is being given to possible incremental 
changes that would affect women. Some changes would affect 
larger groups of women and have a high cost. Other changes 
would be targeted to more limited groups and have smaller 
costs. I believe that any high-cost proposal should be 
considered in the context of comprehensive program reform. 
Given that the Social Security program is not in long-range 
actuarial balance, it seems appropriate that significant 
changes to the program should be evaluated when we are 
considering other elements in the future modernization of 
Social Security.
    But lower-cost proposals could be targeted to relatively 
small groups, and for the most part, proposals for incremental 
change are well targeted to address concerns of small groups of 
people, most of them women. For the women affected, these 
changes could make a substantial difference in their economic 
security. I would like to give you just one example of such a 
situation, if I may.
    One such proposal would address the requirement for 
disabled widow or widowers' benefits. The law as enacted in 
1968 states that a disability must occur no later than 7 years 
after the workers' death or after a surviving spouse child and 
care benefits were payable. The intention was to provide 
disability protection for widowers or widows until they have a 
reasonable opportunity to earn disability protection on their 
own. However, sometimes now a worker who is disabled after age 
50 may actually need to work up to 10 years in order to be 
fully insured, so that would argue for lengthening or 
eliminating the time period.
    This is only one example. We would be glad to work with the 
Subcommittee as you consider such proposals that would improve 
the protection afforded women under Social Security.
    Another issue I would like to discuss is the Social 
Security statement. As you know, the statement gives estimates 
of Social Security retirement, disability, and survivor 
benefits that workers and their families could be eligible to 
receive. The statement also provides information about Social 
Security's future financing, and it points out changes that 
will be needed. It is not easy to communicate complicated 
financial information to a diverse public in a way that is 
understandable, but Social Security has worked hard to ensure 
that the Social Security statement does that.
    During my confirmation process, the issue of the statement 
came up time and again. Members from both sides of the aisle 
asked about my plans for the statement, and I consistently 
stated my intention and my firm belief that I would ensure that 
the statements serve as a factual document for use in 
individuals' financial planning for the future.
    I am in the process now of reviewing the current statement, 
and I do expect to make some revisions in content, but I would 
like today to repeat my commitment to ensure that it is a 
factual document about how the program operates, how the 
program is funded, and the level of benefits that the 
individual receiving the statement can expect to receive.
    Although reasonable people can disagree about how best to 
restore Social Security's long-term solvency, I do believe 
there is clear agreement that benefits of current beneficiaries 
are to be preserved and protected. Indeed, in President Bush's 
principles for reform, his very first principle is that 
modernization must not change Social Security benefits for 
retirees and near-retirees.
    I understand the motivation of many Members of Congress to 
give current Social Security beneficiaries a written 
reassurance that they will continue to receive their full 
benefits. However, I believe I would not be doing my job as 
Commissioner if I did not raise what I consider to be valid and 
real concerns.
    For example, would such a written reassurance be legally 
binding on future Congresses and would it require the 
government to use general revenue transfers to fill such 
assurances when if, absent any action by the Congress, the 
trust funds become exhausted? Also, I am concerned about 
possible unintended consequences, such as creating undue alarm, 
particularly among those who are nearing retirement age but who 
do not receive a written notice in a given year.
    Also, as Commissioner, I must note that sending notices to 
46 million beneficiaries would take millions of dollars from 
administrative funds that could be used in other ways, such as 
processing claims, working redeterminations, or handling public 
inquiries, and the experience at Social Security has shown that 
notices actually generate more workload for our field offices 
and our toll-free number. At a time that we are struggling to 
deal with current workloads and maintain a high level of 
service, this would be an extra workload.
    Social Security touches the lives of most Americans. The 
very range of issues that we are discussing today is really 
just one indication of the range of circumstances of those who 
benefit now from Social Security and will continue to benefit 
in the future.
    Mr. Chairman, Mr. Matsui, Members of the Subcommittee, I 
thank you again for allowing me this opportunity to testify, 
and I appreciate the opportunity to discuss the issues we have 
before us today, and I will be happy to try and answer any 
questions that any of you may have for me.
    [The prepared statement of Ms. Barnhart follows:]

 STATEMENT OF THE HON. JO ANNE BARNHART, COMMISSIONER, SOCIAL SECURITY 
                             ADMINISTRATION

    Mr. Chairman, Members of the Subcommittee: Thank you for giving me 
this opportunity to speak to you today on a number of important topics. 
We are embarking on a period of national discussion of how to ensure 
that the Social Security System is sound for today's younger workers 
when they are ready to retire. This is a tremendously important and 
complex challenge. Our topic today is more immediate, concentrating on 
the short-term.
    I would like to begin by outlining for you the importance of Social 
Security to women and discussing some of the features of Social 
Security that contribute to their economic well-being.
    For over 60 years, Social Security has provided a solid floor of 
financial protection. It has allowed the great majority of Americans to 
retire with the dignity that comes from financial independence, without 
fear of poverty or reliance on others.
    I'd like to discuss some of the ways that Social Security helps 
women that are integral to the program and can and should be preserved 
in the reform process. One element of Social Security that has proven 
helpful for women is the Social Security benefit formula. Social 
Security benefits have been structured to provide a higher replacement 
rate to low earners since the program's inception in 1935.
    This feature is very important to women because women tend to have 
shorter careers, and, when they do work, earn less than men. Because of 
the structure of the benefit formula, the benefits for low earners, 
including many women, replace a larger portion of pre-retirement 
earnings than the benefits received by higher earners.
    Another important feature of the program that should not be 
overlooked when we think about improvements in retirement income 
security for women is the automatic cost-of-living adjustments (COLAs), 
enacted in 1972. Women's greater life expectancy makes COLAs especially 
important. For example, as a result of COLAs that maintain the 
purchasing power of benefits, a $100.00 monthly payment that began in 
1975 would have increased to $347 today.
    A third feature I would like to mention is the benefits Social 
Security provides to the family members of retired, disabled, and 
deceased workers. This aspect of the program makes Social Security 
especially important to women. In addition to a benefit as a retired or 
disabled worker, women may receive benefits as a spouse or as a widow. 
Women are more likely to receive spouse's or widow(er)'s benefits than 
men because their lower earnings often result in them being eligible 
for higher spouse's or widow(er)'s benefits than the worker's benefits 
they would receive on their own record.
    I would also note that the important spouse's and aged widow's 
benefits I just mentioned were not part of the Social Security Act of 
1935. Rather, they were added to the program in 1939 in recognition of 
the important role that Social Security could play in providing 
economic security for women. For this same reason, benefits were 
subsequently added for divorced wives and for disabled widows.
    In addition to adding new groups to the umbrella of Social Security 
protection, over the years Congress has enacted legislation to increase 
the level of protection provided under Social Security. For example, 
there have been significant changes in widow(er)'s benefits, raising 
the amount of benefits for a widow(er) from 75 percent to as high as 
100 percent of the worker's benefit. In addition, in 1983, benefits for 
disabled widow(er)s were raised from as little as 50 percent of the 
worker's benefit to 71.5 percent.
    Another example of the changing protection for women under Social 
Security is the protection given to divorced women. After first adding 
protection for divorced women in 1965, Congress expanded the level of 
that protection as well. This was done in 1972 by removing the 
requirement that a divorced wife be dependent upon her husband and in 
1977 by decreasing the number of years the couple had to have been 
married in order for the divorced spouse to qualify for benefits from 
20 to 10 years.
    Today, consideration is being given to possible incremental changes 
affecting women. Some changes would affect larger groups of women and 
have high costs, while others would be targeted at more limited groups 
and have smaller costs. I believe that any high-cost proposals should 
be considered in the context of comprehensive reform of the program. 
Given that the program is not in long-range actuarial balance, it seems 
appropriate that significant changes to the program should be evaluated 
only when considering other elements in the future modernization of 
Social Security.
    For the most part, proposals for incremental changes are well 
targeted to address concerns affecting relatively small groups of 
people, most of them women. Some deal with time limits in the law that 
are no longer appropriate or that should allow exceptions. However, for 
the women affected, these changes would make a substantial difference 
in their economic security.
    For example, one potential change would be to eliminate the 
requirement for disabled widow(er)'s benefits that the disability must 
occur no later than 7 years after the worker's death, or after 
surviving spouse child-in-care benefits were payable.
    The 7-year closing date, also enacted in 1968, was intended to 
provide disability protection for widow(er)s until they have a 
reasonable opportunity after the worker's death to become insured for 
disability benefits on their own earnings record. However, now, a 
worker disabled after age 50 may need more than 7 years of work--up to 
10 years depending on his/her age--in order to be fully insured. Thus, 
the current provision leaves gaps in the protection of some widow(er)s, 
because the 7-year period may not afford all of them adequate 
opportunity to qualify for disability benefits based on their own work 
records.
    This is only one example. There are other similar changes that 
could be made. We would be glad to work with the Committee as you 
consider these kinds of proposals that would improve the protection 
afforded under Social Security to women.
    Another issue I would like to discuss concerns providing the public 
with information about Social Security. One of our basic 
responsibilities to the public is to help Americans understand the 
value of the Social Security program and its importance to them and 
their families. I pledge to you that I will continue to improve the 
quality of the information we provide. The Social Security Statement is 
the most significant vehicle we have to increase the public's 
understanding of the basic features of Social Security and to enable 
Americans to prepare for their long-term financial security.
    As you know, the Statement provides estimates of Social Security 
retirement, disability, and survivors' benefits that workers and their 
families could be eligible to receive now and in the future. The 
Statement also provides information about Social Security's future, 
pointing out that changes will be needed.
    Communicating complicated technical information in a way that is 
understandable to a diverse public can be difficult, but SSA has worked 
diligently to ensure that the message in our Social Security Statement 
is clear.
    I realize there is great interest in the Statement. During the 
confirmation process, I was asked by Members from both sides of the 
aisle about my plans to improve the Statement. I consistently 
emphasized my intention to ensure that the Statement would continue to 
be a factual document serving as a valuable tool for Americans to plan 
their retirement.
    So let me today reiterate my commitment to ensure that the 
Statement remains a factual document that informs workers about how the 
program operates and how it is funded. This is important information 
that the public needs to have from its government. However, I want to 
be sure that it not unduly alarm those nearing retirement. I am 
reviewing the current statement and expect to make some revisions in 
its content.
    Although reasonable people can disagree about how best to restore 
Social Security to a path of long-term solvency, I believe there is 
clear agreement that the benefits of current beneficiaries are to be 
preserved and protected. Indeed, President Bush outlined as his very 
first principle for reform that ``Modernization must not change Social 
Security benefits for retirees and near retirees.'' As the debate 
continues about ways to best put Social Security on sound financial 
footing, it is important to assure today's Social Security 
beneficiaries that they are not going to be adversely affected by 
reform proposals that Congress may ultimately enact into law.
    I understand the motivation on the part of many Members of Congress 
to provide a written reassurance to current Social Security 
beneficiaries that they will continue to receive their full benefits. 
However, I would not be doing my job if I did not raise some concerns 
regarding this matter.
    For example, would such a written reassurance be legally binding on 
future Congresses? And would it require the government to use general 
revenue transfers to pay future Social Security benefits when the trust 
funds become exhausted if no changes are made? Also, I am concerned 
about the possible unintended consequence of creating undue alarm among 
those nearing retirement who do not receive such a written notice.
    Further, as administrator of Social Security, I should point out 
that sending out these notices to 46 million beneficiaries would 
increase administrative costs by millions of dollars, using valuable 
administrative funds that could be used in other ways. For example, 
each million dollars spent for this purpose could be used instead to 
process claims, work redeterminations, or deal with inquiries. Also, 
prior experience has shown that sending out notices generates increased 
workloads for our field offices and our toll-free number--and our field 
staff is already struggling to deal with the current workloads and 
still maintain a high level of service.
    I know that there are various approaches that are being considered 
to assure individuals and families currently receiving benefits that 
they will receive all benefits due under current law, including 
accurate cost of living increases. Whatever decision Congress makes on 
this matter, Social Security stands ready to work with you to get the 
task accomplished.
    Mr. Chairman and Members of the Subcommittee, thank you again for 
inviting me to testify. I will be happy to answer any questions you may 
have.

                               

    Chairman SHAW. Commissioner, I would like to just clear up 
one thing. Mr. Matsui talked about it and you touched on it in 
the latter part of your remarks. The Republican Conference has 
not taken any position with regard to the issue of the 
certificates. There are some Members that have come up with the 
idea, and it was a point of discussion. It was never intended 
to be a major part of the discussion for this particular 
meeting. I think this particular meeting is really dealing with 
major things that need to be done that actually will affect the 
financial well-being of people on Social Security, particularly 
women.
    I would like to also say that if this matter is going to be 
brought up on suspension any time in the near future, nobody 
has told me about it, and I am Chairman of the Subcommittee, so 
I assume that if that decision were going to be made or were in 
the process, that I would be informed. So we are not spending 
administrative funds at this particular point.
    You spoke of this in your remarks, but I think it is very 
important that we really underscore it, and that is that the 
President has said that there shall not be any benefit cuts for 
those retired or near retirement when it comes to Social 
Security reform. What is the best way to assure retirees that 
their benefits will not be cut and what is the Social Security 
Administration (SSA) doing to assure seniors that their 
benefits are safe?
    Ms. BARNHART. Mr. Chairman, I think that is such an 
important question, and actually, I think that many of the 
things that you spoke to in your opening statement speak to 
that.
    I think the first thing is, as we pursue this discussion 
and the debate about reform for Social Security in the future, 
it is important that it be factual. As you and Mr. Matsui said, 
I think bipartisanship is extremely important. And I think, 
quite frankly, for all of us on all sides, we need to avoid 
engaging in volatile rhetoric which sometimes causes alarm 
among senior citizens and most definitely current 
beneficiaries.
    I do appreciate your restatement of the President's 
principle. It was the first of his principles, that 
modernization must not change Social Security benefits for 
retirees or near-retirees, and I would hope that we would 
continue as an Administration to make that a point of constant 
reminder as this debate and the discussion about the future of 
Social Security continues.
    Regarding any other overt-type action in terms of 
reassuring current retirees, I do think that the very fact that 
the Congress and the administration are working together to 
solve the future financing issues for the Social Security 
program will be reassuring to current beneficiaries, not only 
for themselves but also for future generations, for their 
children and their grandchildren. I know I am very fortunate to 
have both of my parents still with me, as well as my in-laws. I 
have a 13-year-old son. They are much more concerned about what 
is going to happen when Niles retires than about themselves 
right now. I do think that if they think he is taken care of, 
they will not be worrying about themselves. So I think those 
are important things.
    In terms of providing some sort of communication, we do put 
out a cost-of-living notice to all of our current retirees and 
beneficiaries every year and that might prove to be an 
appropriate forum for some sort of reassurance or language, but 
I would really have to look at that.
    Chairman SHAW. You are thinking of your 13-year-old son. I 
am thinking of my 13 grandchildren.
    [Laughter.]
    Chairman SHAW. I do not think that number is going to keep 
up with your son's age as he gets older.
    [Laughter.]
    Chairman SHAW. But I would like to be able to, working with 
Mr. Matsui and others, to extend the President's comments, and 
that is that there will be no benefit cuts for those retirees 
today or tomorrow, so that your 13-year-old son, who will not 
be facing retirement for many years, and my 13 grandkids can 
also be assured that they will have the same Social Security 
benefits as I will have as a person who is nearing age 65.
    I think it is also terribly important for us to recognize, 
in 14 years, 14 years from now, there will not be enough 
Federal Insurance Contributions Act (FICA) taxes coming in to 
pay the benefits and you will be coming to the U.S. Department 
of the Treasury with your Treasury bills and start cashing them 
in. You will need to do this in order to keep pace with the 
benefits that have to be paid in Social Security, and the 
Congress is going to have to figure out where it is going to 
get the money in order to redeem these Treasury bills so that 
you or your successor will continue to pay those particular 
benefits.
    I know you are not going to be out of Treasury bills for 
30-some years, but you cannot send Treasury bills to the 
retirees. You have got to send them cash money. This means, and 
I look at this as within 14 years, we have got to start 
planning on how we are going to pay those benefits 14 years 
from now. Time really moves awfully quickly, and I am really 
hopeful that we can reach some type of a bipartisan agreement.
    This is very similar to when I went through welfare reform. 
It was not until we got the Democrats aboard that we were able 
to pass a bill. I Chaired the Human Resources Subcommittee, and 
we wrote a very good bill and President Clinton came aboard and 
I think most of the Democrats on this Subcommittee came aboard, 
and as a result, that has been one of the most successful 
programs and successful pieces of legislation that we had, and 
in the end, it was truly bipartisan and the American people had 
confidence in it and it worked.
    The same rule of thumb has got to apply here. The 
Republicans cannot go it alone in drawing a Social Security 
reform bill and the Democrats cannot go it alone. We have got 
to work together to do it, not only because we will get a 
better product that way, but we will also have the confidence 
of the American people and the seniors that we have produced a 
good product. And as you said, we have got to take the 
political rhetoric out of it and work together in order to get 
this done.
    Mr. Matsui?
    Mr. MATSUI. Thank you very much, Mr. Chairman.
    I appreciate very much your comments, Commissioner, in 
terms of the whole issue of the certificate because these are 
the same concerns that many of my colleagues, and I have been 
raising about it and so I appreciate the fact that you raised a 
number of different red flag issues about it and perhaps that 
will slow this process down, because again, I think your 
observation about unduly alarming the American senior citizen 
community could be one consequence of that.
    I do want to congratulate you, as well, for being 
Commissioner. We worked together under prior administrations, 
and I have always enjoyed working with you.
    Ms. BARNHART. Thank you very much.
    Mr. MATSUI. We are talking about women and senior citizens 
and obviously the whole issue of income security. Women make, 
on the average, unfortunately, 70 percent of what the male 
counterpart makes, is that correct pretty much?
    Ms. BARNHART. It is true that women make significantly less 
than men as a percentage, yes.
    Mr. MATSUI. And so over the lifetime of one's earnings, 
women will accumulate less in one's account if we have 
privatizing part or all of Social Security, is that a generally 
correct observation, in terms of the amount of money 
accumulated, same occupation, same income level, same kinds of 
jobs?
    Ms. BARNHART. I----
    Mr. MATSUI. I know it is hard to generalize----
    Ms. BARNHART. It is.
    Mr. MATSUI. But generally, I think most people would 
logically say yes to that.
    Ms. BARNHART. It is hard to generalize, but today, women 
definitely have less in pensions. They participate to a lower 
degree in private pensions. Forty-seven percent of women are in 
a private pension plan, whereas, for men, the rate of 
participation in a pension plan is 53 percent.
    Mr. MATSUI. Right. It is really astonishing, because when I 
came to Congress in 1979, women made approximately 60 percent 
of what the male counterpart made, and now it is only 70 
percent, so there was not much progress over the last 20-plus 
years.
    Women, on the average, work 14 years less than their male 
counterparts. Now, that may change for this coming and current 
generation of women, but at least historically over the last 
30, 40 years or so, because women entered the child-bearing 
period, women have historically spent more time caring for 
their elderly parents, both the husband's and theirs, and so 
they work, on average, at least from a historical pattern, 14 
years less than their male counterparts. That also has an 
impact on the amount of money they would accumulate from 
private Social Security account, is that correct?
    Ms. BARNHART. And it does also, Mr. Matsui, with regard to 
Social Security today, although there is some adjustment in 
terms of dropping off the lowest 5 years, and, in fact, some of 
the proposals on the table to help women deal specifically with 
the child care situation.
    Mr. MATSUI. Right. So women on the front end actually work 
less and they make less than their male counterparts and so 
they will have less in their accounts when they are retiring, 
even though they may be the same age as their male 
counterparts.
    Now, on the other side of it, women live approximately 6 to 
8 years longer than men, on average, is that correct?
    Ms. BARNHART. Actually, the latest statistics I have on 
that is that women who today are 65 are expected to live 19.1 
years and men are expected to live 15.7 years. Those are the 
exact numbers, about 4 years.
    Mr. MATSUI. Four years, five years?
    Ms. BARNHART. Yes.
    Mr. MATSUI. Okay. So it is about 4 or 5 years, but women do 
live longer than men, on average.
    Now, in terms of women, if you have private accounts, and I 
know this is not necessarily an area that you are an expert on 
because you are administering a program and it is probably 
better if someone from Treasury or perhaps the U.S. Department 
of Health and Human Services respond, but when the accounts are 
accumulated at the end and you begin to receive your income 
from those accounts, whether you annuitize them or not, I do 
not know of any accounts like that that are indexed for 
inflation, is that correct?
    Ms. BARNHART. I would not want to mislead the Subcommittee. 
I mean, you very correctly cited this is not my main area of 
expertise----
    Mr. MATSUI. And I appreciate that----
    Ms. BARNHART. And I am really not trying to beg the issue 
with you, but really, just to be clear about it, I really could 
not speak to that.
    Mr. MATSUI. Right.
    Ms. BARNHART. But I would be more than happy to find out, 
and I would be happy to respond to any of these things in the 
record on behalf of the Administration, Mr. Matsui.
    Mr. MATSUI. And I am not trying to put you on the spot or 
anything like that because I understand your situation. I do 
know for a fact, because I checked with a lot of insurance 
companies and actuaries, that there is no such policy that you 
can convert a trust account made up of private Social Security 
accounts and then set those up into an income-bearing account 
that takes into consideration inflation. It is just too 
speculative, most of these insurance actuaries say.
    And because women live longer, then, the value of their 
accounts reduce, if they are private accounts, over a period of 
time of their life more than the average male, is that correct? 
You cannot answer that.
    Ms. BARNHART. I certainly understand basic mathematical 
concepts. I get where you are going with that.
    Mr. MATSUI. The only reason I am raising this is because 
this is a hearing on women and there are a lot of my colleagues 
on the other side of the aisle, even the President is talking 
about privatizing Social Security, and I think we need to come 
to grips with this issue. We need to talk about this issue and 
debate it over the next few months until we actually try to 
address this issue from a legislative perspective, because 
women will be hurt by privatization because they do not work as 
long as men, they make less than men, and then, obviously, they 
live longer and so their accounts will not, obviously, sustain 
them. If they live 5 years longer, at a 4-percent interest 
rate, that is a 20-percent reduction in the level of their 
benefits.
    So these hearings are important because we need to talk 
about these options that are being raised, whether it is 
privatization or other options that many of my colleagues are 
talking about now, and there is no question that privatization 
will do significant damage to women in terms of income security 
and retirement benefits.
    Chairman SHAW. Would the gentleman yield?
    Mr. MATSUI. No. Did you want to comment?
    Ms. BARNHART. I just want to say one thing, just generally 
speaking. While I am not an expert on each of the proposals, 
and there are many, as you know, not only those that the 
Commission has published in its report but also that Members of 
Congress have put forth. But it is my understanding that most 
of the proposals for reform do look at maintaining some of the, 
I guess I would call them equity establishers for women. I 
cannot speak to the specifics of those but would be happy to 
provide that kind of analysis for you for the record if that 
would be helpful. It is my understanding some of the reform 
proposals would continue many of the provisions built into 
Social Security today.
    Mr. MATSUI. And let me talk about that, because I have 
analyzed Mr. Armey's proposal at length, and he has been saying 
that this is a bold approach. I am sure you have looked at 
that. Mr. Armey's proposal would require, believe it or not, an 
infusion of general fund moneys into the Social Security fund 
of $20 trillion over the next 75 years, $20 trillion. I mean, 
it is mind boggling. I told that to Mr. Gephardt this morning, 
and he did not believe me. It also would require the Social 
Security trust account to actually borrow from the so-called 
private accounts, and how they get set up, it is a wonder, 
about $21 trillion.
    So I do not know, maybe it is credible, maybe some folks 
think that that is credible because we are running a deficit 
now, we are not running surpluses, and even when we had 
surpluses, it was not in the trillions, $20 trillion. I mean, 
these proposals are fine, but someone is going to have to tell 
me how we are going to pay for them. Mr. Shaw has a proposal 
that will cost $8 trillion----
    Chairman SHAW. That sounds like a deal.
    Mr. MATSUI. Three-point-six trillion dollars plus loss of 
interest because it will be borrowing from the equity markets. 
So someone has to tell us how we are going to pay for it. That 
is why we need to bring those bills to the Floor and vote on 
them instead of just talking about them. We need to actually 
vote on these pieces of legislation. The President's proposal, 
his three different plans that came from this Commission, all 
of them require significant cuts, 4 to 6 percent cuts in some 
benefits in plan two, infusion of $6 trillion worth of general 
fund moneys. These are not credible plans, and that is why when 
we talk about them, we have to talk about them with some 
skepticism.
    Ms. BARNHART. If I may just make one point of 
clarification, and that is that under Commission proposals, as 
I understand the situation, there are three possible ways to 
approach solvency.
    At this point, where I sit, I do not see any of those as 
the President's plan specifically. He has, to your point, Mr. 
Matsui, laid out six principles for reform that do include the 
establishment of voluntary personal accounts and these 
Commission approaches are various ways to get there. I look 
forward, frankly, to providing whatever expertise we can from 
the Social Security Administration, from our actuaries. As you 
know, the actuaries do analyses of legislation for you, other 
Members, as well as for the Commission. Our actuaries, in fact, 
did a very lengthy analysis that is included as an appendix in 
the Commission report that speaks to some of the issues you 
have raised here today in terms of the long-term financing 
implications. But I look forward to being a part of providing 
whatever kind of expertise we can to inform that discussion and 
debate as we move forward to resolve the situation.
    Mr. MATSUI. If I may--I am sorry, Mr. Chairman----
    Chairman SHAW. You have already exceeded 5 minutes.
    Mr. MATSUI. Did you not say that if the President is not 
embracing these plans, then does he have any other plan to 
speak of?
    Ms. BARNHART. Again, from where I sit, Mr. Matsui, my 
understanding is the Commission laid out the three different 
approaches. They are three different models, as they call them. 
They suggest these are possible approaches that could be used 
and have called for a year of debate and discussion. My 
impression is that is what we are doing now. We are starting 
the debate and discussion. There are a whole range of 
proposals, including the one from the Chairman and others, that 
will be looked at and discussed, and that at this point in 
time, the Administration does not have a specific plan.
    Mr. MATSUI. Okay.
    Ms. BARNHART. That is the clarification I wanted to make.
    Mr. MATSUI. That is extremely helpful, and I really 
appreciate that because I have been criticized for not having a 
plan and the President does have one, and so obviously he does 
not have one and I do not have one, so we are equal.
    Chairman SHAW. I do.
    [Laughter.]
    Mr. MATSUI. Thank you.
    Chairman SHAW. I would welcome you aboard. I do want to 
point out that the Commission did recommend increasing benefits 
to widows, increasing minimum benefits, and providing for 
accounts to be equally divided between the spouses upon 
divorce. The bill that I have out there, which is out there for 
discussion, and I would welcome such discussion, does increase 
the women's benefits, and it does protect against all risk and 
it does guarantee, as much as Congress can guarantee, that the 
benefits will remain the same, and it does not in any way 
privatize Social Security. In fact, it leaves it totally intact 
in its existing state, and we simply add on an added segment to 
it.
    To do nothing and to be without a plan means that the 
benefits are going to be reduced by over 30 percent or that 
taxes are going to have to be increased and run a deficit of 
well over $20 trillion, so I think the math is very simple. Do 
you spend a little over $3 trillion to solve the problem over a 
long period of time or do you go in deficit over $21 trillion? 
Such a deficit would really bring our economy down. Or do you 
reduce the benefits?
    I am totally against reducing the benefits when I know we 
can solve the problem. The simple math is there. We had, when 
Social Security started, 40 workers per retiree. Now, we are 
down to a little over three. Before long, it is going to be 
over two. You cannot sustain a pay-as-you-go (PAYGO) system 
with two workers per retiree. It is that simple. Other 
countries are facing the problem and I hope we do, too.
    Mr. JOHNSON. And, by the way, I was very lenient with the 
Ranking Member. I let him go twice the allotted time. But I am 
going to enforce the 5-minute rule from this point forward.
    Mr. JOHNSON. Are you going to start it over? It is already 
going.
    Chairman SHAW. Yes, I will add your 15 seconds back on.
    [Laughter.]
    Mr. JOHNSON. I was glad to hear your mortality tables on 
men and women. I just saw my doctor. He said I was going to be 
100. I can hardly wait to get there. You guys are going to 
really have to foot the bill on Social Security.
    You know, back in 1977, Congress created pension offsets. I 
hear more about that from women in my district than anything 
else, and the windfall elimination provision. I think they 
became effective in 1983. Obviously, it is to prevent 
individuals who have a pension earned outside of Social 
Security to benefit from the high replacement rates meant for 
low income. It is a static formula, in my view, and I do not 
think it is treating people right to make that offset. I wonder 
if you would comment on that, one, and two, can we work with 
you to fix it?
    Ms. BARNHART. We would certainly be happy to work with the 
Subcommittee to resolve any technical issues that arise from 
pursuing this. As I am sure you know, it has changed over time. 
Originally, the offset under the government pension offset 
(GPO) was 100 percent of the pension. Now, it is two-thirds. It 
may well be time to take a look at it, and we would be happy to 
provide whatever information we can as you consider that 
provision.
    Mr. JOHNSON. Are you looking at anything in that regard?
    Ms. BARNHART. At the current time, we are looking at a 
number of different proposals but we do not have any particular 
package we are putting forward because we really believe that 
anything we do that would have a substantial effect on the cost 
of Social Security needs to be done in the context of reform. I 
do think that includes the provisions for women as well as 
anyone else that we would look at for changes for the future.
    We already have a situation, as has been pointed out, where 
the trust funds will be exhausted in 2038. We actually have to 
begin to use interest from the bonds in 2016. So adding to that 
long-term financial liability at this point without considering 
the context of reform is something we would rather not do.
    For some of the changes, and particularly for the pension 
offset, the estimated cost for legislation you all have 
considered that has been introduced by the Chairman was $7.7 
billion over 10 years. I think that is something we would want 
to update. We want to work with you on providing cost estimates 
and talk about the implications for the future.
    Mr. JOHNSON. Do you think it is fair for a woman who works 
in another job and earns a retirement and pays into Social 
Security and considers that a retirement, for her to lose some 
of her Social Security just because she worked in another job?
    Ms. BARNHART. I think that really looking back to the 
intent of the proposal when it was first enacted, the idea was 
to treat people who worked in non-covered employment comparably 
to those who worked in covered employment. As I say, there have 
been changes made over time.
    It is my understanding when Congress originally enacted the 
offset, it was 100 percent. Then years later, Congress took a 
look at it and decided that two-thirds of the government 
pension was approximately equal to a Social Security benefit, 
which is the reason that was selected, and so it may well be 
time to take a look at that decision and update those figures 
from that perspective.
    Mr. JOHNSON. But you did not answer my question. Do you 
think it is fair?
    Ms. BARNHART. You know, it is interesting, because I have 
asked similar questions myself, in all candor, talking with my 
staff as we looked at some of these provisions just trying to 
understand the motivation for their original passage and how we 
continue with them and so forth. I think cases can be made on 
both sides, quite frankly, because you can also have a 
situation where someone works just the minimum amount they need 
to in order to be eligible for a Social Security benefit to 
augment their pension, and that is where the WEP, or the 
windfall elimination provision, comes into play.
    So I do think we have to look at establishing a balance. I 
think America is founded on the principle that if you work, you 
should be rewarded according to the work that you are doing and 
you should reap the benefits of that work. So from that 
standpoint, I understand your concern about if you are working, 
should you not get it. But at the same time, I think we have to 
look at it from the standpoint of the windfall side, as well.
    I think one of the things that I have definitely learned 
over the years, Mr. Johnson, is that there is absolutely 
nothing in Social Security that is simple and straightforward 
and not complex. I would be happy to work with you and your 
staff on sorting out some of these issues.
    Mr. JOHNSON. Thank you, ma'am. Thank you, Mr. Chairman.
    Chairman SHAW. Mr. Lewis?
    Mr. LEWIS. Yes. Commissioner, the Social Security statement 
that is being sent out now, you mentioned that there may be 
some revisions to that statement. What kind of revisions are 
you talking about?
    Ms. BARNHART. Specifically, I have been looking at the 
statement myself and working on the statement. We are not 
talking major changes. Let me just start by saying that the 
kinds of changes I am looking at range from everything from 
taking the table of contents which is in the lower right-hand 
corner and moving it up where people can see it easier and 
referencing the fact that it says--``see what is inside'' right 
now with a little arrow. I want to have, ``see what is 
inside,'' and then put ``your personal information,'' ``your 
individual information,'' something that makes people want to 
open that statement up and look at it and realize that it has 
things that are specifically relevant to them.
    I am also looking at some of the charts that we present in 
there in terms of the benefits that can be expected, I do think 
that it is important to say, ``under current law,'' that those 
are the benefits that would be available under current law so 
that people are aware of that.
    One of the other things is--it is kind of hard to describe 
it--when you open it up, there is a table on the right, and 
right now, there is a paragraph where the information related 
to the fact that Social Security is more than just a retirement 
program but is, in fact, a disability program as well as a 
survivor program. I have bulleted that out so that it pops out 
a little more and makes it clear, as opposed to just kind of 
all being fuzzed up in one paragraph.
    And the final thing is the statement right now includes 
language that describes the financing situation as we look to 
the future, about 2016, about 2038, and obviously that is 
updated depending on the trustees' reports every year, and I am 
looking at trying to make that clearer. I will tell you, I 
tried to read the statement from the standpoint of an average 
person who does not live inside the beltway and does not come 
to hearings like this and engage in these types of discussions 
and I ask myself would I really understand what this is telling 
me, because I do think it is important for people to 
understand.
    At the same time, I am being very careful to make sure that 
I am not engaging in any kind of rhetoric that would alarm 
people, because I do think we have a real responsibility, and 
particularly as Commissioner of Social Security, I have a real 
responsibility in anything I send out, that my name is signed 
to, to make it factual, to make it to the point, to serve to 
reassure appropriately and not unduly alarm people.
    Mr. LEWIS. You know, one of the things that I find 
traveling through the district townhall meetings and so forth 
is that a lot of the recipients, they do not understand how the 
system works. They do not understand it is a pay-as-you-go. 
They think they are paying into a retirement fund that is their 
fund, it is their account, and they are going to be paid back 
out of that account. They do not understand that the reason 
Social Security is in jeopardy is because we do not have 14 
people paying into the program now, we only have 3, and that is 
diminishing very quickly.
    I wonder if there has been any polling or any information 
derived from recipients about how much they understand how the 
program works.
    Ms. BARNHART. We do have an annual performance survey that 
is done. It is called the Public Understanding Measurement 
System (PUMS). I have been in this job about 11 weeks now. I 
was on the Social Security Advisory Board for 4 years prior to 
coming in, but I just want to clarify, I am still learning 
about everything in detail.
    Mr. LEWIS. Sure.
    Ms. BARNHART. The PUMS system does a questionnaire of a 
statistically valid number of individuals in 52 different 
jurisdictions and it asks, I think, 14 questions, and if the 
individuals answer 8 of the 14 questions correctly, then it is 
considered that they understand about Social Security.
    I will tell you, being perfectly honest about the 
situation, I have started to look at that as a measurement 
because I am not sure that the 14 questions really get at the 
intricacies and the issues related to Social Security. I have 
actually asked my staff to take a look at whether or not we 
should not augment this to some extent by doing a longer survey 
with a nationally valid statistical sample that would allow us 
to probe issues a little more deeply, because quite frankly, I 
have had similar reactions that you have. I have actually 
received calls since I was Commissioner with people asking me 
when they were going to get the check for their husband's 
remaining Social Security or their father's remaining Social 
Security because they died shortly after they retired, and I 
had to explain to them that that was not going to be the case, 
other than the $255-death benefit. So I understand exactly what 
you are talking about.
    Mr. LEWIS. Thank you.
    Chairman SHAW. It would be interesting to send that 
questionnaire to Congress and see how many of us get it right.
    [Laughter.]
    Chairman SHAW. Mr. Doggett?
    Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, 
Commissioner. I think there is no doubt that even in your 
relatively brief service, that you are already having a big 
impact.
    When the House Majority Leader, the leader of all of our 
Republican colleagues here, comes out in favor of this 
political gimmick of sending out the certificate to all of 
those currently receiving Social Security, and it is pretty 
clear from all the discussions here that there is going to be a 
major effort to force that through the House perhaps even 
without an opportunity for us to offer an amendment or discuss 
it for more than 20 minutes a side, I have no doubt that your 
candid comments suggesting the problems associated with that 
certificate, filed in your written testimony and repeated again 
this morning, contribute to what is obviously a backing down on 
advancing that very ill-advised proposal.
    But I do want to center not on Mr. Armey's history going 
back to 1984, at least, of antagonism to Social Security, of 
which this is only the most recent chapter, this whole 
certificate idea, on one word that you mentioned that comes up 
again and again. It has come up in questions on both sides this 
morning, and that is the word ``alarm.''
    You indicate in your testimony that one of your concerns 
about this ill-advised certificate gimmick is that it would 
create undue alarm among those nearing retirement who do not 
receive such a notice. As I understand it, the Armey-DeMint 
proposal would only have sent the certificates to the people 
who get a Social Security check now, not someone who is 61 or 
60 or as young as I am, at 55, who might be nearing the point 
of being eligible for Social Security but not actually 
receiving a check now. Is that your understanding of the 
proposal?
    Ms. BARNHART. That is my understanding of the proposal as 
introduced, yes.
    Mr. DOGGETT. And so it would have provided no guarantee, 
even as meaningless as the guarantee might have been, to the 
60-year-old, the 61-year-old, the 55-year-old. But in focusing 
on the matter of undue alarm, I want to refer you back to that 
part of your testimony that refers to the first principle for 
reform of the Bush program, which is that there is no goal to 
change Social Security benefits for retirees and near-retirees.
    Now, Secretary Thompson has told this Committee in response 
to questions I asked him that the near-retirees mean people 
about my age and older, people that are 55 and older, maybe you 
go as low as the lower 50s. Under the President's principle of 
reform, he is offering no guarantee of Social Security benefits 
to anyone not my age. In other words, if you are someone who 
has been paying in as a worker to Social Security for 20 or 30 
years but you do not get up to the near-retiree level, under 
the principles the President has announced, there is no 
guarantee whatsoever that you will continue to get your Social 
Security benefits. In fact, I believe the guarantee is that you 
will see your benefits cut under those proposals.
    If you could put the chart back up, I think the chart 
showing the problems with the reversal in our progress toward 
paying down the debt is troubling enough, but one of the 
specifics that I wanted to ask you about that Mitch Daniels 
confirmed to our Committee in his testimony is that the 
President's budget has not included a dollar--as troubling as 
it is, with the deficits as big as they are projected to be, it 
has not included $1 for the transition cost of moving to a 
private system, has it, the budget that we have up before us 
this year?
    Ms. BARNHART. My understanding, quite frankly, as I said to 
Mr. Matsui earlier, is that at this point, the President has 
put forth his principles for reform.
    Mr. DOGGETT. Right.
    Ms. BARNHART. There is no specific proposal.
    Mr. DOGGETT. He has not picked which of the three horses he 
will run with to privatize the system----
    Ms. BARNHART. Or----
    Mr. DOGGETT. But under all three of them, the transition 
costs over 10 years have been estimated at somewhere around $1 
trillion, and when you look at those charts, Mr. Matsui, as 
usual, has taken a fairly conservative approach, and he has not 
included the additional $1 trillion of red that will result 
from transitioning to any of these proposals.
    I understand that the President does not want to pick his 
plan until after the fall elections are over rather than 
debating it in advance, but we are talking about a plan under 
any of these, or under Mr. Shaw's approach, that involves 
significant transition costs that are going to add even more to 
that red line and I cannot believe, whether you add those 
transition costs or you stick just with the conservative chart 
Mr. Matsui has up there, that our ability to preserve and 
protect Social Security for your 13-year-old grandchild is 
strengthened by that kind of approach to deficit spending and 
not reducing the debt. Thank you.
    Chairman SHAW. The time of the gentleman has expired.
    You know, it is interesting to look at that chart. I cannot 
dispute the accuracy of it, but it would certainly be more 
interesting if you put under it when the Democrats had control 
of the spending and when the Republicans had control of the 
spending.
    Mr. Hayworth?
    Mr. HAYWORTH. Mr. Chairman, I appreciate that. You know, it 
is kind of interesting to hear the Commissioner talk about the 
effort to reduce incendiary rhetoric, and I know that some of 
us here from time to time get a bit impassioned, but it is 
interesting to see the incendiary rhetoric transferred to the 
heading of the audio-visuals our friends offer.
    I listened with interest to my friends from Texas and from 
California, and what is interesting, I think, needs 
amplification and repetition. My friend, the Ranking Member, 
after going through what he believed to be the deficiencies of 
the observations and principles the White House has offered, 
made it clear that he had no plan. My friend from Texas, again 
hyper-critical of the principles, made it clear there was no 
plan.
    I think we all enjoy debates and rhetorical one-upsmanship, 
and we can do that, and indeed, there are forums on television 
to do that, but we are here in Subcommittee today. Perhaps it 
would be appropriate to try and resist the temptation of street 
theater and actually try to work together to solve the problem.
    Someone once said, it is not a shame that youth is wasted 
on the young. I guess we could offer the same observation, is 
it not a shame that policy is always predicated on politics, 
and yet in a free society, admittedly imperfect but noble in 
its intent in freedom, there are the inevitable observations.
    So perhaps it would be nice, and again, Mr. Chairman, just 
to point out, as you touched on it, when you as the Chairman of 
the Subcommittee and the previous Chairman of the Committee on 
Ways and Means, Mr. Archer of Texas, provided a plan, we 
reached out to our friends across the aisle, far from the roar 
of the greasepaint, the smell of the crowd. We sat down and 
went over some detailed plans and legislation, so plans are 
there and it would be nice if the minority would proffer a plan 
so that we can discuss and find consensus to the questions 
today.
    Commissioner Barnhart, thank you for coming and offering 
your points of view. We appreciate your efforts.
    My friend from Texas, Mr. Johnson, touched on the 
challenges that some women face, indeed, talked about the 
challenges of pension offset. As we deal with the changing 
roles of women in society and the changing needs of retirement, 
are there changes that can be made for the better affecting 
women that may not have an astronomical cost? Is there some 
low-hanging fruit and some policy initiatives we ought to study 
that can be of immediate assistance to women?
    Ms. BARNHART. I think there are at least a few things. I 
could give you a couple of examples. One is, right now, we have 
a provision that requires that after a divorce, a divorced 
spouse must wait for 2 years in order to be eligible for 
benefits if the other spouse has not yet filed for benefits. In 
cases where the ex-spouse remarries within that 2-year period--
the purpose of that 2-year wait, by the way, was to make sure 
that people were not engaging in so-called ``sham'' divorces. 
Sadly, we do have to take care and watch for those situations.
    But in the case where the other spouse actually remarries, 
it is quite clear it is not a sham divorce because they 
obviously are not going to get married again. They have married 
someone else. I think that is an example of one of the things 
that we could do.
    Right now, a disabled widow must be at least 50 to apply 
for benefits. Well, there is nothing magic about 50 being the 
age at which one can become disabled, and so I do think that 
you can obviously become disabled at a younger age. I think, 
certainly as we look to the baby boom population and the 
disability rolls are expected to increase, or applications for 
disability, 30 percent in the coming decade, I think that is 
one that we probably need to take a look at.
    We have some examples. Those are a couple. There are some 
items like that that have so-called negligible or relatively 
very low costs, but I think if the Subcommittee is so inclined, 
we could work with you in terms of moving forward.
    Mr. HAYWORTH. Commissioner Barnhart, I think that is very 
encouraging, and let the record show, and again, even given 
where we are on the calendar and the inherent temptation to 
play up differences, to put it diplomatically, maybe we can 
work in this fashion in a non-partisan way to say, Okay, here 
are some common sense measures where we can find common ground 
and move immediately to make improvements. It is in that spirit 
I look forward to working with you and to my colleagues to my 
left.
    Thank you, and thank you, Mr. Chairman.
    Chairman SHAW. Thank you. Mr. Becerra?
    Mr. BECERRA. Thank you, Mr. Chairman, and Commissioner 
Barnhart, thank you very much. Congratulations, by the way, and 
good luck to you as you continue forward.
    Ms. BARNHART. Thank you very much.
    Mr. BECERRA. Please know that we are very much looking 
forward to working with you as you move forward.
    Ms. BARNHART. I appreciate that.
    Mr. BECERRA. I want to first compliment you on your 
responses to some of the questions, because they are difficult 
questions that are being asked and sometimes it is not a clear 
black and white answer. It is tough, and we are probably going 
to put you on the spot on occasion because we are on the spot, 
as well, and we are trying to find what the correct answer is, 
so we appreciate your efforts to try to give us as straight an 
answer as you can and also one that is also consistent with 
where we need to go with Social Security.
    Let me ask you a bit about the Social Security statement, 
the contribution statement. You mentioned that you wanted to 
make sure that whatever information was conveyed was factual. 
Please comment on the following. As far as I can tell, other 
than the contribution history of a worker, is there anything 
else that you can tell me that would be factual information 
with complete certainty? In other words, other than what they 
have already given, can we tell them something else that would 
be 100 percent factual?
    Ms. BARNHART. You make a good point. We do include their 
earnings record, and that is actually one of the primary 
functions of the statement. I think that is so important as you 
point that out, because really, it is for people to make 
adjustments, to look at it and say, these are not the right 
earnings. That is very----
    Mr. BECERRA. An employee may argue that you did not count a 
particular year's worth or work or something else, but we will 
know if, indeed, that was there because factually we can 
determine that.
    Ms. BARNHART. Right, and we can make that adjustment prior 
to retirement, which simply speeds up benefits on the back end, 
so to speak.
    We also provide information about the status of the trust 
funds, and so I think that needs to be factual, and it is now. 
As I said, I am just attempting to make it clearer, easier to 
understand, because it is very tricky describing when interest 
is going to be used and when trust funds will be exhausted and 
those kinds of things.
    Mr. BECERRA. Let me stop you on that.
    Ms. BARNHART. Yes.
    Mr. BECERRA. When you say the status of the fund, the trust 
fund, you are again talking about what we know has come in, 
where you are talking about hard and fast numbers, factual 
numbers. You are not talking about speculation here, that we 
are expecting these amounts to come in. We are expecting to 
have 130 million workers who will contribute, on average, this 
amount. You are talking about what did come in from the number 
of workers that we did have.
    Ms. BARNHART. We are actually talking about based on the 
actuaries' report and the trustees' report, is what we are 
talking about, which becomes basically the definitive document, 
put together largely by our actuarial staff and has been 
extremely accurate over the years. I have asked actually to 
look at a 25--and 50-year history of the accuracy and they do a 
superb job of that. It is updated every year, as you know.
    And then we do put what you could expect your benefits to 
be, and that is the place where I thought that I needed to 
footnote that and cite, ``under current law,'' basically, these 
are your benefits----
    Mr. BECERRA. Correct.
    Ms. BARNHART. Because that is the fact. I mean, that is 
what you are speaking to. I do not want to put a lot of 
information in the statement that requires so many caveats that 
it confuses people even further. I want to put what people will 
be interested in. What someone is going to be interested in 
knowing, I think, when they are making Social Security 
contributions is how much they are contributing, what wages it 
is based on, and what they think they are going to get.
    Mr. BECERRA. Based on their past work experience.
    Ms. BARNHART. That is right.
    Mr. BECERRA. The projection is based on past experience.
    Ms. BARNHART. That is exactly right, because we have to 
flat-line out from the current year to the future because we 
have no basis for assuming that they are going to make more or 
less.
    Mr. BECERRA. Ten years ago when I got here, we were being 
told that the Social Security Trust Fund would be completely 
exhausted by about the year 2030 or so, 2032. A few years 
later, with the economy beginning to churn, we were told, well, 
2034, and then we were given a different estimate a year or two 
later of 2035, and now we are told that 2037 or so. All those 
estimates are changing because of different economic 
conditions.
    Ms. BARNHART. Right.
    Mr. BECERRA. So if we were to put in a statement, you can 
expect to receive X amount, we are only giving them an 
expectation. It is not a factual piece of information. You are 
giving them a projection based on your best actuarial guess.
    Ms. BARNHART. And based on current law.
    Mr. BECERRA. And as you said, you do not want to alarm 
seniors, and I think most seniors who are not within the 
beltway here at these hearings probably would not understand 
how 1 year the Social Security Trust Fund is going to last 
until 2030 and another year it is going to last until 2037 and 
what does that mean for their benefits.
    Having said that, can you give me a sense if you agree with 
the previous statements made by the Social Security 
Administration, I think 2 years ago when they were here before 
us testifying on making changes to the Social Security 
statement, where they agreed with the U.S. General Accounting 
Office (GAO), our auditing and inspection arm of Congress, 
wherein they also said that there was no need to make changes 
to the Social Security statement.
    Ms. BARNHART. Well, actually, the General Accounting 
Office--and I was on the Social Security Advisory Board at that 
time--my understanding was the GAO, in fact, told Social 
Security they did need to make the statement simpler than they 
made it in the beginning----
    Mr. BECERRA. Simpler, that is right.
    Ms. BARNHART. And they worked to do that, and believe me, 
that is the primary principle for me--factual, simple, easy to 
understand. The information related to the trust funds that I 
am talking about is in there now. It is just a matter of trying 
to put it in language that is a little easier to understand.
    One of the things I should explain is, I do think it is 
important, too, to construct the statement in such a way so 
when there are changes, when the trustee report comes out, that 
those dates, if they change, that that may be inserted in 
there. In other words, we do not put out all statements once a 
year, I mean, at one time. We put out statements on a rolling 
basis, approximately 3 months before the person's birthday. So 
we have opportunities throughout the year to update if we get 
better numbers, you know, if we get something that is--for 
example, when the trustees' report comes out in March, if it 
makes changes----
    Mr. BECERRA. So my statement may look different from 
someone else's statement, and we will have to figure out why it 
is that there are differences.
    Ms. BARNHART. It might. And that is why people call. I do 
not know if you were in the room when I made the comment that 
one of the issues about any notice we put out is that it really 
increases our workload because people call the 800 number. We 
estimate that every time we put out a notice to all the 
beneficiaries, we get about a quarter-of-a-million more phone 
calls in the weeks immediately following the notice, which adds 
substantially to our workload, precisely for the reasons, as an 
example, that you are bringing up now, and then we answer those 
questions. Whenever we put out a notice, our tele-service 
center representatives get something that says, this is what we 
put out so when people call in, you will understand, because 
that does happen. It absolutely happens.
    Chairman SHAW. The time of the gentleman has expired.
    Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
    Chairman SHAW. Mr. Collins?
    Mr. COLLINS. Thank you, Mr. Chairman, and thank you, 
Commissioner. It is a pleasure to hear you today and have you 
here.
    I am reminded, as I hear a lot of talk here today about the 
comment that the former Commissioner made at the President's 
summit on Social Security several years ago, probably 4 or 5 
years ago, when he referred to the matter of trust, and it is a 
matter of trust. It is a matter of lack of trust. The people 
have a lack of trust in the Congress, and at that time in the 
administration, to actually address problems that will be 
facing Social Security in the future and some of the problems 
they face already. Until we stop some of the rhetoric, we will 
never be able to gain that trust well enough to actually 
address the situation.
    Some of the rhetoric we always hear is that the Congress, 
particularly the Republicans, in their budgetary process and in 
their funding and in their tax provisions are spending the 
Social Security Trust Funds. Nothing could be further from the 
truth. As those dollars come in through the payroll taxes, they 
are credited to the Social Security Trust Fund. Now, you can 
either leave those funds laying dormant or you can, at the 
wisdom of the Congress a few years back, invest those into 
interest-bearing accounts, and that is what happens. We invest 
them into government securities. They are probably the most 
responsible security in the world that you can invest in, 
because we have people all over the world that invest in our 
securities, so that it can draw interest and increase the 
amount of funds that are in the trust fund.
    Under the benefits structure, as the benefits come due and 
are needed, securities are redeemed and payments are made. The 
problem is that we all know that within the next 15 years, we 
will reach a peak in income versus outgo or cash flow, and we 
will go into a deficit cash flow, meaning we will be redeeming 
more securities than we have funds coming in through cash flow.
    As I talk to people at home, and I love to talk to seniors 
about Social Security. I go looking for them. I do not run from 
the issue. I never have. I have been in the Congress, this is 
my 10th year. I have been on this Subcommittee, I have been on 
the Committee on Ways and Means since 1995. When I first came 
on it, no one really wanted to be on it because it was not a 
sexy Committee then. But now that we are getting into the 
situation of the trust funds and the rhetoric over the trust 
funds and the problems that Social Security faces, it is a fun 
Committee.
    It is one that, as I told President Clinton several years 
ago, one that I am very interested in because Social Security 
is my old age pension. I do not belong to a pension program. I 
have an IRA, and based on the decline in the market, it is 
worth about 40 percent of what it was 2 years ago. Of course, I 
have got faith if we can get some people in this town to listen 
to us and build this economy back, it will more than flourish.
    But when I tell people and explain to them, the real 
problem we are facing with cash flow is today, we have 3.3 
workers to 1 beneficiary. As we move forward over the next 3 
decades, that is going to change to be two workers to every 
beneficiary. I joke with young people when they are in the 
audience with some seniors and tell them, be prepared. I am 
going to move in with you in a few years because you and your 
wife will be responsible for me. Jokingly, a young man said, 
``Are you a good babysitter?'' I said, ``No, I will be your 
baby.''
    But as I talk to people, I tell them, too, there are three 
age groups that we must look at as we move forward with reform, 
and reform will have to happen. One, those who are current 
beneficiaries. Nothing will happen to their benefits. They are 
there, guaranteed by law. The Social Security law is an 
entitlement. Then there is my generation, 57, getting close. I 
hope I make it. There will be no change for my generation. If 
there is, it will be my option, but I doubt there will even be 
an option so that we do not frighten people of my generation. 
But it is the generations behind me, the third age group, that 
we have to look to and develop a plan that will be a viable 
plan for them.
    And that is the reason that it is so important that we lay 
down the rhetoric and develop a trust, a trust among ourselves 
that we can actually openly talk about Social Security, talk 
about Medicare. As I say, I do not run from either one. I go 
looking for people to talk to them about it, about both. But 
until we establish that trust, we will not be able to address 
the issue.
    Transition costs, yes, there will be, and that is the 
reason it is so important, the sooner we do this, the sooner we 
put together a program that will be a viable Social Security 
program and know the costs, the better we all will be.
    Certificate of guarantee, we do not need that. The 
guarantee is in the law today. The guarantee is in the Congress 
and its willingness to work together to establish trust, 
establish trust among the people and move forward with reform 
that will work. Thank you for your work.
    Ms. BARNHART. Thank you.
    Chairman SHAW. Commissioner, we thank you very much for 
spending this time with us today. I thank you for testifying 
before the Committee of the Congress. I think we behaved 
ourselves rather well on your maiden voyage before this 
Committee. We appreciate it and we certainly look forward to 
tapping into your resources, your knowledge of Social Security 
and your background in order to try to save Social Security, 
not only to improve it for women and today's beneficiaries but 
also to try to extend it so that your 13-year-old boy and my 13 
grandkids will enjoy the benefits. And also, I would not want 
Mr. Collins moving in with me.
    [Laughter.]
    Chairman SHAW. And my kids do not want me moving in with 
them, I can assure you of that.
    [Laughter.]
    Chairman SHAW. Thank you very much for being with us. It is 
an honor to have you.
    Ms. BARNHART. Thank you, Mr. Chairman and Mr. Matsui. I 
have always enjoyed my appearances at the Subcommittee, and I 
particularly look forward to working with the Subcommittee in 
my new capacity as Commissioner. Thank you.
    Chairman SHAW. Thank you.
    Chairman SHAW. The next panel, we do have a rather large 
panel: Anna Janis, who is a Member of the United Seniors 
Association; Frank Atwater, who is President of the National 
Association of Retired Federal Employees; Niesha Wolfe, who is 
the chief executive officer of Niesha M. Wolfe CPA Firm and 
Member of the Women Impacting Public Policy in Oklahoma City; 
Hans Riemer, who is a Senior Policy Advisor at the Institute 
for America's Future; Nancy Pfotenhauer, who is the President 
and chief executive officer of the Independent Women's Forum; 
Joan Entmacher, who is the Vice President and Director, Family 
Economic Security, National Women's Law Center; and David John, 
who is a Senior Policy Analyst at the Heritage Foundation.
    Welcome, all of you. You may proceed as you see fit. Anyone 
whose name I have mispronounced, you can correct it. It will 
appear correctly in the record. We have your written statement. 
Because of the time problems that we have at this particular 
time, I am going to strictly enforce the rule, so brevity is 
appreciated.
    Ms. Janis?

  STATEMENT OF ANNA JANIS, NATIONAL GRASSROOTS LEADER, UNITED 
                      SENIORS ASSOCIATION

    Ms. JANIS. I would like to begin by thanking you, Mr. 
Chairman, for holding this hearing on ways to improve Social 
Security for women, seniors, and working Americans. As a 
national Grassroots Leader of United Seniors Association, I 
commend you for your energetic, constant support in 
strengthening Social Security. I encourage you in your 
leadership as Congress considers ways to improve and strengthen 
Social Security for seniors, our children, and our 
grandchildren. United Seniors Association stands for uniting 
the generations for America's future.
    My name is Anna Janis. I am retired, and I live in 
Louisville, Colorado. Mr. Chairman, I am deeply concerned about 
the future of Social Security after 2016. I rely on my Social 
Security for 67 percent of my income. The remaining 33 percent 
is derived from certificate of deposit interest. Since I am in 
the 65-plus age group, I may not see the day when Social 
Security pays out more than it takes in. However, I am still 
concerned about its consequences for my retirement, not only 
for the financial loss but also the loss of freedom, 
independence, and control of my destiny.
    I must admit that I did not think about Social Security and 
retirement until I was forced to do so at the age of 51. I am 
like millions of women who face similar or worse situations. It 
was necessary for me to enter the job market for the next 14 
years until retirement and assume the obligation of a daughter 
entering college and a son entering high school. I realized 
that I could meet this commitment and plan for my retirement 
because the Social Security system was well funded.
    Widows and widowers do face a dilemma. Under any fair and 
rational system, a person who dies after years of contributing 
to the system would still receive substantial benefits. But the 
current Social Security system takes just the opposite 
approach. The death benefits are not enough to even pay for 
funeral expenses, and then in some cases there are limited 
survivors' benefits.
    My experience has made me very passionate to preserve 
Social Security, especially to have some peace of mind that I 
can count on receiving my Social Security check in the future. 
The need is urgent and must be addressed immediately.
    I know that comprehensive reform is going to take some time 
and should not be rushed into hastily. However, I believe it is 
time for Congress to give seniors the peace of mind they 
deserve by giving them a written guarantee for their Social 
Security benefits. Such a guarantee would reassure 
beneficiaries without making meaningful reform of the system 
more difficult or expensive.
    I am disheartened that after paying Social Security taxes 
over my lifetime that I have no legal right to my benefits. 
Unfortunately, the U.S. Supreme Court ruled in Fleming v. 
Nestor that Americans have no legal right to their Social 
Security benefits.
    I am aware that legislation has been introduced that would 
provide me with a written guarantee that nothing will 
jeopardize my Social Security benefits, not just for me but for 
all the seniors so they will know they can depend on Social 
Security for their income.
    Another problem is those who get divorced. If a wife 
chooses to be a homemaker, she only qualifies for Social 
Security if she is married 10 years to a husband who is 
qualified. While this might have made some sense at one time, 
it makes no sense today when so many marriages end in divorce. 
I have heard that the average marriage only lasts about 7 
years, 3 years short of the 10 required to qualify for Social 
Security.
    Suppose a young woman gets married shortly after high 
school, works as a homemaker for 9 years, and gets divorced. 
Then she works for a few years, and being young, remarries, but 
in 9 years divorces again. She could easily be in her early 
forties and still not qualify for Social Security. If she were 
to become disabled, she would not qualify for disability 
benefits under Social Security. The situation strikes me as 
unfair. At the very least, Congress should allow the time a 
homemaker is married to a worker paying into Social Security to 
count toward her qualifying time.
    All of these problems are exacerbated by the financial 
crisis facing Social Security. You know that in about 15 years, 
Social Security will have to start paying out more than it 
takes in. That makes a lot of older workers and seniors 
nervous. The biggest disservice to seniors is to do nothing. 
Facts are facts. Eventually, the trust fund will be exhausted 
and the income from payroll taxes will only be enough to cover 
73 percent of benefits. The problem will continue to get worse. 
There must be a sustainable plan not only for seniors but for 
our children and their children.
    The only proposal that will assure that Congress does not 
raid the Social Security surplus is enactment of personal 
retirement accounts. We must move from the present debt-
building system to one that is wealth-building. These accounts 
could occur in insurance premiums that pay a substantial death 
benefit rather than the low $255 Social Security actually pays, 
and the account balance would go to the surviving spouse 
because he or she would have a private property right to the 
money. Contributions could be split between the husband and 
wife, either at the time they are made or in the case of a 
divorce. Splitting the funds means a homemaker would get her 
fair share rather than being denigrated to a second-class 
citizen status.
    Chairman SHAW. Your time has expired.
    Ms. JANIS. Okay. I just had the conclusion, so that is 
fine. Thank you, sir.
    Chairman SHAW. Thank you.
    [The prepared statement of Ms. Janis follows:]
  STATEMENT OF ANNA JANIS, NATIONAL GRASSROOTS LEADER, UNITED SENIORS 
                              ASSOCIATION

    I would like to begin by thanking you, Mr. Chairman, for holding a 
hearing on ways to improve Social Security for women, seniors and 
working Americans. As a National Grassroots Leader of United Seniors 
Association, I commend you for your energetic, constant support in 
strengthening Social Security. I encourage you in your leadership as 
Congress looks at how to improve and strengthen Social Security for 
seniors, our children, and our grandchildren. United Seniors 
Association stands for Uniting the Generations for America's 
Future.TM
    My name is Anna Janis. I am retired and live in Louisville, 
Colorado.
    Mr. Chairman, I am deeply concerned about the predicted failure of 
Social Security in 2016. I rely on Social Security for 67 percent of my 
income; the remaining 33 percent is derived from certificate of deposit 
interest. Since I am in the 65+ age group, I may not see the day when 
Social Security pays out more than it takes in. But I am still 
concerned about its consequences for my retirement, not only for the 
financial loss but also the loss of freedom, independence and control 
of my destiny.
    I must admit that I did not think about Social Security and 
retirement until I was forced to at the age of 51. I am like millions 
of women who face similar or worse situations. It was necessary for me 
to enter the job market for the next 14 years until retirement and 
assume the obligation of a daughter entering college and a son entering 
high school. I realized that I could meet this commitment and plan for 
my retirement because the Social Security system was well funded.
    The Dilemma for Widows/Widowers. Under any fair and rational 
system, a person who dies after years of contributing to the system 
would still receive substantial benefits. But the current Social 
Security system takes just the opposite approach. The death benefits 
are not enough to even pay for funeral expenses and then you receive 
very limited survivor's benefits.
    My experience has made me very passionate to preserve Social 
Security. Especially to have some peace of mind that I can count on 
receiving my Social Security check no matter what. The need is urgent 
and must be addressed immediately.
    I know that comprehensive reform is going to take some time and 
should not be rushed into hastily. However, I believe it is time for 
Congress to give seniors the peace of mind they deserve by giving them 
a written guarantee for their Social Security benefits. Such a 
guarantee would reassure beneficiaries without making meaningful reform 
of the system more difficult or expensive.
    I am disheartened that after paying Social Security taxes over my 
lifetime that I have no legal right to my benefits. Unfortunately, the 
U.S. Supreme Court ruled in Fleming v. Nestor (1960) that Americans 
have no legal right to their Social Security benefits.
    I am aware that legislation has been introduced that would provide 
me with a written guarantee that no matter what, nothing will 
jeopardize my Social Security benefits. Not just for me but for all 
seniors so they will know they can depend on Social Security for income 
they can count on.
    The Dilemma for the Divorced. Another problem is those who get 
divorced. If a wife chooses to be a homemaker, she (and the vast 
majority making this choice will be women) only qualifies for Social 
Security if she is married 10 years to a husband who is qualified. 
While this may have made some sense back in 1935 when Social Security 
was created, it makes no sense today when so many marriages end in 
divorce. I have heard that the average marriage only lasts about seven 
years--three years short of the ten required to qualify for Social 
Security.
    Suppose a young woman gets married shortly after high school, works 
as a homemaker for nine years and gets divorced. Then she works for a 
few years and remarries for nine years and divorces again. She could 
easily be in her early 40s and still not qualify for Social Security. 
If she were to become disabled, she would not qualify for disability 
benefits under Social Security. The situation strikes me as completely 
unfair. At the very least, Congress should allow the time a homemaker 
is married to a worker paying into Social Security to count toward her 
qualifying time.
    The Dilemma of a Bankrupt System. All of these problems are 
exacerbated by the financial crisis facing Social Security. All of you 
know that in about 15 years, Social Security will have to start paying 
out more than it takes in. That makes a lot of older workers and 
seniors nervous. Will the system be there for me when I need it? We 
must have a plan. The biggest disservice to seniors is to do nothing. 
Facts are facts, eventually the Trust Fund will be exhausted and the 
income from payroll taxes will only be enough to cover 73 percent of 
benefits. The problem will continue to get worse, in 2075 there will 
only be enough income from payroll taxes to cover 67 percent of 
benefits. There must be a sustainable plan, not only for seniors, but 
for our children and their children.
    Personal Retirement Accounts Would Solve these Problems. The only 
proposal that will ensure that Congress does not raid the Social 
Security surplus is enactment of ``Personal Retirement Accounts''. We 
must move from the present debt building system to one that is wealth 
building. These accounts could include an insurance premium that paid a 
substantial death benefit rather than the paltry $255 Social Security 
actually pays. And the account balance would go to the surviving spouse 
because he or she would have a private property right to the money. 
Contributions could be split between the husband and wife, either at 
the time they are made or in the case of a divorce.
    Splitting the funds means a homemaker would get her fair share 
rather than being denigrated to a second-class citizen status.
    Conclusion. Mr. Chairman, in light of these problems I have briefly 
highlighted what I and millions of women face, Congress can act now to 
greatly lift burdens from the shoulders of senior women across America. 
While the debate on over-arching reform of Social Security should 
continue energetically, I believe there are three actions that Congress 
can take immediately with substantial bipartisan support to very 
practically help tens of millions of women and men who now face 
financial hardship and fear.

          1. Pass Social Security Benefits Guarantee Legislation: 
        Women make up a disproportionate percentage of seniors at or 
        near the poverty level. In extraordinarily high numbers, they 
        depend on Social Security. The fear of losing benefits in the 
        future runs extremely high. Mr. Chairman, I commend you for 
        championing such a significant piece of legislation for a real 
        guarantee of Social Security Benefits for seniors.
          2. Cut taxes on Social Security Benefits: In 1993, the 
        deciding vote to greatly increase taxes on seniors' Social 
        Security benefits was cast by Vice President Al Gore. Since 
        that year this tax has pulled more and more seniors into its 
        clutches. Women, whose life expectancy is longer than that of 
        men, will be taxed heavily on benefits for which they paid 
        taxes their whole lives.
          3. End the Earnings Limit on Seniors Age 62-64: Because 
        women often enter retirement with lower average lifetime 
        earnings, their Social Security often must be supplemented. For 
        those women age 62-64 the tax punishment for working even a 
        minimal amount in a year is still extremely heavy. Congress 
        should end all earnings limits and lift this major financial 
        burden from women and men.

    Again, Mr. Chairman, thank you for your work on these important 
issues, and for inviting me to speak today on behalf of United Seniors 
Association.

                               

    Mr. Lewis. [Presiding.] Mr. Atwater?

  STATEMENT OF FRANK G. ATWATER, NATIONAL PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF RETIRED FEDERAL 
                           EMPLOYEES

    Mr. ATWATER. Mr. Chairman, Mr. Matsui, and other Members of 
the Subcommittee, I am Frank G. Atwater, National President and 
Chief Executive Offier of the National Association of Retired 
Federal Employees, NARFE, and I am testifying today on behalf 
of NARFE's more than 400,000 Members and representing 2.4 
million Federal retirees.
    I would like to first commend you, Chairman Shaw, for 
stepping up to the challenge of making serious proposals for 
reforming Social Security. Although your bill, H.R. 3497, is so 
comprehensive that there are surely aspects of it that will not 
be resolved in this Congress, I do agree that we cannot afford 
to wait any longer to address some changes which have 
considerable support for reform now.
    One of the issues which your bill addresses is the 
government pension offset, or the GPO. NARFE has long sought to 
reform this provision of the law which has denied many of our 
older Members the economic dignity they had been led to expect 
in retirement.
    I, therefore, appreciate your invitation to appear before 
you today both to reiterate NARFE's support and to urge the 
Subcommittee's immediate action on reform of the GPO and 
provisions which would enhance benefits for women and other 
retirees.
    When Social Security was originally enacted in 1935, it 
provided the same benefits to workers with and without spouses 
and provided no survivor benefits. In 1939, spousal and 
survivor benefits were added to provide extra protection to 
workers with families. But in the past 2 decades, some spouses 
and survivors have been shortchanged on this ``extra 
protection.''
    The GPO went into effect in 1983. Since then, it has 
affected over 340,000 Federal, State, and local retirees. This 
figure grows by approximately 15,000 each year. The GPO reduces 
or eliminates the Social Security spousal or survivor benefit 
to which an affected retiree may be eligible. Two-thirds of the 
monthly government annuity that a public servant has earned is 
offset against whatever Social Security spouse or survivor 
benefit might be payable. By all accounts, the two-thirds is an 
arbitrary percentage. As such, we believe it can and should be 
reexamined and relaxed.
    Of the approximately 340,000 affected beneficiaries, about 
80 percent receive no benefit at all, but I think it is crucial 
to recognize that almost 70 percent of the 340,000 affected 
beneficiaries are women.
    Mr. Chairman and Members of this Subcommittee, I know, as I 
am sure many of you do, that the harshness of the current GPO 
causes both fears and tears among thousands of older retirees. 
Fears for their financial futures and tears of frustration that 
Congress has not acted to reform this provision, despite 
widespread support for doing so.
    There are today several bills before Congress that would 
offer relief to the hundreds of thousands of former teachers, 
cafeteria workers, postal workers, VA nurses, Social Security 
employees, and others who worked long and hard to help support 
their families. In fact, more than 300 Members of this Congress 
have cosponsored one or more of the pending bills. The 
Chairman's own Social Security reform bill proposes reducing 
the current two-thirds offset amount to a one-third offset.
    My written testimony cites examples of what this particular 
change, a one-third offset versus a two-thirds offset, might 
make in the monthly income of an affected widow. In the 
interest of time, I will not read those two examples, but I can 
tell you that this change would help many.
    At a hearing before this panel on June 27, 2000, Mrs. Ruth 
Pickard, a longtime NARFE Member and a constituent of yours, 
Chairman Shaw, was with me. She spoke of raising her children 
and working to make ends meet, 24 years with the U.S. Postal 
Service and 24 years in the private sector. She continues to 
work today at age 75 because she says she cannot afford to 
stop. And, she continues to pay Social Security taxes on her 
wages, but she will never reap the benefits of these taxes.
    The current GPO prevents her from getting any spousal 
benefit because two-thirds of the amount of her Federal annuity 
totally eliminates that Social Security benefit. She gets her 
own benefit, but even that is reduced by another offset that we 
heard about this morning. The windfall elimination provision of 
the WEP also affects her. Your proposal, Mr. Chairman, with the 
reduction of a two-thirds to one-third GPO, could quite 
possibly allow her to receive her spousal Social Security 
benefit, which could provide her with a higher benefit than she 
currently receives from her own work.
    Although not here with me today, Ruth joins me in thanking 
you, Mr. Chairman, for realizing the need of GPO reform. Social 
Security actuaries project that implementation of the one-third 
GPO provision would increase the size of the Old-Age Survivors 
and Disability Insurance actuarial deficit by an amount 
estimated at 0.02 percent of the taxable payroll.
    The Social Security system has endured and will continue to 
endure some serious challenges over the next century. None of 
us can predict what this program or our economy will be like 75 
years from now and probably none of us will be around for that 
time, either. One thing is certain. Changes are inevitable, and 
since we know that some of our seniors need help right now, I 
believe that we must make those changes right now.
    In an advisory announcement of this hearing, Chairman Shaw, 
you stated, ``Information about Social Security's benefits and 
its future is out there, but some question whether such 
information is sufficient or widely understood. We should begin 
now to improve women's benefits, reassure seniors that their 
promised benefits are secured, and better educate Americans 
about Social Security.''
    On behalf of the some 400,000 Members of NARFE, Mr. 
Chairman, I am offering to assist in the effective 
dissemination of factual information about Social Security and 
provide this panel and you, sir, with any information that you 
might need that would help to take care of the GPO. Thank you 
very much, Mr. Chairman.
    Chairman Shaw. [Presiding.] Mr. Atwater, you went over, but 
you were saying nice things about the Chairman so that is all 
right.
    [Laughter.]
    Mr. ATWATER. I had a couple more things to say, Mr. 
Chairman, but I kept seeing you wanting to tap that.
    Chairman SHAW. I was tapping it.
    Mr. ATWATER. Thank you very much, sir.
    [The prepared statement of Mr. Atwater follows:]

 STATEMENT OF FRANK G. ATWATER, NATIONAL PRESIDENT AND CHIEF EXECUTIVE 
       OFFICER, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES

    Mr. Chairman and Members of the Subcommittee, I am Frank G. 
Atwater, National President and CEO of the National Association of 
Retired Federal Employees (NARFE). I am testifying, today, on behalf of 
the more than 400,000 federal retirees, employees, spouses, and 
survivors who are NARFE members.
    I would first like to commend you, Chairman Shaw, for stepping up 
to the challenge of making serious proposals for reforming Social 
Security. Although your bill, HR 3497, is so comprehensive that there 
are surely aspects of it that will not be resolved in this Congress, I 
do agree with you that we cannot afford to wait any longer to address 
some changes which have considerable support for reform now.
    One of the issues, which your bill addresses, is the Government 
Pension Offset (GPO). NARFE has long sought to reform this provision of 
law which has denied many of our older Members the economic dignity 
they had been led to expect in retirement. I, therefore, appreciate 
your invitation to appear here before you today both to reiterate 
NARFE's support and to urge this Subcommittee's immediate action on 
reform of the GPO and provisions which would enhance benefits for women 
and other retirees.
    In 1935, when the Social Security Act was originally enacted, it 
provided the same benefits to workers, with and without spouses, and 
provided no survivors' benefits. The Social Security Act amendments of 
1939 added spousal and survivor benefits to provide extra protection to 
workers with families. But in the past two decades, some spouses and 
survivors have been shortchanged on this ``extra protection''.
    The GPO Social Security Act amendment, originally enacted in 1977, 
went into effect in 1983, and since then has affected over 340,000 
federal, state, and local retirees. This figure grows by approximately 
15,000 each year. The GPO reduces or eliminates the Social Security 
spousal or survivor benefit to which an affected retiree may be 
eligible. Two-thirds of the amount of the monthly government annuity 
that a public servant has earned, is applied as an offset against 
whatever Social Security spouse/survivor benefit might be payable. By 
all accounts, the use of two-thirds of the public retirement income as 
offset against the social security income is an arbitrary percentage. 
As such, we believe it can and should be reexamined and relaxed.
    Of the approximately 340,000 affected beneficiaries, about 80 
percent are fully offset, which translates into no benefit at all. It 
is worth noting that about 40 percent of the total number of affected 
beneficiaries are widowed individuals, and roughly 70 percent of that 
number are fully offset. But I think it is crucial to recognize that 
almost 70 percent of the 340,000 affected beneficiaries are women.
    Mr. Chairman, and Members of this subcommittee, I know--as I'm sure 
some of you do--that the harshness of the current GPO causes both fears 
and tears among hundreds of older retirees. Fears for their financial 
futures, and tears of frustration that Congress has not acted to reform 
this provision despite widespread support for doing so.
    There are today several bills pending before Congress which would 
offer relief to the hundreds of thousands of former teachers, cafeteria 
workers, postal workers, VA nurses, social security employees, and 
others who worked long and hard to help support their families. In 
fact, more than 300 Members of this 107th Congress have indicated their 
support for change in the GPO by cosponsoring one or more of the 
pending bills. The Chairman's own Social Security reform bill proposes 
reducing the current two-thirds offset amount to a one-third offset.
    I'd like to cite examples of what this change might mean to an 
affected widow.
Example One--Current 2/3 GPO affect:

    Mary, a widow, retires from her government job with a gross monthly 
annuity of $900. She is eligible for a Social Security widow's benefit 
of $600. The combined amounts total $1500. She has not worked under 
Social Security long enough to qualify on her own account. The $600 
Social Security widow's benefit is reduced by two-thirds of the $900 
annuity, because of the GPO, which is $600. She gets no Social Security 
because the $600 is totally eliminated. Her gross monthly widow's 
benefit is therefore $900 instead of $1500.
Example Two--Proposed 1/3 GPO affect:

    Jane, a widow, retires from her government job with a gross monthly 
annuity of $900. She is eligible for a Social Security widow's benefit 
of $600. The combined amounts total $1500. She has not worked under 
Social Security long enough to qualify on her own account. The $600 
Social Security widow's benefit is reduced by one-third of the $900 
annuity, because of the GPO, which is $300. Combine the $300 Social 
Security widow's benefit with the annuity and her gross monthly widow's 
benefit is therefore $1200 instead of $900.
    At the June 27, 2000 hearing, on the issue of the Government 
Pension Offset (GPO), Mrs. Ruth Pickard, a longtime NARFE member and a 
constituent of yours, Chairman Shaw, was with me. She spoke of raising 
her children and working to make ends meet, twenty-four (24) years in 
civil service with the United States Postal Service (USPS) and twenty-
four (24) years in the private sector. She continues to work today, at 
75 years of age, because she says that she cannot afford to stop. And, 
she continues to pay social security taxes on her wages, but she will 
never reap the benefits of her current payments.
    The current GPO prevents her from getting her spousal benefit 
because two-thirds (\2/3\) of the amount of her pension totally 
eliminates that Social Security benefit. She gets her own benefit, but 
even that is much less because another offset, the Windfall Elimination 
Provision (WEP), also affects her. Your proposal, Mr. Chairman, with 
the reduction from a two-thirds (\2/3\) to a one-third (\1/3\) GPO, 
could quite possibly allow her to receive her spousal social security 
benefit, which could provide her with a higher benefit than she 
currently receives from her own work. She expresses her gratitude to 
you, Chairman Shaw, for addressing the need for GPO reform in your 
legislation.
    Social Security Administration actuaries have determined that 
implementation of the one-third (\1/3\) GPO provision would increase 
the size of the OASDI actuarial deficit by an amount estimated at 0.02 
percent of taxable payroll. This amount is not negligible but included 
in a total Social Security reform package, it will help significantly 
in alleviating some of the hardships that retired government employees 
have to endure with the current GPO.
    The Social Security system has endured and will continue to endure 
some serious challenges and concerns over the next century. None of us 
can predict what this program or our economy will be like seventy-five 
years from now. Nor will any of us here today be around to know. One 
thing is certain, some changes are inevitable. And since we know that 
some of our seniors need help right now, I believe that we must make 
some changes right now.
    In the advisory announcement of this hearing, Chairman Shaw, you 
stated, ``Information about Social Security's benefits and its future 
is out there, but some question whether such information is sufficient 
or widely understood. We should begin now to improve women's benefits, 
reassure seniors that their promised benefits are secured, and better 
educate Americans about Social Security.''
    On behalf of the over 400,000 members of the National Association 
of Retired Federal Employees, I am offering to assist in the effective 
dissemination of factual information about Social Security, its 
benefits and it's future. Our association stands ready to use our 
varied communication resources to better educate and reassure our 
members and others about Social Security--its benefits, its funding and 
its future.
    Mr. Chairman, again, I thank and commend you and this panel for 
recognizing the need for change in the GPO and for addressing it as 
part of this hearing today. We know individuals like Ruth Pickard can't 
wait until Congress agrees on comprehensive Social Security reform. 
Towards that end, NARFE urges that today's hearing be used to initiate 
House action so that GPO and other reforms for women can be enacted 
before this 107th Congress adjourns.

                               

    Chairman SHAW. Ms. Wolfe?

 STATEMENT OF NIESHA M. WOLFE, CHIEF EXECUTIVE OFFICER, NIESHA 
 M. WOLFE CPA FIRM, CLARKSVILLE, TENNESSEE, AND MEMBER, WOMEN 
        IMPACTING PUBLIC POLICY, OKLAHOMA CITY, OKLAHOMA

    Ms. WOLFE. If I say nice things about you, do I get an 
extra minute, also?
    [Laughter.]
    Ms. WOLFE. Good afternoon, Mr. Chairman and Members of the 
Subcommittee. My name is Niesha Wolfe, and I am the owner of a 
certified public accounting firm in Clarksville, Tennessee. I 
am also a Member of WIPP, Women Impacting Public Policy, and 
today I am presenting testimony on behalf of WIPP's 250,000 
Members. WIPP is a bipartisan policy organization that 
advocates for women in business.
    Obviously, the stakes for women in the Social Security 
reform debate are extremely high. As has been said many times 
here today, women are more likely to live in poverty during 
their retirement years than men. Sorry, guys, but I guess we 
are definitely going to live longer than you all are. I remind 
my husband about that all the time. And also, too, women are 
comparatively more likely to rely on Social Security to provide 
the majority of their retirement income.
    Because of time constraints, let me just skip to our 
proposals and what we recommend. Education, this has been 
mentioned here before, that is kind of a no brainer. As we 
visit, the leaders of WIPP visit with women business owners 
around the country, we realize, like myself, that we are first-
generation business owners. And therefore, even though I 
consider myself learned in this particular area, I realize that 
so many women business owners, even though we are multi-tasked, 
we have not educated ourselves on our retirement and Social 
Security so we do not understand it. So education, I think, is 
very important.
    PRA, personal retirement accounts, we feel definitely that 
we should be allowed some sort of say-so over these 
individually directed PRAs. We talked about the cash imbalance 
in Social Security, so I will not hammer that, but we strongly 
urge personal accounts versus government direct investment. An 
account that is modeled after the Thrift Savings Plan would 
protect property rights over personal account balances in the 
event of divorce, which we have talked about, and this would 
result in a level of protection that is greater than that 
present in the current system. These accounts are safe and easy 
to manage. They should offer three basic investment choices, a 
stock index fund, a corporate bond fund, and a government bond 
fund. Any of these would allow the owner to earn more than what 
the current Social Security system pays in current taxes.
    Thirdly, I cannot say this strongly enough, personally, I 
can get involved in this one. We strongly oppose an increase in 
the payroll taxes. I am sure any of you that have owned a 
business or have friends that own businesses, which probably 
would include everyone in this room, know that no matter what 
your bottom line is, you always have to pay payroll taxes. My 
business also involves helping people get out of those 
wonderful dreaded penalties and interest because they are one, 
two, sometimes even a year late paying their Social Security 
taxes. It is an onerous thing. It is something that we all pay. 
We do not mind paying it. I think we would be a little bit 
happier writing that check if we knew we had some personal 
responsibility and some decision making over that. If we 
increase the FICA tax, I can personally give you a percentage 
of my clients that would go out of business. There is no doubt 
about it.
    We need to guarantee a safety net or minimum government 
benefit for all retirees. It should be very simple to develop a 
personal retirement account plan that includes a safety net 
with the same guarantee level of retirement benefits that today 
Social Security promises. The big difference, and we stated 
this here many times, is that this reform plan would have 
assets to meet its obligations, and we have all read the papers 
in the last couple of months and we know that does not always 
happen, that we have assets.
    Five, preserve the benefits of retirees and near-retirees. 
This has been said over and over again. We know we are facing a 
crisis and we need to change this so that we have a savings 
component of the Social Security system.
    Six, we oppose general revenue transfers, which will 
primarily be income taxes, to Social Security if there are no 
structural reforms. And last, we do not believe that the 
government should invest in the stock market.
    We are definitely not advocating getting rid of Social 
Security. We believe that Social Security should be preserved 
so future generations of women are protected from poverty. A 
viable Social Security proposal will reduce the projected 
growth of tax burdens upon future generations, for your 13 
grandkids. I do not have any yet. Hopefully, I will have some 
soon, so it should protect mine, too.
    The proposal structure must be fair and equitable with a 
rate of return that enables the total benefits to equal the 
total tax contributions.
    Thank you so much for allowing me the opportunity to 
present these ideas to your Subcommittee. The Members of Women 
Impacting Public Policy stand ready to support any real 
structural meaningful reform in the system and hope to work 
with you in the future. Thank you.
    [The prepared statement of Ms. Wolfe follows:]

STATEMENT OF NIESHA M. WOLFE, CHIEF EXECUTIVE OFFICER, NIESHA M. WOLFE 
 CPA FIRM, CLARKSVILLE, TENNESSEE, AND MEMBER, WOMEN IMPACTING PUBLIC 
                    POLICY, OKLAHOMA CITY, OKLAHOMA

    Good morning Mr. Chairman and Members of the Committee. My name is 
Niesha Wolfe and I am CEO of Niesha M. Wolfe, CPA firm. We specialize 
in small business accounting and tax services in Clarksville, 
Tennessee. I am also a member of Women Impacting Pubic Policy (WIPP) 
and present this testimony in behalf of WIPP's more than 250,000 
members. WIPP is a national bi-partisan public policy organization that 
advocates for and in behalf of women in business, strengthening their 
sphere of influence in the legislative process of our nation, creating 
economic opportunities and building bridges and alliances to other 
small business organizations.
    The Center for Women's Business Research, founded as the National 
Foundation for Women Business Owners (NFWBO) 2002 statistics reflects 
there are 6.2 million women business owners with majority ownership. 
These firms employ more than 9.2 million workers (52 percent of those 
workers being women) and generates more than $1.15 trillion in annual 
revenues.
    One of the most important concerns in the Social Security reform 
debate pertains to how American women would be affected, both under 
reforms and under the current system. American women are more likely to 
live in poverty during their retirement years than are men. Women are 
also comparatively more likely to rely on Social Security to provide 
the majority of their retirement income. The stakes for women in the 
Social Security reform debate are extremely high thus, focusing the 
debate on how women will be impacted is critical.

The problem for small business:

    The ``three legged stool'' of Social Security, personal savings and 
public and private pension plans is being increasingly threatened. The 
current ``pay as you go'' system will become a serious drag on the 
economy and will limit economic growth if it is not reformed soon. The 
projected growth in the costs of the Social Security program will crowd 
out other programs. We are faced with a Social Security system that is 
unsound, a rapidly aging population and unacceptably low rates of 
personal savings. We need significant public policy and social 
responses to these issues.

Social Security and Women:

    Apart from questions of the systems solvency, there are various 
factors that lead to differential treatment of women under the Social 
Security system.

     Women, on average, live longer than men. On the positive 
side, this means that women are less likely than men to die before 
receiving their money's worth from the Social Security retirement 
program. At the same time, as women live longer, their need for 
benefits increases, as the chances grow that they will ``outlive'' 
their non-Social Security savings.
     Women, on average, have lower lifetime earnings than men. 
Though less true today than at the time of Social Security's inception, 
it is still the case that work interruptions and pay-level 
differentials produce an expectation of lower lifetime earnings for an 
American woman relative to an American man. Social Security has a 
progressive benefit structure in which a higher rate of return is paid 
on low-wage contributions than on high-wage contributions. As women are 
more likely to have low-wage histories than men, they are thus more 
likely to receive this slightly higher rate of return--but on a lower 
level of earnings. With more and more women opening their own 
businesses, this will begin to change; however, we have a number of 
years to go before we see what types of changes this will bring to the 
current system. Women who take time away from employment to raise a 
family or care for others including parents have shorter working 
careers and lower lifetime earnings than those who have unbroken 
careers. Lower lifetime earnings lead to lower long-term contributions 
to Social Security and pensions and therefore lower benefits in 
retirement. Numerous studies show women achieving stronger roles and 
greater importance in the work force. Approximately 75 percent of that 
work force will pay more in Social Security taxes than they do in 
income taxes. This leaves them little or nothing to save or invest for 
their retirement.
     Higher poverty rates for elderly women persist under the 
current system--with warning signs for tomorrow. Under the current 
Social Security system, one in five retired women is left in poverty 
after the death of their spouses.

    Poverty among elderly women is highest among widows, divorcees and 
the never married. The growing number of young women in the latter two 
categories suggests that many future elderly will miss out on the 
``social insurance'' protections of the current Social Security system. 
Another key problem facing divorcees, is if the marriage lasted for 
fewer than 10 years, or if the divorced woman remarries, she may lose 
all claim to benefits based on her previous marriage. The large 
increase in divorce rates over the past decades will mean an increased 
percentage of women entering their elderly years without the income 
protections that have traditionally been extended to married women and 
to widows.
    Social Security IS very important to women. Maintaining the current 
system would do little to help them, and in fact, do more to stifle any 
creation of individual or family wealth. According to The Heritage 
Foundation:

         In most cases, women receive little benefit from 
        their husband's Social Security after his death. Social 
        Security only pays survivors benefits if there are children 
        under the age of 18, or if the widow receives lower benefits 
        than her husband does.
         If the wife receives either the same monthly Social 
        Security retirement benefit as her husband, or a larger one 
        that he did, all she gets is a $255 death benefit.
         Because Social Security benefits are calculated using 
        a worker's highest 35 years of earnings, women who spend more 
        than a couple years out of the workforce caring for a family 
        receive extremely low benefits.
         Numbers are even worse for African American women. A 
        60 year old woman living in Chicago's South Side earns the 
        equivalent of only 2.75 percent a year after inflation. Her 35 
        year old daughter would ``earn'' less than half that much 
        (1.47), while her 15 year old granddaughter will ``earn'' just 
        over a third as much as grandmother does (1.01 percent 
        annually). If these women had been able to invest their Social 
        Security taxes half in government bonds and half in stock index 
        funds, they could each have at least $250,000 more for 
        retirement.

Proposed Actions to Address the Social Security Problem:

    Congress must stabilize the Social Security system. This may 
involve reforms in benefit formulas and/or payroll and benefit 
taxation. Because any reform will impact the current populace and 
future generations; small and large businesses and the federal budget; 
in summary our country's entire economic base, each consideration must 
be carefully analyzed as part of the ``whole''.
    WIPP's members believe the following principles must apply to the 
reform process:
    (1) Education is essential. As in life expectancy, we all want to 
believe we will live forever. Therefore, we have a tendency to put off 
writing that will or creating a Trust for our children and thinking 
about retirement is in that same category. Women must have access to 
more financial education pertaining to retirement and where and how 
Social Security will impact their lives. As the leaders of WIPP visit 
with women business owners around the country, we realize that they are 
first generation business owners. They are just now beginning to think 
about retirement and how they will pay for their financial security. 
This is not to say that women don't take time to educate themselves 
about Social Security or that they are not interested. Information 
about Social Security's benefits and its future are out there but it is 
not sufficient, it's widely misunderstood, and women simply do not know 
who to believe about the system. We should begin NOW to improve women's 
understanding of Financial Security, reassure seniors that their 
promised benefits are secure and better educate all Americans about 
Social Security.
    (2) Permit workers to invest their retirement payroll taxes (FICA) 
in individually directed personal retirement accounts (PRA's). The 
system's ``pay as you go'' character currently means that large near-
term surpluses will be followed by large deficits. These large cash 
imbalances would need to be addressed by some allocation of tax 
increases, benefit cuts, or federal borrowing. The smaller the cash 
imbalances, the less likely that they will be resolved through benefit 
reductions. Of the competing available means of advance funding Social 
Security--personal accounts vs. government-directed investment of the 
Trust Fund is much preferred. Some personal account proposals modeled 
after the Thrift Savings Plan would protect property rights over 
personal account balances in the event of divorce, resulting in a level 
of protection that is greater than that present in the current Social 
Security system. Also, women would benefit more, proportionally, from 
features that add to the progressivity of a personal account system, 
for example through progressive contributions to accounts. Personal 
retirement accounts are safe and easy to manage. If they were 
structured similarly to the federal government employees' Thrift 
Savings Plan, they would offer three basic investment choices: stock 
index fund, a corporate bond fund and a government bond fund. Any of 
the three would allow the owner to earn more than what Social Security 
pays on her current taxes.
    (3) Oppose an increase in payroll taxes. FICA is in many cases the 
largest and most burdensome tax small business owners pay. It's 
particularly tough because you have to pay it whether you're profitable 
or not. With a razor-thin profit margin, it can be a matter of 
survival. If the federal government doesn't structurally reform Social 
Security and payroll taxes have to increase to keep the benefit checks 
flowing, it's going to put a lot of small, women-owned companies out of 
business. One alternative to benefit cuts is simply to raise taxes. 
Elderly women could simply hope that future congresses will agree to 
raise effective tax rates to the levels that are necessary to spare 
them from reductions in their retirement benefits. This is not 
acceptable.
    (4) Guarantee a ``safety-net'' (minimum government benefit) for all 
retirees. It should be very simple to develop a personal retirement 
account plan that includes a safety net with the same guaranteed level 
of retirement benefits that today's Social Security promises. The 
difference would be that a reformed plan includes the assets to meet 
its obligations.
    (5) Preserve the benefits of retirees and near retirees. As 
America's population ages, the ratio of workers to retirees will 
plummet, and the cost of paying Social Security benefits will rise 
dramatically under the current ``pay as you go'' system. For American 
women, this probably means that tax revenues will be inadequate to fund 
the benefit promises on which they rely to a greater extent than men. 
Although there will be a positive Trust Fund balance the next few 
years, the choices facing Congress will be exactly the same as they 
would be if there were no Trust Fund at all (because Social Security 
contains no savings component): cut benefits, raise taxes or increase 
federal debt. This could leave a significant percentage of benefit 
promises subject to the results of future political arguments as to 
whether to resolve cash imbalances through reductions in benefits.
    (6) Oppose general revenue transfers (primarily income taxes) to 
Social Security in the absence of structural reforms.
    (7) Oppose government investment in the stock market.

Other ideas to consider:

    In the context of a broader reform that creates personal accounts, 
Congress could begin to address some of the other inequities inherent 
in our current system--such as increasing the widows benefit and 
reducing subsidies from working to non-working spouses.
    (a) Increase survivor benefits, in order that the surviving partner 
receives 75% of the total amount of benefits, which the couple received 
when both were alive. Many of our mothers today are trying to live on 
25% less than what they were living on when their spouse was alive.
    (b) Reduce subsidies of one-earner couples by two-earner couples 
and singles. One of Social Security's strengthening features is that it 
is ``family friendly'' in providing a substantial benefit for a non-
working spouse. The redistribution from two-earner couples from one-
earner couples is, however, excessive to the point where couples that 
cannot afford for one spouse to stay home are effectively subsidizing 
the benefits of wealthier households. For example, a high-incomed one-
earner couple receives a superior rate of return to that of a low-
income two-earner couple. Some of these inequities could--and should--
be alieviated, without destroying Social Security's basic friendliness 
to one-earner households. For example, many proposals would improve the 
targeting of spousal benefits by moving some of the non-working spouse 
benefit into the widow's benefits. At the very least, no proposal 
should be adopted that makes the existing inequities worse.
    No one is talking about getting rid of Social Security! The problem 
that we face is preserving Social Security so that future generations 
of women are protected from poverty. A viable saving Social Security 
proposal will reduce the projected growth of tax burdens upon future 
generations. The proposal must be subject to a rate of return analysis 
that relates total benefits to total tax contributions. We know the 
problem and must rebuild the structure in a fair and equitable manner.
    Thank you for allowing me the opportunity to present these ideas to 
the Committee. The members of Women Impacting Public Policy stand ready 
to support real structural, meaningful reform of the system and hope to 
work with you as you move forward with this initiative.

                               

    Chairman SHAW. Thank you, Ms. Wolfe. Mr. Riemer?

 STATEMENT OF HANS RIEMER, SENIOR POLICY ANALYST AND DIRECTOR, 
 SOCIAL SECURITY INFORMATION PROJECT, INSTITUTE FOR AMERICA'S 
                             FUTURE

    Mr. RIEMER. Chairman Shaw and Members of the Subcommittee 
on behalf of the Institute for America's Future, thank you for 
the opportunity to testify today.
    The Institute for America's Future is a public policy 
organization focused on the needs of America's working 
families, and we are firmly opposed to privatizing Social 
Security, America's most important safety net. Under 
privatization, a large amount of money would be taken out of 
Social Security in order to set up investments for younger 
workers. This drain on Social Security caused by privatization 
is a dire threat to beneficiaries, both current and future.
    In response to this, the House leadership would issue a 
certificate to current beneficiaries pledging that their 
benefits will not be cut, but this promise is an empty one and 
a misleading one, much like the promise made to put the Social 
Security Trust Fund in a lockbox. Indeed, all Americans have 
reason to be suspicious of empty promises about Social Security 
from Congress and the Administration. So far, just about every 
pledge has been broken.
    First, the House leadership has already broken its promise 
to protect the Social Security Trust Fund and the new budget 
shreds this promise entirely. Without question, the Nation's 
pressing needs to respond to the attacks of September 11 
reordered our priorities and erased our short-term surplus. But 
the new White House budget proposes over $600 billion in new 
tax cuts, $1 trillion when the accounting gimmicks are removed, 
paid for by draining additional Social Security surpluses over 
the next 10 years.
    In breaking this lockbox, the budget now uses retirement 
funds to hide mounting debts, an Enron-style accounting 
practice that must change. It would be generous to say that the 
new budget proposals fail to address the challenge of the baby 
boom generation's retirement. In reality, the budget's 
questionable accounting practices are setting the country up 
for a wave of fiscal crises.
    Second, the promise to protect benefits for current 
recipients while privatization drains the trust fund does not 
add up. Privatization would take about $1 trillion out of the 
trust funds over the next 10 years. This money, however, is 
actually the reserve fund designed to pay benefits for those 
currently retired and about to retire, benefits that are also 
promised to be protected. It is not possible to spend that 
money twice. Keeping your promise, therefore, requires large 
surpluses or new revenues, neither of which can be found in the 
current budget. There is no reason, therefore, to take the 
promise seriously.
    Third, the Bush Commission proposed very large cuts in 
Social Security benefits and a disguised increase in the 
retirement age. The Bush Commission's recent proposals for 
Social Security privatization include very large cuts in 
guaranteed benefits for today's workers, as much as 40 percent 
for future retirees. The Commission also proposed a disguised 
increase in the retirement age, which could delay when workers 
become eligible for full benefits even beyond 70 years old. The 
Bush Commission cuts in benefits, it should be noted, affect 
everyone, even those who do not choose investment accounts, 
despite promises that changes would be voluntary. Moreover, the 
Bush Commission proposals, the same large benefit cuts proposed 
affect disability and survivors' recipients, despite promises 
to protect them. This is truly an ominous precedent for the 
future.
    Fourth, the Enron debacle illustrates the importance of 
having a strong safety net in retirement. Investment in private 
equities is an inherently risky proposition, and for most, it 
is a necessary one. Very few have access to any sort of defined 
benefit plan in the private sector. In such an environment, it 
is even more important than ever to maintain Social Security as 
a guaranteed benefit. Workers need a strong safety net to fall 
back on. As the Enron case so dramatically illustrates, 401(k)s 
are vulnerable to substantial losses. If Social Security were 
privatized, however, the basic level of guaranteed benefit 
would not even be enough to keep most workers out of poverty.
    The appropriate question for considering the future of 
Social Security is, what level of guaranteed benefit is 
necessary in order to enable workers to maintain a decent 
standard of living as they grow old? In my view, that level is 
what Social Security currently promises, nothing less. You 
cannot cut back on Social Security in order to make room for 
privatization and still have a system that promises workers 
that after a lifetime of hard work, they will be able to live 
their quiet years in some dignity.
    Fifth, the best recipe for addressing Social Security is 
still bipartisan dialog. As much as some in the leadership 
might wish, Social Security reform is unlikely to occur in a 
divisive, partisan environment. By pushing forward with a 
narrow agenda and using gimmicks such as the guarantee 
certificates, advocates of privatization have undermined 
prospects that all sides will see themselves as participating 
in a meaningful policy dialog. Yet, it is not too late for the 
President and the leadership in both the House and the Senate 
to set aside preconditions and work toward common agreement. 
Indeed, that is the only way that we will ever see meaningful 
progress toward strengthening Social Security for the future.
    Thank you for the opportunity to present my views today.
    [The prepared statement of Mr. Riemer follows:]

 STATEMENT OF HANS RIEMER, SENIOR POLICY ANALYST AND DIRECTOR, SOCIAL 
      SECURITY INFORMATION PROJECT, INSTITUTE FOR AMERICA'S FUTURE

    Chairman Shaw and Members of the Subcommittee on Social Security, 
on behalf of the Institute for America's Future, thank you for the 
opportunity to discuss the future of Social Security today.
    The Institute for America's Future is a public policy organization 
focused on the needs of America's working families. At the Institute, I 
am the director of the Social Security Information Project, which 
brings together a coalition of groups dedicated to strengthening and 
protecting Social Security. We are firmly opposed to privatizing Social 
Security, America's most important safety net.
    I have been asked today to address the question of whether Social 
Security beneficiaries should be mailed ``Guarantee Certificates.'' 
These certificates are intended to promise current Social Security 
beneficiaries that their benefits will not be cut under privatization. 
The sponsors of this proposal are advocates of privatizing Social 
Security, and they appear to think this ``guarantee'' is an answer to 
those who argue that privatization will inevitably entail benefit cuts. 
They may also be responding to charges that current tax and budget 
priorities threaten Social Security's promise of secure benefits. It 
seems to me that this is an important opportunity to raise questions 
about not only this particular promise, but also privatization 
generally and other promises that have been made by advocates of Social 
Security privatization.

The House Leadership's proposal for ``Guarantee Certificates'' looks 
more like a direct-mail scam operation targeting seniors than a real 
effort to improve Social Security.

    According to the intermediate estimates from the Social Security 
Administration, and assuming that nothing is done to improve the 
system, Social Security benefits can be paid in full until the year 
2038. After 2038, if nothing is done, Social Security can pay about 72% 
of promised benefits throughout the century.
    Under privatization, however, a large amount of money would be 
taken out of Social Security in order to set up investments for younger 
workers. As I will explain, this drain on the Social Security system 
caused by privatization represents a dire threat to current 
beneficiaries.
    Presumably as a response to this economic reality, the House 
Leadership is now proposing to issue a certificate to current Social 
Security beneficiaries stating that their benefits will not be cut. But 
this promise is an empty one, much like the promise made to put the 
Social Security Trust Fund in a ``lock box.'' According to the 
nonpartisan Congressional Research Service, even if the Guarantee 
Certificates were mailed out, benefits for current recipients could 
still be changed at any time. If the so-called ``Guarantee 
Certificates'' were to be anything other than a hoax, the legislation 
would also need to improve Social Security financing so that these 
benefits could indeed be guaranteed. It does not appear that the House 
Leadership is proposing to add money to Social Security. Quite the 
contrary.
    The certificates, then, are ill advised--unless the House 
Leadership wishes to become known as the purveyor of a direct mail scam 
operation targeting seniors. Some say that the purpose of these 
certificates is to create political cover for supporters of 
privatization by making a promise to seniors that privatization will 
not cut their benefits. If today's seniors are worried about their 
benefits, they should be--and this blatant effort to mislead them into 
thinking they are protected raises a giant red flag over the Capitol. 
Doubtless some will suspect that the only reason they are being 
provided with a new ``guarantee'' for their benefits is precisely 
because some politicians are planning to take these benefits away.
    Indeed, if the House does move forward with the ``Guarantee 
Certificates,'' why should it only provide that guarantee to current 
Social Security recipients? Why not extend the promises to older 
workers, baby boomers, Generation X and the Millenials?
    Not only seniors, but also all Americans have reason to be 
suspicious of empty promises about Social Security from Congress and 
the Administration. So far, just about every pledge has been broken.

The House Leadership has already broken its promise to protect the 
Social Security Trust Fund. The new budget shreds the promise entirely.

    Without question, the nation's pressing needs to respond to the 
attacks of September 11 reordered our priorities. The recession erased 
much of the surplus over the short term and after September 11, war and 
homeland security took precedence.
    But the new White House budget proposes over $600 billion in new 
tax cuts--$1 trillion when the accounting gimmicks are removed--paid 
for by draining additional Social Security surpluses over the next ten 
years.
    In his address to the Joint Session of Congress in January of 2001, 
President Bush stated that his budget protects ``the Social Security 
surplus for Social Security, and for Social Security alone.'' He stated 
that his ``budget has funded a responsible increase in our ongoing 
operations. It has funded our nation's important priorities. It has 
protected Social Security and Medicare. And our surpluses are big 
enough that there is still money left over.'' It was on this basis that 
Congress enacted the tax cut proposal from the ``money left over'' 
after Social Security was protected.
    It is astounding that Congress would now propose to cut taxes on 
corporations and the affluent even more, with full knowledge that this 
does not come from ``money left over,'' but rather comes directly from 
the Social Security surplus.

In breaking the ``lock box,'' the budget uses retirement funds to hide 
mounting debts--an Enron-style accounting practice that must change.

    It would be generous to say that the new budget proposals fail to 
address the challenge of the baby boom generation's retirement, which 
will begin in six years. In reality, the budget's questionable 
accounting practices are setting the country up for a wave of fiscal 
crises.

        By adding more than $1 trillion in new tax cuts, mainly for 
        the wealthy, the budget is burdening our country with 
        additional debt for years to come. This is an unfortunate 
        parallel to the way in which Enron executives loaded their 
        company with hidden debt, while giving themselves rich salaries 
        and bonuses.

        By not accounting for an adjustment of Alternative Minimum 
        Tax revenues and certain other items, the budget conceals 
        additional, massive liabilities that will have to be addressed 
        eventually.

        By using Social Security and Medicare Trust Funds to hide 
        these debts, the budget may be jeopardizing the retirement 
        security of millions of Americans.

    If the House Leadership and the White House believe that new tax 
cuts are necessary--despite the fact that they use additional Social 
Security surpluses--it would best to advocate for this position while 
presenting the country with a straightforward accounting of costs.

The promise to protect benefits for current Social Security recipients 
while privatization drains the Trust Fund does not add up.

    The Guarantee Certificates put forward by the House Leadership--as 
well as the essential promise put forward by the President--to protect 
current beneficiaries from the impact of privatization, suffers from a 
basic mathematical problem.
    The privatization plans that the Bush Commission has proposed would 
take about $1 trillion out of the Social Security Trust Funds over the 
next ten years and use that money to establish privatized accounts. 
This money, however, is actually the reserve fund that is designed to 
pay benefits for those currently retired and about to retire--benefits 
that you have also promised to protect. It is not possible to spend 
that money twice. Keeping your promise, therefore, requires large 
surpluses or new revenues--neither of which can be found in your 
current budget. There is no reason, therefore, to take the promise 
seriously.
    Moreover, the very large cuts in guaranteed Social Security 
benefits that the Commission admits are required by privatization will 
be so painful to baby boomers (and those who come after them) that it 
is unlikely current retirees would be spared. Many observers, including 
former Social Security administrator Robert Ball, have predicted that 
if such a plan were to be passed by Congress, even current retirees 
would be forced to share the pain of benefit reductions.

The Bush Commission proposed very large cuts in Social Security 
benefits and a disguised increase in the retirement age.

    The Bush Commission's recent proposals for Social Security 
privatization include very large cuts in guaranteed benefits for 
today's workers, as well as a disguised increase in the retirement age. 
One proposed cut, accomplished by changing the formula used to 
calculate initial benefits so that they are indexed to prices rather 
than wages, would reduce benefits by as much as 40% for future 
retirees.
    Advocates of privatization say that the under ``average returns,'' 
investment accounts will make up the difference from what workers have 
lost from Social Security. For a few, it is conceivable, but for many, 
it is obviously impossible. An ``average'' return includes both high-
return and low-return scenarios. According to the analysis of the Bush 
Commission's second plan by the Social Security Administration 
actuaries, an average income retiree who earned low investment returns 
would face large cuts, even when investment accounts are included, 
compared to what Social Security current promises: a 16% cut in 
benefits for a 2032 retiree; a 28% cut for a 2052 retiree; and a 41% 
cut for a 2075 retiree. These figures, unfortunately, are understated, 
for reasons I will address below.
    The Commission also proposed a disguised increase in the retirement 
age, which could delay when workers become eligible for full benefits 
even beyond 70 years old. The Commission proposal would adjust the 
benefit formula for ``life expectancy.'' This has the same effect as 
raising the retirement age, because workers would have to work more 
years to receive the benefits they are expecting to receive today. 
While the Commission's documents say the actuarial adjustments are 
designed ``to improve work incentives,'' the incentive is that you are 
penalized with lower benefits if you do not work longer. Moreover, 
workers who retire early would face additional benefit cuts. Today, 
nearly 67% of workers retire early.

The Bush Commission proposed cuts for disability and survivors 
recipients, despite promises to protect them.

    Nearly one-third of all Social Security beneficiaries are workers 
who have become disabled, and their dependents; as well as widow(er)s 
and their dependents. In President Bush's executive order establishing 
his Social Security Commission, and in many related remarks, he stated 
clearly that the ``disability and survivors components'' of the program 
would be ``preserved.'' Yet, despite these promises, the Commission has 
proposed to cut benefits sharply for these most vulnerable Americans. 
The changes in the benefit formula, for example, would eventually 
reduce benefits for survivors and disability recipients by as much as 
40 percent. This is truly an ominous precedent for the future.
    Protecting these important benefits, however, would have required 
either substantial new funds, or even deeper reductions in the 
retirement portion of the program--as much as 25% larger, according to 
Brookings economist Peter Orszag. Therefore, it would seem likely that 
the result of privatization would be somewhere in the middle--large 
cuts in disability and survivors benefits, coupled with even larger 
cuts in retirement benefits than presently forecasted.

The Bush Commission proposed cuts in benefits for everyone, even those 
who do not choose investment accounts, despite promises that changes 
would be ``voluntary''.

    While President Bush, his Commission, and Members of Congress want 
Americans to think that privatization is voluntary--the President's 
principles guiding the Commission specify that accounts should be 
voluntary--the Commission's benefit cuts are most certainly not 
voluntary. Through mechanisms such as price-indexing and the retirement 
age change, the Commission proposed deep cuts for all beneficiaries in 
order to help pay for individual accounts for those who believe they 
can afford to take the risk of investing their Social Security taxes. 
Rhetoric about the ``voluntary'' nature of privatization, therefore, is 
highly misleading.

The Enron debacle illustrates the importance of having a strong safety 
net in retirement.

    Investing in private equities is an inherently risky proposition--
and for most workers, it is a necessary one. Partly as a result of the 
fact that the government's tax code encourages companies to set up 
defined contribution plans at the expense of defined benefit plans, 
individual workers now bear a high degree of risk for generating a 
secure retirement through personal investments. Very few workers have 
access to any sort of defined benefit plan in the private sector.
    In such an environment, it is more important than ever to maintain 
Social Security as a guaranteed benefit. Workers need a strong safety 
net to fall back on. As the Enron case so dramatically illustrates, 
401(k)'s are vulnerable to substantial losses. As bad as the situation 
may be for Enron workers today, it would be even worse if it were not 
for the fact that they also have Social Security.
    If Social Security were privatized, however, the basic level of 
guaranteed benefit would not even be enough to keep most workers out of 
poverty. The appropriate question for considering the future of Social 
Security is: What level of guaranteed benefit is necessary in order to 
enable workers to maintain a decent standard of living as they grow 
old? In my view, that level is what Social Security currently promises, 
nothing less. You can not cut back Social Security in order to make 
room for privatization and still have a system that promises workers 
that after a lifetime of hard work, they will be able to live their 
quiet years in some dignity.

The best recipe for addressing Social Security is still bipartisan 
dialogue.

    It is unfortunate that the President's Commission excluded any 
representative from the community of organizations representing 
seniors, women, people of color, people with disabilities, labor, and 
young people. As much as some in the Leadership might wish, Social 
Security reform is unlikely to occur in a divisive, partisan 
environment. By pushing forward with a narrow agenda, advocates of 
privatization have undermined prospects that all sides will see 
themselves as participating in a meaningful policy dialogue.
    Yet it is not too late for the President, and the leadership in 
both the House and the Senate, to set aside preconditions and work 
towards common agreement. Indeed, that is the only way that we will 
ever see meaningful progress towards strengthening Social Security for 
future generations.
    Thank you for the opportunity to present my views before this 
distinguished Committee today.

                               

    Chairman SHAW. Thank you. I am going to have to leave here, 
and I am going to turn the gavel over to Mr. Hayworth. I am 
breaking with my own rules here, but I want to know your 
definition of privatization.
    Mr. RIEMER. Certainly. Privatization is where money that 
would normally go into the Social Security Trust Fund is 
invested by workers instead.
    Chairman SHAW. Okay. You have no objection if the trust 
fund is left alone, all the money goes into the trust fund with 
the Federal government through a refundable tax credit out of 
its own general fund, investing in individual retirement 
accounts for American workers without in any way disturbing the 
trust fund?
    Mr. RIEMER. If the accounts are designed to supplement 
Social Security, I am in favor.
    Chairman SHAW. You may be surprised, sir, but you agree 
with me.
    [Laughter.]
    Chairman SHAW. Ms. Pfotenhauer, thank you very much.

STATEMENT OF NANCY MITCHELL PFOTENHAUER, PRESIDENT, INDEPENDENT 
                         WOMEN'S FORUM

    Ms. PFOTENHAUER. Good afternoon. Mr. Chairman, 
distinguished Members of the Subcommittee, my name is Nancy 
Mitchell Pfotenhauer, and I am President of the Independent 
Women's Forum. On behalf of IWF, I would like to thank you for 
the opportunity to appear before you today and for your 
attention to this very important issue.
    As you know by my submitted testimony, I am an economist by 
training with 15 years' experience in the U.S. Senate, the 
White House, and the private sector. My professional and 
personal interest in this issue dates back to the late 1980s, 
when I worked for Senator William Armstrong, who had Chaired a 
Finance Committee bipartisan task force charged with making 
recommendations to improve the Social Security system at that 
time. And while the Subcommittee work engaged my mind, it was 
actually the casework that made its way to me that ignited my 
passion for this issue.
    You are probably aware that most Senate D.C. offices do not 
deal with very much casework. Most of it is handled back in the 
State, and it is handled by staff who are closer to the 
constituents and closer to the problems, so only the really 
hard cases filter through to the Washington office. And despite 
a probably overly broad issue portfolio, all of the casework 
that landed on my lap had to do with Social Security and all of 
those cases concerned women.
    Now, rarely in my professional career have I felt such a 
profound combination of impotency and despair at my inability 
to do anything to help these women. Despite tremendous efforts 
by our office, Senator Moynihan's office, and the good people 
at the Social Security Administration, we were powerless to 
solve their problems, so I thank you genuinely for your 
attention to these issues and your willingness to do something 
to mitigate the situation facing our elderly poor, specifically 
women.
    We are all aware of the sad story the statistics tell us 
about the plight of elderly women, so in the interest of time, 
I will not repeat them here. As you know, women are financially 
disadvantaged under the Social Security system because we tend 
to work fewer years, earn less, and live longer than men. 
Married women, who sacrifice time with their families in order 
to help meet financial needs, are rewarded by this sacrifice by 
paying billions of dollars into a Social Security system that 
will disproportionately undercompensate them because of the 
dual entitlement rule. And as a married woman who balances the 
competing pressures of a full-time job with 5 children under 
the age of 14, let me tell you, this sounds like a pretty bad 
deal.
    Women who have to take time out to care for a child or a 
sick parent will suffer because this lowers their overall 
earnings upon which benefits are calculated. If a woman 
outlives her husband, as she is likely to do, her overall 
household benefit will fall dramatically, despite the fact that 
her overall expenses may not. Any woman who works outside the 
home, as referenced above, by choice or necessity, loses the 
ability to qualify for both a spousal benefit and an individual 
benefit despite the fact that she has earned both.
    A few things could be done to mitigate these problems 
relatively quickly. Specifically, the Subcommittee should 
increase widows' benefits from 100 percent of the deceased 
workers' benefits to 75 percent of the couples' benefits.
    We should allow women with disabilities of any age to 
qualify for benefits based on the deceased worker's earnings. 
This helps widows with disabilities who may have insufficient 
wages to qualify for disability benefits.
    Thirdly, we should remove the restriction that forces women 
who have already gone through the economic and personal 
dislocation of a divorce to wait 2 years to receive spousal 
benefits if their spouse remarries.
    And finally, we should explore options to mitigate the 
earnings dip that affects benefit calculations if a woman takes 
time out of the work force to care for her children.
    In closing, the Independent Women's Forum believes that the 
ultimate answer for women lies in comprehensive reform of the 
Social Security system. We do not believe any of the problems 
articulated above occurred through any malintent on the part of 
the architects of Social Security as we know it today. As such, 
we think the safest type of reform will allow women to earn 
their own cash nest egg, assuming there are safety net 
provisions that protect them. However, we think there is a way 
to help women now, and we applaud the Subcommittee for taking 
such steps. Thank you.
    [The prepared statement of Ms. Pfotenhauer follows:]

STATEMENT OF NANCY MITCHELL PFOTENHAUER, PRESIDENT, INDEPENDENT WOMEN'S 
                                 FORUM

    Mr. Chairman and Members of the Committee, I'd like to thank you 
for the opportunity to testify today on this important topic. My name 
is Nancy Pfotenhauer and I am president of the Independent Women's 
Forum. I am an economist by profession, with experience in the Senate, 
the White House and the private sector. My first involvement with this 
issue dates back to the late 1980's, when I had responsibility for 
staffing Senator William Armstrong on his Finance Committee work 
pertaining to Social Security. The Senator had co-chaired a bipartisan 
task force directed at that time to make recommendations on how to 
improve the current system.
    As you know, a strong, vibrant retirement system benefits all 
Americans, including women, and Social Security is an important part of 
our nation's multi-pronged effort to provide a safe and comfortable 
income for seniors. In many ways, the Social Security system has been 
successful. Poverty rates among the elderly have fallen. The program 
has been particularly important for women, since they tend to outlive 
their spouses by a substantial margin.
    Today's hearing raises a critically important topic. How can Social 
Security be improved for Women, Seniors, and Working Americans? The 
simple answer, of course, is that all Americans--old and young, rich 
and poor, black and white, male and female--will benefit if lawmakers 
can strengthen and modernize Social Security so that it is both 
actuarially sound and capable of providing an adequate level of 
retirement income.
    But the challenge is how to achieve this common goal. This 
challenge is especially daunting considering the long-run financial 
problems that plague the Social Security system. Nonetheless, the 
following principles should guide lawmakers:

           Current retirees should receive all currently 
        promised benefits--Simply stated, the government made a 
        contract with these people. Whether this contract was perfect 
        is immaterial; government should not pull the rug out from 
        under people who have fulfilled their side of the bargain.
           Lawmakers should focus more on long-term stability 
        and less on short-term finances--Social Security will 
        experience modest surpluses for the next decade, but will 
        suffer enormous deficits once most baby-boomers have retired. 
        But fiscal balances should not be the tail that wags the dog. 
        It is far more important to create a system that is strong and 
        stable, regardless of short-run ``transition'' issues.
           International evidence is an important guide--
        Fortunately, many nations have engaged in substantial reform to 
        their old age retirement systems. These experiences are a road 
        map for lawmakers. They suggest ways of protecting seniors from 
        poverty, ways of boosting macro-economic performance, and ways 
        of generating more retirement income.

The Challenge

    Lawmakers have two important issues that require their attention. 
First, Social Security has a financing crisis. Cash-flow deficits will 
appear about 2015 and this shortfall quickly will reach enormous 
proportions, averaging about 2 percent of annual GDP. The total deficit 
between 2015 and 2075 is more than $20 trillion--and that is after 
adjusting for inflation.
    But there is another crisis. Retirees are receiving inadequate 
benefits compared to the money they are paying into the system. This 
rate-of-return problem worsens over time. People who retired 30 years 
ago got a good deal from Social Security. But people who retire today 
are not treated nearly as well when you consider how much more they 
paid into the system. And younger workers clearly will get a bad deal. 
Some demographic groups, such as African-Americans and working women, 
are especially disadvantaged.
    Unfortunately, lawmakers who try to solve both of these problems--
the financial crisis and the rate-of-return crisis--are bedeviled by a 
Catch-22. In many cases, policies that would solve one problem have the 
effect of making the other problem worse. Higher taxes, lower benefits, 
increases in the retirement age, and COLA adjustments, for instance, 
all have the potential ability to reduce the program's massive deficit, 
but each and every one of those policies will have the effect of making 
Social Security's anemic rate-of-return even worse. Yet proposals to 
increase the program's rate-of-return--such as cutting payroll tax 
rates and/or increasing benefits--will simply cause the red ink to 
occur even sooner.
    This is why fundamental reform is the only real answer. Personal 
retirement accounts are a way of escaping this Catch-22. Shifting to a 
funded system solves the long term financing problem since workers will 
be able to use their nest eggs to finance the bulk of their retirement 
expenses. Personal accounts also solve the rate-of-return problem since 
the power of compounding will ensure a substantial nest egg after 40-45 
years of work. And a fringe benefit of fundamental reform is that the 
transition costs of moving to such a system are far less than the long-
term cost of bailing out the current system.

Today's Issues

    Understanding the size and scope of Social Security's problems is 
critical if we are to accurately judge incremental proposals to improve 
the system. Today's hearing is designed to explore three specific 
issues: 1) benefit increases for women; 2) benefit guarantees for 
seniors; and 3) better information for workers.
    The first issue must be taken in the context of the unintentioned, 
but significant, systematic undercompensation of women inherent in the 
current system. Here are three examples:

        * Women who try to balance the twin stresses of work and home 
        by taking some time out of the workforce to care for young 
        children or an aging parent will suffer because this ``time 
        out'' lowers their overall earnings upon which benefits are 
        calculated.
        * If a married woman makes more than her husband, she is 
        disadvantaged because benefits are based on the difference 
        between her earnings and her spouse's earnings.
        * If a woman outlives her husband--as she is likely to do--her 
        overall household benefit will fall dramatically, despite the 
        fact that her overall expenses may not.

    As a society, we purport to care about families. If so, we must 
change our retirement system so that married women who work don't get 
the short end of the stick. In short, we must change the ``dual 
entitlement rule.'' A woman who works--by choice or by necessity--
outside the home loses her ability to qualify for both a spousal 
benefit and an individual benefit, despite the fact that she has earned 
both. Again, this is an unintentional consequence--but a serious one 
that needs to be corrected.
    As you know, every married woman, regardless of whether she has 
ever worked and paid FICA taxes, is eligible for a benefit equal to 
half of her husband's benefits. Since many working women earn less and 
are employed fewer years than their husbands, 50% of the spouse's 
benefits are frequently larger than the benefit calculated on the basis 
of their own earnings. This means the typical married working woman 
receives no credit or benefits based on the payroll taxes that she has 
paid. In the end, this woman receives precisely the same benefit that 
she would have received if she never had worked outside the home or 
contributed financially to the Social Security system. Not only do 
these women sacrifice time with their families, they get no financial 
recognition of the substantial contributions they've made to the Social 
Security system.
    The most detrimental aspect of the dual entitlement rule, however, 
is bestowed upon widows who worked to support their families. The 
Social Security system effectively leaves widows with up to 50% less 
income than the couple had before the husband died. In fact, by its own 
estimates, the Social Security Administration reports that 24% of 
married and widowed women have their benefits slashed by the dual-
entitlement rule. By 2040, that number is projected to increase to 
nearly 40%.
    With regards to the second issue, benefit guarantees are 
symbolically important. As mentioned previously, government should 
fulfill its contract with senior citizens. But we should be honest 
about benefit guarantees. No Congress can bind a future Congress. Laws 
that are passed today can be repealed tomorrow. The only way to create 
an ironclad guarantee is to actually purchase annuities for retirees 
that provide the promised level of benefits. But this is probably not a 
likely option since it would require costs to be recognized today 
instead of in the future, something that is not feasible because of the 
current budget process.
    Nonetheless, benefit guarantees should be part of the Social 
Security debate if they are clearly linked to Social Security reform. 
No serious reform proposal includes any reduction of benefits to 
current retirees. For both moral reasons and political reasons, 
reformers have no desire to touch a single penny of the benefits 
promised to those who played by the rules and paid in to the current 
system. Benefit guarantee legislation is a way of expressing this 
intent. But to enact guarantee legislation without reform is a hollow 
promise.
    The third issue before the committee today is critically important. 
The American people deserve high-quality information about the state of 
Social Security's finances. The provision of such information will 
improve the level of public understanding and make it more difficult 
for demagogues to mislead and scare people. As part of their annual 
Social Security Statement, workers should be told:

         How much they have paid into the system, including 
        the taxes that their employers paid on their behalf.
         Their estimated monthly benefit based on their 
        earnings history.
         The estimated annualized return, based on a 
        comparison of their total payroll tax burden and their 
        estimated monthly benefit.
         The amount of general fund revenues that will be 
        needed to redeem the bonds in the Trust Fund.
         The amount of promised benefits that can be financed 
        once the Trust Fund is exhausted.

    There is surely other important information that could be added. 
The key goal is making sure the American people have an honest, 
dispassionate presentation of Social Security's finances. These figures 
should reveal the program's overall fiscal health, and the figures also 
should allow workers to determine how the program affects them.

Creating a Stronger System

    The issues discussed today are important, but they are no 
substitute for reform. The only long-run answer is a modern Social 
Security system with the following features:

        1. Allow workers to divert the bulk of their payroll taxes 
        (the World Bank advises at least 5 percent) to individual, 
        defined contribution accounts.
        2. The savings should be privately managed with prudential 
        regulation but no government manipulation or direction of 
        funds.
        3. All money in personal accounts should be off-limits, with 
        all returns re-invested, until retirement.
        4. Upon requirement, at least a portion of the nest egg would 
        be converted into an income stream.
        5. Maintain a safety net to ensure that all workers receive at 
        least as much income as the current system provides.
        6. To maximize retirement income and ensure no bias against 
        savings, the system should receive IRA treatment.

The International Evidence

    As lawmakers consider how best to reform and strengthen Social 
Security, they should review what has happened in other nations. The 
actions of other nations demonstrate that personal accounts work, but 
these experiences also demonstrate that there are several ways to 
design a new system. Important variables include:

         Level of Mandatory Savings--Some nations, such as 
        Sweden, have ``privatized'' only a small portion of payroll tax 
        (only 2.5 percent, though there is an additional 2 percent--4 
        percent of salary that is used to fund an employer-provided 
        pension. Other governments, by contrast, have created fully 
        funded systems. Australia, Hong Kong, and Chile would fall in 
        this category, with mandatory savings levels of about 10 
        percent.
         Defined Benefit or Defined Contribution--Some 
        governments, such as Switzerland and Holland, utilize defined 
        benefit systems that guarantee a pre-determined payment based 
        on a formula. Others, such as Australia, Hong Kong, and Chile, 
        use a defined contribution system, meaning that benefits are 
        determined by investment performance. Some countries, such as 
        the United Kingdom and Sweden, have a blended system.
         Individual Mandate or Employer Mandate--The decision 
        on who sends the money to a personal account is somewhat 
        meaningless since the money inevitably is a form of employee 
        compensation. And whether the mandate falls on the employer (as 
        in Australia) or the worker (as in Chile), the employer always 
        is responsible for withholding the funds and ensuring that the 
        money is transferred to the fund manager.
         Private Management or Public Management--With a few 
        exceptions, such as Singapore, all nations with personal 
        accounts rely on private fund managers to invest funds.
         LVoluntary or Mandatory--Many countries, such as the 
        UK and Chile, allowed workers to choose whether to participate 
        in the new system of personal accounts. Others, such as Hong 
        Kong and Australia, mandated participation.
         Add-On Accounts or Payroll Tax Diversion--Nations 
        with payroll-tax funded retirement systems, such as Sweden, the 
        UK, and Chile, allow workers to finance personal accounts with 
        existing payroll taxes. Nations with no retirement system (Hong 
        Kong) or general revenue-financed retirement systems 
        (Australia) create ``add-on'' accounts.
         IRA or 401(k) Model--Some nations allow workers to 
        choose fund managers. Chile and Sweden would be examples of 
        this IRS-type model. Other countries rely more on a 401(k)-type 
        approach. In Hong Kong and Australia, for instance, your fund 
        manager is likely determined by your place of work (though 
        workers generally have substantial control of their portfolio).
         Regulation--Most European nations rely on prudential 
        regulation, while Latin American nations tend to impose 
        investment limits on fund managers.
         Taxation--Most nations provide IRA treatment to 
        personal accounts, though Sweden and Australia are exceptions.
         Safety Net--Some governments, such as Hong Kong, have 
        no safety net. The vast majority of governments, however, have 
        substantial safety nets. In many nations, such as Sweden and 
        Australia, it is impossible for workers to retire with less 
        income than they would have received from the old government-
        run system.
         Transition--This is not an issue for nations with 
        add-on accounts. In nations that allow workers to finance 
        personal accounts with payroll taxes, government borrowing and 
        fiscal restraint are the two most common ways of bridging the 
        transition between a pay-as-you-go and funded systems.
         Income Streams or Lump Sums--Some governments (Hong 
        Kong) have no requirements to use income streams. Others 
        (Australia) strongly encourage income streams through tax law, 
        while others (Sweden) require mandatory annuitization.

Conclusion

    Social Security reform is desperately needed to solve Social 
Security's financial crisis and the program's rate-of-return crisis. 
But there are some common criticisms of reform. Allow me to close by 
addressing a few of these topics:

        1. Transition--Yes, because Social Security is a pay-as-you-go 
        system and a substantial portion of payroll taxes will be 
        diverted to private accounts, we will have to come up with 
        several trillion dollars to pay benefits to current and soon-
        to-be retirees. Yet reform will save money because this is less 
        than the money--more than $20 trillion--needed to balance 
        current system.
        2. Administrative costs--No system is likely to have admin 
        costs as low as SS, but no system could produce returns as low 
        as SS. This is a design issue, not a problem. If lawmakers want 
        to minimize admin costs, they could copy Australia's private 
        system, which is like a simple, low-cost, universal 401(k).
        3. The stock market will fall--Yes, it will, but more often 
        than not, it will rise. Opponents of privatization have some 
        success scaring financial illiterates, but I assume this 
        audience does not need to be told about long-term market 
        returns and the power of compound interest. Suffice to say, 
        that the average, inflation-adjusted return since 1926 is more 
        than 7.5 percent--and that includes the great depression and 
        the crash in October of 1987.
        4. Financial illiteracy--Yes, there are many workers who do 
        not have knowledge of markets and, yes, there are unscrupulous 
        people who would like to prey on these folks. No one is 
        arguing, however, that there should be no prudential regulation 
        and unlimited ability to self-direct investments. Under every 
        reform plan, professional fund mangers would be in charge of 
        the money.

    Thank you again for this opportunity to testify.

                               

    Mr. HAYWORTH. [Presiding.] Thank you for your testimony. 
Ms. Entmacher?

   STATEMENT OF JOAN ENTMACHER, VICE PRESIDENT AND DIRECTOR, 
     FAMILY ECONOMIC SECURITY, NATIONAL WOMEN'S LAW CENTER

    Ms. ENTMACHER. Thank you. I appreciate the opportunity to 
testify before you today on behalf of the National Women's Law 
Center. There are three issues that were on the agenda for 
today's hearing: First, the proposal by some in Congress to 
issue certificates to retirees assuring them that their 
benefits would be paid; second, proposals by some other Members 
to send workers a very different message about what they will 
get from Social Security; and third, ways to increase Social 
Security benefits for women. All of these issues are 
intertwined with proposals to privatize Social Security, so my 
testimony will discuss that, as well.
    One of the announced goals for this hearing is to consider 
ways of ``assuring seniors that promised benefits will be 
paid.'' Unfortunately, instead of considering steps that really 
would strengthen Social Security, some Members of Congress 
would focus on proposals to have the Secretary of the Treasury 
issue guarantee certificates to retirees. Americans, especially 
women who rely more than men on Social Security and its unique 
protections, are increasingly and justifiably concerned about 
what the administration and some Members of Congress have in 
mind for Social Security.
    Primarily because of the tax cuts passed last year, the 
promise that this House made right about this time last year of 
saving Social Security reserves to strengthen Social Security 
has been broken and will be broken, not just this year nor next 
year but for all the 10 years in the Administration's forecast. 
Yet, the Administration and some Members of this House not only 
refuse to consider delaying the parts of last year's tax cuts 
that have yet to take effect and benefit only the wealthiest 
taxpayers, but are proposing to accelerate those tax cuts, make 
them permanent, and add some new ones.
    The proposals to privatize Social Security on top of the 
tax cuts that have taken up so much of the surplus poses a 
double threat. Privatization does not strengthen Social 
Security, it weakens it by diverting money needed to pay 
promised benefits into private accounts. The plans proposed by 
the Commission appointed by President Bush to develop a plan to 
privatize Social Security illustrate the risks that 
privatization poses for women.
    If you look at the two plans that at least purport to move 
toward long-term solvency, you see that even if you assume that 
the large revenue transfers are needed are made in those plans, 
there are very deep cuts in core Social Security benefits. Now 
that we have the actuaries' analysis of those plans, we can see 
in more detail.
    Under plan two, for those who retire in 2075, core Social 
Security benefits for low earners would be cut 34.5 percent. 
For medium, high, and maximum earners, core Social Security 
benefits would be cut 45.9 percent. A few things to note about 
those cuts. First, they apply to everyone. Participation in 
accounts may be voluntary. Participation in the cuts is 
mandatory.
    Point two, everybody means everybody. The Commission said 
that it would protect the benefits of disabled workers. 
However, the Commission acknowledged that these reductions in 
the benefit formula would apply to disabled workers, as well. 
If those workers were protected, the cuts for retirees would be 
deeper.
    Three, the Commission talked about an improved minimum 
benefit, but that improvement does not mean they get more than 
they would get under current law, it means that their benefits 
are cut a little less, only by 34.5 percent instead of by 45.9 
percent. But to be fair, we have to add to those reduced secure 
Social Security benefits the annuitized value of the private 
account that workers would get if they invested in a 50-percent 
equity account and achieved the average return that the 
actuaries used to project returns. Low earners would get a 
combined benefit 10 percent lower than current law with their 
private account. Medium earners would get a combined benefit 20 
percent lower than current law. And high earners would get a 
benefit 25 percent lower than current law, with their private 
account income and reduced benefit combined. Overall reductions 
in retirement income would be deeper for couples where the 
lower earner earned substantially less.
    Retirees and their children and grandchildren have reason 
to be concerned about what privatization would mean for them, 
and a guarantee certificate that can be changed by a future 
Congress is not going to reassure them of anything. Such 
certificates, according to the Congressional Research Service, 
would be worthless except as something to hang on the wall next 
to the Enron stock certificate.
    The irony is that at the same time as some in Congress are 
considering mailing these certificates to retirees, there are 
also proposals that would change the information that is 
provided to current workers and send a very different message 
than the certificate sent to retirees. Some bills would require 
that the statements say that trust fund balances do not consist 
of real economic assets and contain highly misleading 
information about rate of return.
    I want to say just a couple of words about improvements in 
benefits for women. There have been a number of improvements 
discussed that would carry relatively low cost. In addition, an 
improvement could be made to improve the Social Security 
benefits of the very poorest elders, most of whom are women, 
without any cost to the Social Security Trust Fund by 
increasing the disregard in the Supplemental Security Income 
(SSI) program under the jurisdiction of the Human Resources 
Subcommittee. If those Subcommittees can work together, we can 
achieve a way to immediately get some real relief to 
beneficiaries by allowing them to keep more than a pitiful $20 
a month of their Social Security benefits. Thank you.
    [The prepared statement of Ms. Entmacher follows:]

   STATEMENT OF JOAN ENTMACHER, VICE PRESIDENT AND DIRECTOR, FAMILY 
             ECONOMIC SECURITY, NATIONAL WOMEN'S LAW CENTER

    Chairman Shaw and Members of the Subcommittee on Social Security, 
thank you for the invitation to appear before you today on behalf of 
the National Women's Law Center.
    The National Women's Law Center is a non-profit organization that 
has been working since 1972 to advance and protect women's legal 
rights. The Center focuses on major policy areas of importance to women 
and their families including employment, education, women's health, and 
family economic security, with special attention given to the concerns 
of low-income women and their families. Most relevant to this hearing, 
the Center has worked for more than two decades on issues of Social 
Security and women. It has presented testimony on Social Security 
issues affecting women to Congress over a dozen times, as well as to 
the Advisory Council on Social Security and several task forces of the 
Department of Health and Human Services. The Center served on the 
Technical Committee on Earnings Sharing in Social Security and co-
authored its report, and served on the Congressional Study Group on 
Women and Retirement for the Select Committee on Aging of the House of 
Representatives, and co-authored and presented its Social Security 
recommendations. More recently, the Center has participated in efforts 
to develop proposals to safeguard and improve Social Security benefits 
for women. For example, Center staff authored a National Academy of 
Social Insurance issue brief on increasing economic security for 
elderly women by improving Social Security survivor benefits.
    There are three issues being considered at today's hearing which my 
testimony will address. First, the proposal to issue certificates to 
retirees assuring them that their benefits will be paid. Second, the 
proposal to give current workers different information about Social 
Security than they currently receive through their individual Social 
Security Statement. Third, ways to increase Social Security benefits 
for women. Taken together, these proposals convey somewhat 
contradictory messages to American women, but I will do my best to 
address all of them.

  American Women Need Real Protections for Social Security--Not Paper 
                               Guarantees

    One of the announced goals of this hearing is to consider ways of 
``assuring seniors that promised benefits will be paid.'' 1 
Unfortunately, instead of considering steps that really would 
strengthen Social Security--such as slowing down tax cuts for the 
wealthiest Americans that raid the Social Security Trust Fund and 
abandoning plans to privatize Social Security--the focus is on 
proposals to have the Secretary of the Treasury issue ``guarantee 
certificates'' to retirees.
---------------------------------------------------------------------------
    \1\ Advisory from the Committee on Ways and Means, Subcommittee on 
Social Security, ``Shaw Announces Hearing on Social Security 
Improvements for Women, Seniors, and Working Americans'' (February 21, 
2002).
---------------------------------------------------------------------------
    As of last year, current retirees, those near retirement, and 
younger workers had reason to be confident that Social Security could 
and would be strengthened for the long term. Even with no changes, 
Social Security could pay full benefits until 2038, and nearly three-
fourths of promised benefits after that. The federal budget was awash 
in projected surpluses ``as far as the eye could see.'' With a 
combination of gradual adjustments within Social Security and a 
fraction of the surplus, it was feasible both to close the long-term 
financing gap and improve Social Security benefits for women and other 
low earners.
    Then Congress began debating the tax cut proposed by President 
Bush. Proponents of the tax cut assured the American people that we 
could have it all--funding for national priorities, funding for 
contingencies, and a large tax cut--without touching the Social 
Security and Medicare Trust Funds. To respond to those who raised 
doubts about the feasibility and wisdom of such a large and long-term 
tax cut, this month last year this House passed another version of a 
Social Security ``guarantee.'' H.R. 2, the ``Social Security and 
Medicare Lock-Box Act of 2001,'' promised the American people that the 
surpluses of the Social Security and Medicare Hospital Insurance Trust 
Funds would be reserved for those programs.
    It is now obvious that the promise this House made last year of 
saving Social Security reserves for Social Security has been broken and 
will be broken, not just this year, but for years to come. Even using 
some optimistic and unrealistic assumptions,2 the 
Administration forecasts on-budget deficits for each of the ten years 
of its forecast.3 This means that reserves in the Social 
Security and Medicare Trust Funds will be tapped to pay for the 
operations of government--and the tax cut--not just temporarily and in 
the short term, but for every one of the next 10 years. In less than 
one year, $4 trillion in projected surpluses over the next 10 years 
have disappeared, and the single largest reason for the deterioration 
in the long-term budget picture, according to the Congressional Budget 
Office, is not the war on terrorism, not increased spending for 
homeland security, nor the recession, but the tax cut.4 
According to CBO, primarily because of the delayed impact of the tax 
cuts passed last year, we'll be dipping into the Trust Fund to the tune 
of over $900 billion through 2009, even if Congress passes no new tax 
cuts, no extenders, and no spending above-the-baseline.5 
Even worse, despite polls showing more than 80 percent of the public 
supports delaying the upper-income tax cuts not yet in effect in order 
to strengthen Social Security and address other national 
priorities,6 the Administration and some Members of this 
House not only refuse to reconsider delaying last year's tax cuts, 
despite the broken promise on Social Security, but are proposing to 
make those tax cuts permanent, accelerate them, and add some new ones. 
The budget proposed by the Administration would increase the drain on 
the Social Security Trust Fund to about $1.5 trillion, just over the 
next 10 years.7
---------------------------------------------------------------------------
    \2\ Robert Greenstein, ``President's Budget Uses Accounting Devices 
and Implausible Assumptions to Hide Hundreds of Billions of Dollars in 
Costs'' (Center on Budget and Policy Priorities, February 4, 2002).
    \3\ Budget of the U.S. Government, Fiscal Year 2003 (February 4, 
2002), Table S-2, at 396.
    \4\ Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2003-2012 (January 2002), available at http://www.cbo.gov/
showdoc.cfm?index=3277&sequence=2; Richard Kogan and Robert Greenstein, 
``The Disappearing Surplus'' (Center on Budget and Policy Priorities, 
December 3, 2001); and Richard Kogan, Robert Greenstein, and Joel 
Friedman, ``The New CBO Projections: What Do They Tell Us?'' (Center on 
Budget and Policy Priorities, January 29, 2002).
    \5\ NWLC calculations based on Joint Committee on Taxation, 
``Estimated Budget Effects of the Conference Agreement for H.R. 1836, 
Fiscal Years 2001-2011'' (May 26, 2001); and Congressional Budget 
Office, The Budget and Economic Outlook, Fiscal Years 2003-2012 
(January 2002), Table 1-1.
    \6\Ronald Brownstein, ``Don't Tap Into Social Security,'' L.A. 
Times (February 5, 2002), at A1.
    \7\ Budget of the U.S. Government, Fiscal Year 2003 (February 4, 
2002), Table S-2, at 396.
---------------------------------------------------------------------------
    The proposals to privatize Social Security on top of the tax cuts 
pose a double threat to Social Security, and people who are already 
retired, as well as their children and grandchildren, are rightly 
concerned. The money to finance private accounts has to come from 
somewhere. It could come from diverting money within Social Security. 
But that money is already needed to pay promised benefits, meaning that 
deep cuts in Social Security benefits would be required to finance 
private accounts.
    The Commission appointed by President Bush to develop a plan to 
privatize Social Security recently issued its final report.8 
In the end, it did not agree on one plan, but put forward three, all of 
which illustrate the risks that privatization poses for women. All of 
the plans would require cuts in Social Security's core benefits so deep 
that the proceeds from private accounts are unlikely to make up the 
difference. The first plan would simply divert revenue from Social 
Security into private accounts, accelerating the date when the reserves 
in the Trust Fund are exhausted, without proposing a way to fill the 
hole created in Social Security's finances. The second plan would cut 
benefits for average earners retiring in 2040 by 24 percent, and for 
those retiring in 2070 by 43 percent because of a change from wage-
indexing to price-indexing in computing benefits.9 The third 
plan would cut benefits by requiring workers to work more years to 
receive the benefits they currently expect, and making other changes in 
the way benefits are calculated. Participation in the accounts would be 
``voluntary,'' but participation in these cuts would be mandatory; 
everyone, regardless of whether they signed up for an account, would be 
subject to these benefit cuts. Those who did opt for an account would 
discover that their Social Security benefits would be reduced still 
further. Although the Commission was charged not to change benefits for 
survivors and disabled workers, the Commission acknowledged that its 
reductions in benefits for retired workers would affect disabled 
workers as well, because the benefit formulas are 
integrated.10 Because benefits for survivors depend on the 
size of the benefit of the deceased spouse, they also would be reduced. 
Even with deep benefit cuts, the plans depend on large transfers of 
money from the rest of the budget to Social Security. Although there is 
no longer a surplus in the rest of the budget, the Commission does not 
explain how those transfers will be financed.11 If such 
transfers were possible, and similar amounts of money were transferred 
to Social Security and invested by an independent board in a 
diversified manner, even more money than under the Commission's plans 
would be available to increase Americans' retirement income because of 
the lower administrative costs, at much less individual risk.
---------------------------------------------------------------------------
    \8\ Report of the President's Commission to Strengthen Social 
Security, Strengthening Social Security and Creating Personal Wealth 
for All Americans (December 21, 2001), available at http://
www.csss.gov/reports/Final--report.pdf.
    \9\ Kilolo Kijakazi and Robert Greenstein, ``Replacing Wage 
Indexing with Price Indexing'' (Center on Budget and Policy Priorities, 
December 14, 2001).
    \10\ President's Commission, see supra note 8, at 138-139.
    \11\ See generally, Statement of Nancy Duff Campbell, 
``Privatization Report from President's Social Security Commission is 
`A String of Broken Promises' to Women'' (National Women's Law Center 
News Release, December 21, 2001); Robert Greenstein, ``Social Security 
Commission Proposals Contain Serious Weaknesses but May Improve the 
Debate in an Important Respect,'' (Center on Budget and Policy 
Priorities, December 26, 2001).
---------------------------------------------------------------------------
    Some privatization proposals, such as the Chairman's bill, H.R. 
3497, promise to create private accounts without any cuts in current 
law benefits and, indeed, with improved benefits for women. This is 
accomplished by moving the costs, and the debt, off the Social Security 
books to the rest of the federal budget. To finance private accounts 
under this proposal would require $3.6 trillion dollars over the next 
40 years in additional taxes or spending cuts; alternatively, it could 
be borrowed, increasing the national debt by an additional $8 trillion 
dollars.12 Even with those additional dollars poured in, to 
get the financing to work, the stock market must cooperate, and future 
Congresses will have to refrain from lowering the 95 percent tax rate 
levied on the payouts from private accounts, and resist calls to allow 
account holders to access these accounts before retirement for the same 
reasons they now can access their IRAs.
---------------------------------------------------------------------------
    \12\ Memorandum to Representative Clay Shaw, Chairman, Subcommittee 
on Social Security from Stephen C. Goss, Chief Actuary, dated December 
13, 2002, Subject: ``OASDI Financial Effects of the `Social Security 
Guarantee Plus Plan.' ''
---------------------------------------------------------------------------
    A plan that promises more for everyone is appealing--but too good 
to be true. The costs that are shifted to the rest of the budget still 
must be paid. But, because of the tax cuts scheduled to take effect and 
the others in the pipeline, there are no surpluses in the rest of the 
federal budget to finance private accounts. They would have to be paid 
for by cutting Medicare, Medicaid, education, and other programs vital 
to women and their families; by borrowing the money and passing the 
bill on to future generations; or going back to cutting Social Security 
benefits after all.
    Meaningful steps to safeguard Social Security--holding off on new 
tax cuts, including accelerating last year's tax cuts or making them 
permanent; reconsidering whether to implement the parts of last year's 
tax bill that have yet to take effect and benefit only the wealthy few; 
and abandoning plans to privatize Social Security--unfortunately do not 
appear to be on the agenda. Instead, there are proposals to have the 
Secretary of the Treasury issue a ``guarantee certificate'' to current 
retirees and others as they begin to receive Social Security benefits.
    As introduced, these bills--H.R. 832, 3135, and Sec. 208 of H.R. 
3497--purport to guarantee certificate holders timely payment of all 
future benefits to which they are entitled under the Act as it exists 
as of the date the certificate is issued, and that they will receive 
``accurate'' cost of living adjustments (COLA) at least annually.
    These certificates are at best a gimmick, not an answer to the real 
concerns of current and future beneficiaries. Those most at risk of 
benefit cuts under various privatization proposals--baby boomers and 
younger workers--would get no assurance that they will receive the 
benefits they expect under current law. Second, it is not clear that 
the retirees who would receive certificates would get any legally 
enforceable rights. An analysis by the Congressional Research Service 
has concluded that a future Congress could amend or repeal the 
guarantee, even with bills that appear to set forth an absolute 
guarantee, such as H.R. 832, 3135, and Sec. 208 of H.R. 
3497.13 But certain provisions of these bills at least would 
give certificate holders grounds for an interesting lawsuit. These 
bills describe the certificates as creating ``a legally enforceable 
guarantee'' and state that any certificate ``constitutes budget 
authority in advance of appropriations Acts and represents the 
obligation of the Federal Government to provide for the payment to the 
individual . . . benefits . . . in accordance with the guarantee.'' 
Arguably, these provisions would convert the certificates into bonds, 
backed by the full faith and credit of the U.S. government.
---------------------------------------------------------------------------
    \13\ Memorandum to Subcommittee on Social Security from Kathleen 
Swendiman, Congressional Research Service, dated February 20, 2002, 
Subject: ``H.R. 3135, the Social Security Benefits Guarantee Act of 
2001.''
---------------------------------------------------------------------------
    Apparently out of a concern that these bills might actually expand 
the legal rights of Social Security beneficiaries, some recent 
proposals would change the critical language. ``Guarantee'' would be 
changed to ``entitlement''--but, of course, Social Security is already 
an entitlement. More significantly, all reference to the certificates 
representing ``budget authority'' or an ``obligation of the federal 
government'' would be dropped. The certificates would be worthless--
except as something to hang on the wall next to the Enron stock 
certificate.

Several of the proposals to Change the Information Provided to Current 
  Workers in the Social Security Statement Would Mislead Rather than 
                          Enlighten the Public

    At the same time as this Subcommittee is considering mailing 
certificates to retirees telling them that their expected benefits are 
guaranteed, it also is considering proposals that would change the 
information that is provided to current workers, and send a very 
different message than the certificates send to retirees.
    For example, H.R. 634 and H.R. 930 would require that the 
individual statements that the Social Security Administration sends to 
current workers include various statements concerning the ability of 
Social Security to pay benefits in the future. Both bills would require 
the annual personal Social Security Statements to state that ``the 
Trust Fund balances reflect resources authorized by the Congress to pay 
future benefits, but they do not consist of real economic assets that 
can be used in the future to pay benefits.'' H.R. 634, p.3, lines 12-
16; H.R. 930, p.6, lines 7-8. Both bills also would require that the 
individual Statements sent to workers contain information about 
anticipated cash flows in the program. For example, H.R. 930 would 
require that the individual statements include:

    (I) a comparison of the annual social security tax inflows 
(including amounts appropriated under subsections (a) and (b) of 
section 201 of this Act and section 121(e) of the Social Security 
Amendments of 1983 (26 U.S.C. 401 note)) to the amount paid in benefits 
annually; and
    (II) a statement whether the ratio described in subclause (I) will 
result in a cash flow deficit and what year any such deficit will 
commence, as well as the first year in which funds in the Federal Old-
Age and Survivors Insurance Trust Fund and the Federal Disability 
Insurance Trust Fund will cease to be sufficient to cover any such 
deficit and the percentage of benefits due at that time that could be 
paid from the annual social security tax inflows (as that term is used 
in subclause (I)).

    H.R. 634 contains a similar provision. It seems very likely that 
including such material in the personal statements that workers receive 
would confuse and alarm, rather than inform, the public.
    The experience of the Social Security Administration (SSA) in 
developing ``Your Social Security Statement'' should be instructive 
here. Social Security is a program that offers a variety of benefits to 
workers and their families. Simply explaining the relevance of these 
protections to individuals is a challenge. The SSA's first effort to 
develop an individual statement was the Personal Earnings and Benefit 
Estimate Statements (PEBES). The GAO evaluated the six-page PEBES and 
cautioned: ``in general, people find forms, notices and statements 
difficult to use and understand. For this reason, many people may 
approach a PEBES-like statement `with fear, frustration, insecurity, 
and hesitation.' '' People appreciated the information in the earlier 
statement, the GAO said, but the public also indicated that the dense, 
six-page statement ``contains too much information and is too 
complex.'' 14 The likely effect of receiving the statement 
prescribed by H.R. 634 or 930 would be to transform ``fear, 
frustration, insecurity and hesitation'' into panic. Such scare tactics 
have been used by some as a way to sell Social Security privatization 
to a public otherwise unwilling to entrust more of their retirement 
security to the stock market.15 But such tactics should be 
beneath this Congress.
---------------------------------------------------------------------------
    \14\ U.S General Accounting Office, ``SSA Benefit Statements: Well 
Received by the Public but Difficult to Comprehend,'' GAO/HEHS-97-19, 
(1996), at 6.
    \15\ See, for example, Henry J. Aaron, Alan S. Blinder, Alicia H. 
Munnell, and Peter R. Orszag, ``Perspectives on the Draft Interim 
Report of the President;s Commission to Strengthen Social Security,'' 
(Center on Budget and Policy Priorities and The Century Foundation, 
July 23, 2001), available at http://ww.cbpp.org/7-23-01socsec.pdf.
---------------------------------------------------------------------------
    H.R. 634 and 930 also would require that the individual Social 
Security Statements include a statement of the ``rate of return'' from 
Social Security. Some proponents of privatization have urged this 
requirement so that the ``rate of return'' from Social Security can be 
compared to that from ``other investment vehicles.'' 16 
However, such a comparison would be highly misleading, for several 
reasons.
---------------------------------------------------------------------------
    \16\ Gareth G. Davis and Philippe J. Lacoude, ``What Social 
Security Will Pay: Rates of Return by Congressional District'' (The 
Heritage Foundation, 2000), at 7.
---------------------------------------------------------------------------
    First, most of the Social Security taxes paid by current workers 
are used to pay benefits to those who are eligible. The certificate 
proposal being considered at this hearing, even if it does not 
establish a legally enforceable guarantee, at least reflects the intent 
of this Congress not to renege on those obligations. Thus, to compare 
the ``rate of return'' on Social Security, which must meet these 
unfunded obligations, to the return available from private investment 
funds, which do not, is misleading. Indeed, once the cost of continuing 
to meet obligations to current beneficiaries and those nearing 
retirement is factored in, many economists, including some who favor 
private accounts, have concluded that the ``rate of return'' under 
Social Security and privatized systems is similar.17
---------------------------------------------------------------------------
    \17\ See, for example, Alicia H. Munnell, ``Reforming Social 
Security: The Case Against Individual Accounts,'' (Center for 
Retirement Research at Boston College, 1999); Peter R. Orszag, 
``Individual Accounts and Social Security: Does Social Security Really 
Provide a Lower Rate of Return?'' (Center on Budget and Policy 
Priorities, 1999); Peter A. Diamond, ``Issues in Privatizing Social 
Security,'' (MIT Press for the National Academy of Social Insurance, 
1999); John Geanakoplos, Olivia S. Mitchell and Stephen P. Zeldes, 
``Would a Privatized Social Security System Really Pay a Higher 
Return?'' in Framing the Social Security Debate: Values, Politics and 
Economics, edited by A. Douglas Arnold, Michael J. Graetz and Alicia H. 
Munnell (Brookings Institution Press for the National Academy of Social 
Insurance, 1998).
---------------------------------------------------------------------------
    Second, Social Security provides disability and life insurance 
benefits that are not reflected in the investment concept of ``rate of 
return.'' These protections make Social Security especially valuable 
for African American and Latino families, because of higher rates of 
disability and early death. H.R. 634 and 930 would exclude these 
benefits from the ``rate of return'' calculation. Indeed, it is 
difficult to see how they could be included; after all, most people 
don't feel disappointed in the rate of return on their life insurance 
policy if they make it through another year.
    Third, any estimate of Social Security's ``rate of return'' must 
include the value of the protection against risk provided by its 
secure, lifetime, inflation-adjusted retirement benefits. Social 
Security is designed to provide workers with a secure, basic benefit 
throughout retirement. It is not designed to be the sole source of 
income; but it is designed to provide the income that people can count 
on, without worrying about the ups and downs of the stock market, the 
rate of inflation, or outliving this benefit. In the private investment 
world, higher returns are associated with higher risk; the value of 
Social Security's protection against market risk would have to be added 
to the rate of return calculation.
    Finally, focusing on the ``rate of return'' to individual workers 
ignores the social insurance values of Social Security. Fortunately for 
women and millions of other Americans, including millions of children, 
Social Security does not pay benefits only to workers, nor does it base 
benefits strictly on the level of contributions. Social Security's 
progressive benefit formula provides individuals with low lifetime 
earnings, who are disproportionately women, with retirement benefits 
that are a larger percentage of average lifetime earnings. It provides 
benefits to spouses and surviving spouses. These benefits are available 
on a gender-neutral basis; however, 98 percent of the recipients of 
spousal benefits are women. These aspects of Social Security also are 
devalued in the ``rate of return'' calculus.
    We find it perplexing that the Congress would actively seek to 
undermine workers' confidence in Social Security at the same time it is 
attempting to shore it up for retirees by sending them an embossed 
certificate. It would appear that the purpose of some of those who talk 
about adding to the Social Security Statements assertions about the 
value of the Trust Funds and Social Security's ``rate of return'' is 
not to inform, but to undermine support for a system that is vital to 
the economic security of millions of American women and their families, 
in furtherance of their own privatization schemes.

     Social Security Should Be Strengthened and Improved for Women

    The last item on today's hearing agenda is to consider 
``enhancements to women's Social Security benefits [that] would help 
ensure that Social Security continues to successfully reduce poverty 
for women and would better meet the evolving needs of women today.'' 
18 The National Women's Law Center commends you, Chairman 
Shaw, for making improvements for women, within the Social Security 
benefit structure that offers so many unique and important protections 
for women,19 part of the reform agenda.
---------------------------------------------------------------------------
    \18\ Subcommittee Advisory, see supra note 1.
    \19\ National Women's Law Center, ``Women and Social Security 
Reform: What's at Stake'' (June, 2001), available at http://
www.nwlc.org/pdf/NWLCSocialSecurityFactsheetJune2001.pdf, and National 
Women's Law Center, ``Why Social Security is a Better Deal than 
Privatization for Women and Their Families'' (July, 2001), available at 
http://www.nwlc.org/pdf/SocialSecurityBetterDeal.pdf.
---------------------------------------------------------------------------
    Social Security is the mainstay of economic security for older 
women. Women represent a large majority of Social Security recipients--
almost 60 percent of all recipients aged 60 and over, and 72 percent of 
recipients 85 and over.20 Because women are far less likely 
than men to have a pension and substantial retirement savings, women 
also depend more on Social Security income than men. Social Security 
provides half or more of the income of nearly two-thirds of all women 
65 and over, and 90 percent or more of the income of nearly one-third 
of such women.21 Without Social Security, over half of all 
elderly women would be living in poverty.22
---------------------------------------------------------------------------
    \20\ NWLC calculations based on Social Security Administration, 
Annual Statistical Supplement, 2001, Table 5.A10 (data from December, 
2000).
    \21\ Kathryn Porter, Kathy Larin and Wendell Primus, ``Social 
Security and Poverty Among the Elderly: A National and State 
Perspective'' (Center on Budget and Policy Priorities, 1999).
    \22\ Id.
---------------------------------------------------------------------------
    But even with Social Security, poverty in old age continues to be a 
much greater risk for women than for men. Seven out of ten of the poor 
elderly are women,23 and the poverty rate for women 65 and 
over is more than 60 percent higher than that of men (12.2 percent to 
7.5 percent).24 Older women of color have even higher 
poverty rates: one-quarter of black elderly women and one-fifth of 
Hispanic elderly women were poor in 2000, compared to one-tenth of 
older white women.25
---------------------------------------------------------------------------
    \23\ NWLC calculations based on U.S. Census Bureau, Detailed Tables 
from Poverty in the United States: 2000, Table 2, available at http://
ferret.bls.census.gov/macro/032001/pov/new02--000.htm.
    \24\ Id.
    \25\ U.S. Census Bureau, Detailed Tables from Poverty in the United 
States: 2000, Table 2, available at http://ferret.bls.census.gov/macro/
032001/pov/new02--000.htm.
---------------------------------------------------------------------------
    The National Women's Law Center therefore urges Congress to target 
improvements to those women in greatest need. Older women living 
alone--widows, divorced and separated women, and never-married women--
are at the greatest risk of poverty. Since in 2000 six in ten poor 
elderly women were widows,26 improving the financial 
situation of surviving spouses would affect the largest number of 
vulnerable older women and have an important impact on reducing 
poverty. Many policy analysts and advocates, including the National 
Women's Law Center, have suggested proposals to improve widows' 
benefits. One promising approach would increase the surviving spouse 
benefit from its current level of 100 percent of the high earner's 
benefit to 75 percent of the couple's combined benefit.27 
Such reforms could prevent the severe drop into poverty that often 
accompanies widowhood, and increase equity for two-earner couples. To 
target the improvement to those who need it most and to reduce its 
long-term costs, the amount of the improvement could be capped. 
Determining the level of the cap (for example, at an amount 
corresponding to the average Primary Insurance Amount (PIA) of all 
recipients, or at the higher level corresponding to the PIA of a worker 
with lifetime average earnings) involves tradeoffs between benefits and 
costs.
---------------------------------------------------------------------------
    \26\ NWLC calculations based on Social Security Administration 
Office of Policy and Office of Research, Evaluation, and Statistics, 
Income of the Population 55 or Older: 2000, Table 8.1, at 139 
(February, 2002).
    \27\ See, for example, Christina Smith Fitzpatrick and Joan 
Entmacher, ``Widows, Poverty, and Social Security Policy Options'' 
(National Academy of Social Insurance, August, 2000); Richard V. 
Burkhauser and Timothy M. Smeeding, ``Social Security Reform: A Budget-
Neutral Approach to Reducing Older Women's Disproportionate Risk of 
Poverty,'' Policy Brief No. 2 (Center for Policy Research, Syracuse 
University, 1994); National Council of Women's Organizations Task Force 
on Women and Social Security, ``Strengthening Social Security for 
Women: A Report from the Working Conference on Women and Social 
Security'' (July 19-22, 1999).
---------------------------------------------------------------------------
    In addition, we must take steps to improve benefits for the 
millions of divorced, separated, and never-married women who, while 
fewer in total numbers than widows, have even higher poverty rates. In 
2000, 20.3 percent of divorced women age 65 and older and 23.1 percent 
of older never-married women lived in poverty, compared to 16.5 percent 
of older widows.28 In the future, an even larger proportion 
of women will enter retirement never having married 29 (or 
having been married only a short time) 30 and as a result 
will be ineligible for Social Security survivor benefits. Some of these 
women will be living in poverty because of years in which they were 
caring for children or ill family members and had low or no earnings; 
others will be poor because of a lifetime of working at low-wage jobs. 
Creating an improved minimum benefit within the existing Social 
Security benefit framework could address multiple causes for women's 
lower Social Security benefits and higher levels of poverty in old age. 
However, such a benefit would have to be designed with women's work 
histories in mind; a benefit that required 35 or 40 years of earnings 
to qualify for a decent minimum benefit would help many fewer women 
than men.
---------------------------------------------------------------------------
    \28\ Social Security Administration Office of Policy and Office of 
Research, Evaluation, and Statistics, Income of the Population 55 or 
Older: 2000, Table 8.1, at 139 (February 2002).
    \29\ Timothy M. Smeeding, Carroll L. Estes and Lou Glasse, ``Social 
Security Reform and Older Women: Improving the System''(Gerontological 
Society of America, 1999).
    \30\ Social Security benefits based on their husband's earnings 
record are available to divorced women whose marriages lasted at least 
10 years.
---------------------------------------------------------------------------
    Some smaller reforms, such as those in the Chairman's bill that 
would eliminate two restrictive eligibility requirements for disabled 
widows' benefits, and that would waive the two-year duration of divorce 
requirement for divorced spouses whose working ex-spouse has remarried, 
would help a small but vulnerable group of women, and the cost of 
making these changes would be negligible.
    Congress also could effectively increase the Social Security 
benefits of the poorest older Americans by reducing the nearly 100 
percent tax on Social Security benefits over $20 per month imposed in 
the Supplemental Security Income (SSI) program.31 SSI 
provides a safety net for poor elderly, blind, and disabled people. 
However, in calculating a individual's SSI benefit, only $20 per month 
of ``unearned income'' is disregarded--and Social Security benefits are 
considered unearned income. As a result of this limited disregard, any 
Social Security benefit greater than $20 simply reduces a recipient's 
SSI benefits dollar for dollar. The $20 disregard level was set in 
1972; adjusting it for inflation since then would help most elderly SSI 
recipients 32 and would allow SSI recipients to receive more 
income without jeopardizing eligibility for the essential Medicaid 
benefits that are linked to SSI. It would be especially important to 
women for two reasons. First, the large majority (71 percent) of aged 
SSI recipients are women.33 Second, women are far more 
likely than men to have monthly Social Security benefits just below the 
SSI level.34 Changing the SSI disregard would have no effect 
on Social Security solvency, because Social Security benefits would be 
unchanged; however, it would increase costs to the SSI program, which 
is funded out of general revenues.
---------------------------------------------------------------------------
    \31\ For a discussion of the impact of this $20 disregard, see 
Kilolo Kijakazi, ``Women's Retirement Income: The Case for Improving 
Supplemental Security Income'' (Center on Budget and Policy Priorities, 
June 8, 2001).
    \32\ In 2000, 59 percent of elderly SSI recipients received Social 
Security benefits, and the average benefit was $394. NWLC calculations 
based on Social Security Administration, Annual Statistical Supplement, 
2001, Table 7.D1.
    \33\ NWLC calculations based on Annual Statistical Supplement, 
2001, Table 7.E3.
    \34\ About 30 percent of women, but only 20 percent of men, had 
monthly Social Security benefits below the $520 per month SSI level in 
2000. NWLC calculations based on Annual Statistical Supplement, 2001, 
Table 5.B6.
---------------------------------------------------------------------------
    Benefit improvements that would significantly increase the well-
being of the many women in need have real costs for Social Security and 
pose real trade-offs. Different improvements target different groups of 
women. Thus, it is important to evaluate reforms as a package, and in 
the context of a broader plan to strengthen Social Security for the 
long-term. We emphasize that improvements to benefits must come on top 
of a secure, guaranteed-for-life, inflation-adjusted Social Security 
benefit, not applied to a greatly reduced, privatized benefit, as was 
proposed by the President's Social Security Commission.35
---------------------------------------------------------------------------
    \35\ Statement of Nancy Duff Campbell, see supra note 11.
---------------------------------------------------------------------------
    It may not be possible to give out all the tax breaks that Congress 
is considering to corporations, the highest-income Americans, and the 
largest estates, and finance privatization, and also maintain and 
improve Social Security benefits. But if Congress really wants to 
strengthen and improve Social Security for women, that can be done. To 
put the challenge into perspective: we could eliminate the long-term, 
75-year deficit in Social Security for half the cost of making the tax 
cut permanent, as the President and some in this House are proposing to 
do.36 Repealing the estate tax, which is paid by only the 
richest 2 percent of estates, will cost about 0.88 percent of taxable 
payroll over 75 years.37 If we instead retained the estate 
tax, we could pay for important benefit improvements many times over. 
For example, the Social Security Administration estimates that one 
proposal to improve both the survivor benefit and the minimum benefit 
would cost about 0.15 percent of taxable payroll over 75 
years.38 Alternatively, that amount would eliminate nearly 
half (47 percent) of the solvency gap of 1.86 percent of taxable 
payroll.39 The issue is one of priorities: to exempt the 
largest two percent of estates from federal taxation, or to help poor 
elderly women.
---------------------------------------------------------------------------
    \36\ Center on Budget and Policy Priorities, ``Social Security And 
The Tax Cut: The 75-year Cost of the Tax Cut Is More than Twice As 
Large as the Long-Term Deficit in Social Security'' (December 13, 
2001).
    \37\ Conversation with Joel Friedman, Center on Budget and Policy 
Priorities, February 26, 2002.
    \38\ Michael A. Anzick and David A. Weaver, ``Reducing Poverty 
Among Elderly Women,'' ORES Working Paper Series Number 87 (Social 
Security Administration, Office of Policy, Office of Research, 
Evaluation, and Statistics, January, 2001), at 14.
    \39\ Social Security and Medicare Boards of Trustees, ``Status of 
the Social Security and Medicare Programs: A Summary of the 2001 Annual 
Reports'' (March 19, 2001), available at http://www.ssa.gov/OACT/TRSUM/
trsummary.html.
---------------------------------------------------------------------------
    I look forward to working with the Subcommittee on ways to achieve 
real Social Security reforms to benefit all generations of women.

                               

    Mr. HAYWORTH. Thank you. Mr. John?

     STATEMENT OF DAVID C. JOHN, RESEARCH FELLOW, HERITAGE 
                           FOUNDATION

    Mr. JOHN. Thank you, and thank you to both the Subcommittee 
and to their staff for putting this hearing together. This is a 
very valuable information gathering session.
    I have mentioned various of the other issues in my written 
testimony. In my spoken testimony, I am only going to comment 
on the guarantee certificates, which I strongly support.
    Seniors deserve retirement security and the simple fact is 
that seniors today have got it. The youngest person who could 
get a certificate such as those proposed under various pieces 
of legislation is 62 today. They will be 78 at the time that 
Social Security starts running cash flow benefits in 2016, and 
they will be 98 before the last of the bonds in the Social 
Security Trust Fund run out. Essentially, the money is there to 
pay them their benefits.
    However, as any of us who have done Social Security events 
in places outside the beltway know the audience is primarily 
senior citizens and the first thing they want to know is, what 
is all of this reform going to do to my benefits? The 
certificates would give them some ease. There is no need to 
scare these people. There is no reason to allow political 
campaigns to raise unnecessary and nasty worries.
    The certificates would work very simply. Anyone who is 
already retired would receive a certificate that, among other 
things, listed what their monthly benefit is and that they 
would receive an accurate annual cost-of-living allowance as 
determined by the Bureau of Labor Statistics or the Social 
Security Administration. As other people retired, they would 
receive those certificates also. The cost, according to the 
Congressional Budget Office (CBO), is about $10 million in the 
first year and $1 million annually after that.
    Let me address a couple of points here. These certificates 
would not change the trust fund. Essentially, when the trust 
fund starts to run out of government bonds, Congress would have 
to make some decisions about what it is going to do in order to 
keep the promises contained in those certificates.
    Second, is it a legal document? Well, under current law, 
you have a legal right to your Social Security benefits and 
that is what the certificates would say. You have a legal right 
to a specific amount of Social Security benefits based on your 
earnings record, which would also be stated on the 
certificates.
    Now, it is very true constitutionally that a future 
Congress could change those benefits. However, it is one thing 
for a future Congress to make a change in benefits and try to 
hide it by wording things in a particular way so it does not 
seem like one, and it is something else when you have made an 
explicit promise on paper with a dollar amount of benefits. If 
Congress does that sort of thing, any law that changes 
retirees' benefits should be subtitled, ``The Politicians' Full 
Unemployment Act,'' because that is what is going to happen.
    So, in a sense, there is a moral right that seniors have 
right now to their benefits having paid Social Security taxes 
over a working lifetime and that moral right is what is 
asserted in this certificate.
    Now, it has been suggested, why do we not give guarantee 
certificates to everyone? Well, the simple fact is that until 
someone has actually applied for retirement benefits, we do not 
know what their earnings record is. You have to have a complete 
earnings record before SSA can set a dollar amount for your 
Social Security benefits. Second, you cannot issue certificates 
for other programs like Medicare because Medicare does not 
guarantee you a certain dollar amount for your taxes. Medicare 
payments come out on an episodic basis as needed. The fact is 
that my 81-year-old father was kept alive last year when he had 
some heart problems by technology that did not exist when he 
retired in 1986. What level of benefits would a Medicare 
guarantee cover?
    Now, let me just address one other point here. Is this some 
sort of a meaningless guarantee? No. It has a legal force. It 
has a moral force.
    There have been irresponsible attacks, such as the idea 
that the lockbox was raided last year. The simple fact is that 
Social Security was supposed to receive a certain level of 
trust fund bonds and it did. The fact that the money after the 
trust fund bonds were issued was spent on the war on terrorism 
has absolutely nothing to do with the trust fund's future 
ability to pay Social Security benefits.
    As a matter of fact, this is American history. For a few 
years, the Social Security surplus was used to reduce the 
government debt, but otherwise it has paid for the war in 
Vietnam, it has paid for the war on poverty, and now it is 
paying for the war on terrorism. As I try to instruct my 
daughter when she is learning how to budget, the fact that you 
have paid down your Visa bill has absolutely nothing to do with 
your car payment. The fact that you have paid down some of the 
Federal debt has absolutely nothing to do with the ability to 
pay benefits when Social Security starts to run cash flow 
deficits.
    These certificates would be much more valuable, combined 
with changes in the annual Social Security Statements so we 
send a dual message. To senior citizens, you are safe. Congress 
is not going to touch your benefits. To younger workers, 
according to the Social Security actuaries, you face some 
problems in being able to get your full benefits. We need to 
talk about resolving them. Thank you.
    [The prepared statement of Mr. John follows:]
    Statement of David C. John, Research Fellow, Heritage Foundation
    I appreciate the opportunity to appear before you today to discuss 
a written guarantee of their Social Security benefits for current 
retirees, improving the program for women, and increasing the 
information that the public can receive about Social Security programs. 
These are extremely important subjects, and I would like to thank the 
Chairman for scheduling this hearing. Let me begin by noting that while 
I am a Research Fellow at the Heritage Foundation, the views that I 
express in this testimony are my own, and should not be construed as 
representing any official position of the Heritage Foundation. In 
addition, the Heritage Foundation does not endorse or oppose any 
legislation.
    Congress could begin the process of Social Security reform this 
year by passing legislation to provide more information to workers 
about the current program and the options for reform. Perhaps the best 
way to do so would be a dual step of both providing today's retirees 
with a written guarantee of their Social Security retirement benefits, 
and providing today's workers with better information on Social 
Security's future by improving the annual statements they get from SSA. 
Taking such steps would help to prepare Americans for a more informed 
debate on the future of Social Security, and it would make it easier to 
develop a national consensus on real reform. Moreover, these steps 
would cost very little, both politically and financially. Congress need 
not wait for a complete Social Security reform plan to be agreed on by 
all sides before taking these important steps.
    Although Social Security is the government's most popular program, 
many Americans know very little about how it operates and how its 
benefits compare with alternative retirement investments. For example, 
millions of Americans remain convinced that Social Security maintains a 
savings account in each of their names, despite the fact that there is 
no direct connection between the amount of taxes one pays and the 
retirement benefits that one eventually receives.1 Moreover, 
few Americans realize that the rate of return on their Social Security 
taxes is averaging a mere 1.2 percent,2 or that the program 
will begin to run cash flow deficits by the year 2016 without 
reform.3
---------------------------------------------------------------------------
    \1\ The formula used to determine Social Security benefits is based 
on an individual's inflation-adjusted earnings history, not on the 
taxes he or she paid. Since 1940, retirement taxes have increased from 
a combined employer-employee rate of 2 percent on the first $3,000 of 
earnings to 10.6 percent of the first $76,200 of earnings. Meanwhile, 
the benefit formula has been based on earnings throughout that period.
    \2\ William W. Beach and Gareth G. Davis, ``Social Security's Rate 
of Return,'' Heritage Foundation Center for Data Analysis Report No. 
98-01, January 15, 1998.
    \3\ 2000 Annual Report of the Board of Trustees of the Federal Old-
Age and Survivors Insurance and Disability Insurance Trust Funds 
(Washington, D.C.: U.S. Government Printing Office, 2000), p. 3.
---------------------------------------------------------------------------
    Another aspect of Social Security that needs reform is the way that 
the current program fails to meet the special needs of women. While the 
major improvements in this regard are so costly that they will probably 
have to wait for a full reform bill, Congress can begin the process 
this year.
    Doing nothing with the current Social Security program makes little 
sense and will serve only to make matters worse. Testimony by U.S. 
Comptroller General David Walker indicates once again that the overall 
cost of not enacting reform increases every year.4 Since 
serious reform is not feasible this year, Congress should pass these 
simple but extremely important changes improve the prospects for a full 
debate next year.
---------------------------------------------------------------------------
    \4\ David Walker, Testimony before the Social Security Subcommittee 
of the Ways and Means Committee, U.S. House of Representatives, 106th 
Cong., 1st Sess., March 25, 1999.

1. Congress should grant retiree's a written guarantee of the Social 
---------------------------------------------------------------------------
Security benefits.

    Social Security reform has nothing to do with today's senior 
citizens. The program has more than enough resources to pay them full 
benefits for the rest of their lives. Sadly, one of the most troubling 
aspects of the debate over reforming the Social Security system has 
been an attempt to scare senior citizens into believing that their 
benefits will be cut. However, Congress can emphasize that current 
senior citizens have nothing to fear from Social Security reform by 
guaranteeing their benefits in writing.
    President George Bush recognizes the importance of reassuring 
seniors. The first principle that guided last year's President's 
Commission to Strengthen Social Security was: ``Modernization must not 
change Social Security benefits for retirees or near-retirees.'' 
However, polling results show that even though most responsible Social 
Security reform proposals would not affect them at all, seniors are 
still worried.
    The facts are different. While Social Security will not have the 
assets necessary to pay full benefits to younger workers, it will have 
enough to pay current retirees. The youngest person eligible to receive 
Social Security retirement benefits in 2002 (at age 62) will be 76 
before the program begins to run cash flow deficits in 2016. They will 
be 98 before the Social Security trust fund runs out of IOUs. People 
who retired before 2002 will be even older.

Legislation that would create a guarantee
    Legislation now before Congress would establish such written 
guarantees. Senator Tim Hutchinson (R-AR) and Representative Walter 
Jones (R-NC), for example, have introduced the Social Security Benefits 
Guarantee Act (S. 806 and H.R. 832). Senator Rick Santorum (R-PA) and 
Rep. Jim DeMint (R-SC) have introduced similar legislation (S. 1558 and 
H.R. 3135).
    These bills would require the Secretary of the Treasury to issue, 
to each recipient of Social Security retirement benefits, a certificate 
that includes a written guarantee that they will receive their monthly 
benefit and an accurate annual cost-of-living increase. Benefits would 
continue to be paid through the Social Security trust funds, just as 
they are now. Workers who are already receiving benefits would receive 
a certificate soon after the legislation is signed, while new retirees 
would receive their certificates when they first apply for and are 
approved to receive retirement benefits. Those workers would receive a 
certificate guaranteeing the benefits that are in effect at the time 
that they retired plus the accurate cost of living.
    Survivors and spouses who qualify for benefits would also receive a 
certificate stating what they are entitled to and how long they will 
receive benefits. If their circumstances change in a way that affects 
their benefits (such as after the death of a spouse), they would 
receive a new certificate stating the new amount of their benefits.

Is this a real guarantee?
    The guarantees would be real and legally binding. Congress is 
making an explicit promise in writing that it will not reduce retirees 
benefits. Current law says as much right now. It states that anyone who 
meets the requirements to receive Social Security benefits has a legal 
right to the level of benefits they qualify for and no less.
    While this fact has been in the law, Congress has never before made 
it explicit and guaranteed each recipient's exact amount. Most 
Americans have never read a law book, and most of us would have trouble 
understanding what was written there if we did. Americans assume that 
their benefits are guaranteed in the law, but they have no explicit 
proof. Guarantees would take the language out of the law books and send 
it to every retiree in language that they can understand.
    Even more important, the guarantee allows explicit accountability. 
If a future Congress tries to change retirees' benefits, retirees will 
know it and can vote them out of office. Guarantees will prevent subtle 
benefit changes by allowing retirees to compare the amount on their 
certificates with their monthly checks. Few politicians will be willing 
to face the results of trying to change these guarantees.
    It is true that hypothetically, a future Congress could pass 
legislation reducing the Social Security benefits of those who have 
already retired. While nothing in these guarantees would tie the hands 
of a future Congress, the explicit written nature of the guarantee will 
ensure that such a move has severe political implications. The Congress 
that breaks the promise and reduces retirees' Social Security benefits 
will discover that they have actually passed ``The Politicians Full 
Unemployment Act.''

What the guarantee does not do
    First, guarantees would not affect the trust fund. In specific, the 
legislation creating these guarantees is not intended to provide an 
alternate way of financing Social Security benefits once the current 
trust fund runs out. If written guarantees for retirees are approved, 
Social Security benefits would still be paid through the trust funds. 
When those trust funds run out, Congress will have to decide how to pay 
benefits. Every year that Congress delays serious Social Security 
reform, the task will get harder.
    Guarantees would also not make reform more expensive. If anything, 
it only makes today's reality more explicit. We as a people have a 
moral obligation to pay the Social Security benefits of current 
retirees after having taken their payroll taxes for decades. No serious 
reform plan calls for cutting the benefits of today's seniors. As noted 
above, President Bush's first principle of reform is to protect the 
benefits of retirees from reductions. These benefits are going to be 
paid no matter what, and the guarantee just reinforces this fact.
    Guarantees do not prevent Congress from changing the benefit levels 
of younger workers if it chooses to do so. If Congress fails to 
establish personal retirement accounts or to take other steps that will 
improve the ability of the system to pay benefits to younger workers, 
it may have no choice but to change their Social Security benefits. 
Since the proposed guarantees would only cover the retirement benefits 
that are in force when a worker actually retires, Congress could 
theoretically change them up until the day of retirement. Of course, if 
it waited too long, there would probably be political repercussions.

Why the guarantee only covers retirees
    Social Security is almost unique among government programs in that 
it promises an explicit level of monthly benefits upon retirement in 
return for paying a specific tax. However, the amount of benefits that 
are payable can only be exactly calculated when a retiree's earnings 
record is complete and he or she has actually applied for benefits. 
Before then, any benefit predictions are only estimates. Actual benefit 
levels could change as the worker's annual earnings rise and fall. For 
that reason, the guarantees cannot be offered with the same assurance 
of accuracy for any worker who is still in the labor force.
    Similarly, it would be both inaccurate and irresponsible to offer 
these guarantees to younger workers. Not only are their earnings 
records not even close to complete, the fact is that Social Security 
does not have the financial resources to pay today's promised benefits 
in the future. The program's actuaries predict that Social Security 
will begin to pay out more in benefits than it receives in taxes by 
2016. By 2038, the IOUs contained in the program's trust fund will run 
out.
    The guarantees are not a substitute for reform. They do not 
magically create assets that would be available to pay retirement 
benefits to younger workers. If someone in Congress wishes to try to 
extend guarantees to all workers, it is their responsibility to include 
in the same bill a way to pay for those benefits.
    Finally, Medicare is completely different. It does not promise to 
pay an explicit and limited financial benefit level in return for 
taxes, and it does not pay its benefits to an individual worker in a 
predictable stream of monthly payments. Instead it pays a service 
benefit when the health of the beneficiary makes it necessary. But it 
is very difficult to define the benefit in any precise way--for 
instance, two doctors can treat a chest infection in completely 
different ways. Also, both its costs and the available level of 
technology change constantly, making the public liability of a 
guarantee unpredictable. Moreover, the treatments available to a 
retiree today, or in the future, may not have existed when he or she 
first retired, and could not have been included in a guarantee 
certificate.
    In conclusion, the choice facing Congress is fairly simple. On the 
one hand, it can show seniors that they have nothing to fear from the 
debate over Social Security by establishing written guarantees that 
their benefits will be paid. On the other, it can leave those fears 
unresolved and emphasize the fact that all Social Security benefits can 
be changed at the whim of Congress.

2. Congress should begin to address the special needs of women under 
Social Security.

    When Social Security was created in 1935, virtually all women 
worked in the home raising children for much or all of their lives. 
Obviously, times have changed rather radically. However, Social 
Security has not sufficiently changed to meet the needs of today's 
women.
    Last year, the President's Commission to Strengthen Social Security 
identified several ways that the current Social Security system fails 
to meet modern women's needs. Your Social Security reform plan, Mr. 
Chairman, does an even better job of identifying specific ways that 
women are not treated equally and ways that today's system could be 
improved.
    In the long run, Congress must improve survivors' benefits for 
single earner couples. It is simply wrong for a woman to lose her 
husband and to be forced into poverty when her benefits are reduced to 
50 percent of what the couple received when both partners were alive. 
The sad fact is that costs do not decline by half when one spouse dies. 
Mortgage or rents remain the same, as do utilities, automotive costs, 
and others. Because this change will be expensive, it may have to wait 
for a comprehensive reform bill, but it must be considered.
    The best solution for younger single income families would involve 
a personal retirement account. That is the only way to really prevent 
this inequity from affecting younger women who choose to stay home with 
their children. However, it is already too late for this important step 
to help older women, and especially those who have already retired.
    Another issue that needs to be resolved is today's Social 
Security's requirement that a marriage last at least ten years before a 
woman is eligible to receive benefits from her former husband's 
earnings. The sad fact is that fully one-third of all marriages last 
less than the required ten years. Again, the best solution would 
involve a personal retirement account, which courts could split between 
the couple in the case of divorce. However, until that passes, a good 
first step would be to end the two year delay in collecting spousal 
benefits faced by a divorced woman if her former husband has remarried.

3. Congress should improve SSA's Your Social Security Statement (YSSS).

    Senior citizens are not the only ones who need more information 
about Social Security. If a written guarantee of seniors Social 
Security retirement benefits is important to allow them to see that 
reform will not affect their benefits, it is equally important to 
provide other workers with information about why Social Security could 
lack the resources to pay their full promised benefits. In a sense, 
these two proposals are different sides of the same coin. Approving 
both would allow for a more informed debate about Social Security's 
future.
    Starting in October 1999, the Social Security Administration began 
mailing annual YSSS statements to an estimated 123 million 
workers.5 These statements include an accounting of Social 
Security taxes the individual worker has paid to date, the worker's 
eligibility status for benefits, and an estimate of the various types 
of benefits the worker and/or the family could receive under different 
circumstances.
---------------------------------------------------------------------------
    \5\ In order to receive a YSSS statement, a worker must be at least 
25 years old and have annual earnings, a Social Security number, and a 
valid current address. The worker also cannot be receiving Social 
Security benefits.
---------------------------------------------------------------------------
    For most Americans, the YSSS statements will be their sole source 
of official information on how they personally will fare in retirement 
under the current system. While the new statements are much easier to 
understand than the earlier Personal Earnings and Benefit Estimate 
Statements (PEBES), which they replaced, additional change are 
necessary. Unfortunately, even with the improvements, much of the 
information contained in the YSSS statements is both flawed and 
misleading. As a result, millions of Americans may be misinformed about 
how the current system works and confused about how much retirement 
income they will receive. Moreover, as the debate over preserving and 
improving Social Security continues, these workers will not have the 
necessary information to make an informed decision.
    The worst flaws are contained in the methodology that Social 
Security uses to estimate future benefits. While Social Security uses 
actual salary information to the extent that it is both available and 
accurate for past earnings, it then assumes that the individual will 
continue to earn exactly the same amount through retirement. This 
results in misleading numbers in a number of instances. For instance, a 
younger worker's benefits will be grossly understated, as the SSA model 
does not allow for salary increases. Similarly, anyone with fluctuating 
income, such as farmers or salespeople, could find that their annual 
statements include widely differing benefit estimates depending on 
whether the last year of actual earnings information was a year of 
prosperity or of difficulty. Finally, women who expect to leave the 
workforce temporarily to care for children will also receive inaccurate 
estimates. In order to deal with this weakness, The Heritage Foundation 
has a website that will allow workers to develop more accurate benefit 
estimates.
    Equally serious is that the YSSS statements fail to adequately 
inform people how the program's projected financial difficulties could 
affect the payment of their benefits. While the most recent statements 
include a footnote hinting at these problems, this warning should be 
more explicit. The estimated benefits section of the YSSS statement 
should begin with a statement such as:

          ``You will be eligible to receive full retirement benefits 
        in 20XX. In that year, Social Security will only receive enough 
        taxes to pay for xx% of these benefits. Through 20XX, the 
        difference will be made up from the Social Security OASDI trust 
        fund, but after that date changes may be required.''

    These disclosures are similar to those required of under-funded 
private pension plans by the US Department of Labor. It is only fair to 
also require Social Security to meet these standards.
    Second, Congress should require the Social Security Administration 
to include information on the actual nature of the Social Security 
trust funds and how they differ from private-sector trust funds. 
President Clinton's budget for fiscal year 2000 accurately portrayed 
this distinction. Chapter 15 of the Analytical Perspectives volume for 
that year stated that

          ``These balances are available to finance future benefit 
        payments . . . only in a bookkeeping sense. They do not consist 
        of real economic assets that can be drawn down in the future to 
        fund benefits. Instead, they are claims on the Treasury that, 
        when redeemed, will have to be financed by raising taxes, 
        borrowing from the public, or reducing benefits, or other 
        expenditures.'' 6
---------------------------------------------------------------------------
    \6\ Analytical Perspectives, Budget of the United States 
Government, Fiscal Year 2000 (Washington, D.C.: U.S. Government 
Printing Office, 1999), p. 337.

    This statement should also be included in the YSSS statements. Both 
workers and the media should understand that, in discussing Social 
Security, the term ``trust fund'' has a different meaning than it does 
in normal financial dealings. Although private-sector trust funds 
contain stocks, bonds, or other assets that can be sold for cash, 
Social Security's trust funds contain only IOUs that will have to be 
paid with future taxes.
    Finally, the Social Security Administration should be required to 
include data on the worker's estimated rate of return on Social 
Security retirement taxes. One way to do this would be to include the 
chart found on page 23 of GAO's August 1999 report on Social Security's 
rate of return.7
---------------------------------------------------------------------------
    \7\ ``Social Security: Issues in Comparing Rates of Return wit 
Market Investments,'' GAO/HEHS-99-110 (Washington, DC: U.S. Government 
Printing Office, 1999).
---------------------------------------------------------------------------
    Because YSSS statements already are included in the federal budget, 
the cost of making these modest improvements would be minimal. By 
making such incremental changes to the information Social Security 
provides on YSSS statements, Congress could ensure that millions of 
workers and their families have better information on the Social 
Security program, which would enable them to plan more appropriately 
for their retirement. It also would enhance the Social Security debate.
    In the House, there are two bills that would accomplish these aims. 
H.R. 634 by Rep. Jim DeMint includes all of these recommendations, as 
does H.R. 930 by Rep. John Sununu. The Sununu actually goes even 
farther by also including provision that would improve the information 
in the annual Social Security trustees report and allowing SSA to make 
public the Continuous Work History file to qualified researchers. This 
last item is important, as it would allow those researchers to more 
exactly duplicate the work of SSA's Office of the Chief Actuary in 
scoring reform proposals and determining how they would affect specific 
segments of the workforce.
    Improving Your Social Security Statement would allow today's 
workers to understand why Social Security needs to be reformed. 
Together with language establishing a written guarantee of their 
benefits for retirees, the two steps would go a long way towards 
ensuring a full and complete debate about Social Security's future.
Conclusion
    If Congress were to pass legislation guaranteeing senior's Social 
Security benefits and improving the information available to other 
workers in Your Social Security Statement, the debate over Social 
Security reform would be greatly enhanced. The guarantees would ease 
the unnecessary concerns that seniors have about their retirement 
benefits. Providing more information to average Americans through their 
annual YSSS statements would make it easier for workers to understand 
how potential reforms could affect their retirement. Finally, it is 
well past time to deal with some of the inequities that the current 
Social Security system forces upon women. While it may be an 
unfortunate necessity that full redress must wait until a full reform 
bill is passed, Congress can at least make a start. Regardless of 
whether Congress acts this year to deal with Social Security's 
impending insolvency, these small but important measures are long 
overdue.

                               

    Mr. HAYWORTH. Mr. John, we thank you for your testimony, as 
well.
    Indeed, to all our witnesses, again let me reiterate our 
thanks for your presence here today and for your testimony.
    Mr. Atwater, thank you, sir. I can assure you that Members 
of NARFE in the Sixth Congressional District of Arizona are a 
lot who are not shy in the least of communicating----
    [Laughter.]
    Mr. HAYWORTH. And to let you know the grassroots works 
quite well. I hear from folks, so be assured that the input is 
there, I think for almost every Member of Congress.
    Mr. ATWATER. Thank you very much.
    Mr. HAYWORTH. Just one question. You mentioned Chairman 
Shaw's plan, and again, just to amplify what that would do, 
that would take the current two-thirds reduction down to one-
third?
    Mr. ATWATER. One-third, that is correct.
    Mr. HAYWORTH. As if often the case in government, once we 
get away from the roar of the greasepaint and the smell of the 
crowd and the kind of debating society that we run from time to 
time, we have to make some hard decisions. Not to describe this 
as a sliding scale, but is the position that you have immutable 
or could that be subject to revision if we have to hammer 
something out?
    Mr. ATWATER. Well, you know, there are numerous bills on 
the subject right now that are pending and none of them have 
come to the Floor. But we are encouraged by the Chairman's bill 
because he did put something in his omnibus bill that included 
the GPO provision, and that is, of course, one of the things 
that we have been very interested in for a number of years, and 
we are hoping that we could get that maybe pushed along to get 
something done in this 107th Congress. No, it is not the final 
thing, but we certainly would welcome that.
    Mr. HAYWORTH. So that is really a goal that you see 
immediately based on what Chairman Shaw has offered in his 
omnibus bill?
    Mr. ATWATER. Yes. We think that that is a goal, and we have 
been pushing GPO for a number of years, and hopefully that GPO 
would be passed maybe separate from everything to benefit these 
widows and women that are just getting by on $300 or $400 a 
month.
    Mr. HAYWORTH. It is a very real problem and I thought my 
colleague from Texas, Mr. Johnson, made the point very well 
with the Commissioner, as you have, and we appreciate the 
ongoing dialog we will have with Members of your organization.
    Ms. Pfotenhauer, you also offered a thought about how to 
handle benefits. I would like you to amplify that and restate 
that and take a look at that 75 percent of the couples' benefit 
and how would that inure if there is an average or some 
information, or how would that inure to the benefit of the 
widow.
    Ms. PFOTENHAUER. As I think many of us know, since we have 
mentioned frequently today that women tend to outlive men, so 
the wives are outliving their husbands, once a spouse dies, the 
remaining survivor goes down to an individual benefit and what 
she gets then is reduced substantially, and, of course, her 
fixed costs have not been commensurately reduced. So we believe 
that we need to increase the widows' benefits from 100 percent 
of the deceased workers' benefit to 75 percent of the couples' 
benefit, and we think that that will have a dramatic and real 
impact, even if it is not on hundreds of thousands of lives.
    I know that in Congress, we are frequently asked to make a 
decision that is going to affect the most people. Here, I think 
we should make a decision about a matter that can be done 
relatively quickly, relatively cheaply, and affect those who 
need it the most.
    Mr. HAYWORTH. Thank you for that.
    It was interesting, Ms. Wolfe, to hear your reminder to us 
about the whole notion of payroll taxes and the challenges that 
businesses face. Despite some of the other testimony and the 
convenient Enronizing of political rhetoric, I think it is 
worth noting that most jobs in our society in the private 
sector come from--it is almost a disservice to call it small 
business, it is essential business, and the challenges that are 
afoot there for entrepreneurs and payroll taxes.
    You might be interested, in the mists of my memory, and I 
am sure staff will hasten to correct me, when I first arrived 
here, a previous Administration offered a budget plan and it 
was quite candid from the Office of Management and Budget 
looking into the future, dealing with the question of Social 
Security. And what has been left unsaid is your very cautionary 
note on payroll taxes. By the estimates of the previous 
administration's own budgeters, the children and grandchildren 
we have talked about, if nothing is done to save this system, 
would face, if memory serves, I think an 80-percent increase in 
payroll taxes.
    Clearly, no matter how impassioned the advocates of the 
radical redistribution of funds in our society may offer that 
type of advocacy, I do not think that can hold up really for 
anybody. So your admonishment is one that I think we can all 
remember and sets the stage for us to work on a bipartisan 
basis.
    Sure enough, Ms. Hildred, great with the calculator, tells 
me I was a little bit wrong.
    [Laughter.]
    Mr. HAYWORTH. But I am in the ballpark when it talks about 
an extreme increase, 50 percent. I do not think that is much 
more palatable for anybody, to face a 50-percent payroll tax 
increase. Thanks to the staff for helping to find those 
figures. Thank you again for your testimony.
    Now we turn to my friend, the Ranking Member, from 
California.
    Mr. MATSUI. Thank you, Mr. Chairman. Mr. Chairman, just for 
the record, I want to make a clarification. If I understood 
what you were saying, in time of war, obviously we may move 
into the surplus, and these are CBO numbers that we put in 
percentages. Reevaluation of the economic projections that 
occurred in January of this year, from January 2000, was 42 
percent in the reduction of the surplus. The tax cut of May or 
June of last year was 41 percent of the surplus. Additional 
government spending approved by both the House and the Senate 
and also the President was 8 percent, and the war effort was 
only 9 percent of the total surplus.
    So the war really had nothing to do with the loss of the 
surplus over the 10-year period, from $5.6 trillion to a 
projected surplus now of a little over $1 trillion, and we have 
not even gotten through this year yet. So I just call your 
attention to that.
    Mr. JOHN. But, sir, it also did not change Social Security.
    Mr. MATSUI. Sir?
    Mr. JOHN. It also did not change Social Security at all.
    Mr. MATSUI. I understand that. I also want to ask you, you 
are acknowledging the fact that these certificates of guarantee 
that you referred to, and I think Mr. DeMint and Mr. Armey 
introduced legislation to that effect, you acknowledge the fact 
that it confers no additional legal or contractual right on the 
recipient. You were talking about a moral right?
    Mr. JOHN. What it does is to emphasize the existing legal 
right that an individual has to their benefits, and it also 
makes it exceedingly hard for a future Congress to change that 
without certain types of fallout.
    Mr. MATSUI. And you are acknowledging the fact that after 
we send those certificates out, a Congress with the President's 
consent, obviously, can make a change weeks later, days later, 
or whenever we have the time to do so, is that right?
    Mr. JOHN. Congress could make the change as long as they 
are willing to face the consequences.
    Mr. MATSUI. I understand that, but we are talking about--I 
mean, I think we like to do things that have legal 
ramifications, and I just want to make sure I understand. I 
understand what you are saying, but what I am trying to 
acknowledge is the fact that this confers no additional legal 
right, because that is what our CRS report has said and that is 
what almost everyone who has looked at this has acknowledged. 
So I just want to make sure I understand your testimony.
    Mr. JOHN. The CRS report also said that it conferred a 
substantial guarantee or a substantial additional--I will have 
to give you the exact wording. But the simple fact of the 
matter is that very few Americans have law books in their 
homes. If they receive a certificate informing them what the 
current law is, they are much better informed than they are 
now.
    Mr. MATSUI. Let me just ask you, have you had a chance at 
the Heritage Foundation, with your involvement, obviously you 
are involved with Social Security----
    Mr. JOHN. Yes.
    Mr. MATSUI. Have you had a chance to review Mr. Armey's 
recent legislation that he introduced last month?
    Mr. JOHN. I have, yes.
    Mr. MATSUI. And have you costed it out?
    Mr. JOHN. The costing according to SSA is approximately 
$6.8 trillion, and those are real dollars, 2002 dollars.
    Mr. MATSUI. I do not think that is right. I think it is 
about $21.3 trillion over----
    Mr. JOHN. Is that in 2002 dollars?
    Mr. MATSUI. No, I am talking about in current dollars, 
right.
    Mr. JOHN. All right. In 2002 dollars, according to Steve 
Goss's memo, it comes to approximately $6.8 trillion in 
additional revenue transfers.
    Mr. MATSUI. Let me ask Mr. Riemer to comment. You have had 
a chance to review Mr. Armey's proposal?
    Mr. RIEMER. Yes, I have.
    Mr. MATSUI. Could you give us the breakdown on the cost 
here?
    Mr. RIEMER. Certainly. My understanding is that the bill 
borrows $21.3 trillion from the individual accounts that it 
sets up, and on top of this, it actually has to have a subsidy 
of about $20.4 trillion from the general budget. And in spite 
of all that, it actually fails to restore solvency to the 
program.
    Mr. MATSUI. Right. It does not create solvency. Mr. Shaw is 
not here, so I am just going to ask you briefly, what is the 
cost of Mr. Shaw's plan in terms of general fund borrowing 
over, let us say, 50 years?
    Mr. RIEMER. I am actually not familiar with that number. It 
is quite large and I am sure----
    Mr. MATSUI. Ms. Entmacher, I think you know it.
    Ms. ENTMACHER. The cost of the plan, if it is all borrowed, 
is an additional $8 trillion to the national debt. If we did it 
by raising revenue or cutting other programs, the cost goes 
down to $3.6 trillion, the difference being the interest costs.
    Mr. MATSUI. These are trillion dollars?
    Ms. ENTMACHER. Trillion dollars.
    Mr. MATSUI. Trillion dollars.
    Ms. ENTMACHER. Yes.
    Mr. MATSUI. I do not think any of you could answer this, 
but I do not think we have that money available at this time, 
and we are not projecting that money to be available any time 
soon.
    Mr. John, maybe you can use your organization to try to 
find out where that money could come from, because obviously we 
need to solve this problem. At Heritage, you could really do us 
a big service if you could come up with some way we can fund 
either Mr. Armey's proposal or Mr. Shaw's or even one of the 
three proposals in the President's Commission, because I think 
that would really do us a wonderful favor.
    Mr. JOHN. Mr. Matsui, we have a budget model and we also 
have a Social Security model, pretty much the only Social 
Security Trust Fund model outside of SSA, and we would be 
delighted to sit down with you and your staff. We would also 
like to work out where the $22.2 trillion that Social Security 
has in unfunded liability, according to Steve Goss, comes from.
    Mr. MATSUI. The unfunded liability is about $10 trillion.
    Mr. JOHN. Well, we are going to disagree on numbers, I 
think.
    Mr. MATSUI. I know these are pretty accurate. They come 
from the actuary.
    Mr. JOHN. Well, so do mine, actually.
    Mr. MATSUI. Everybody can look at things differently, but 
thank you. Yes, if I may----
    Ms. ENTMACHER. Yes. Actually, there are a few suggestions 
that we make in our testimony. The first point to emphasize is 
that the long-term cost of the tax cut is actually twice as big 
as the long-term 75-year shortfall in Social Security, and we 
actually, because they both involve older people, focused on 
just the estate tax. If instead of repealing the estate tax, as 
some in Congress have proposed doing, we would have 0.88 of 
taxable payroll available for the next 75 years, that would 
eliminate nearly half of the long-term shortfall in Social 
Security and would fund all of the improvements in women's 
benefits that have been talked about many times over. So the 
matter is one of choices and priorities.
    Mr. MATSUI. That is what it is.
    Mr. HAYWORTH. Thank you very much.
    Mr. MATSUI. Thank you.
    Mr. HAYWORTH. To echo priorities, again, with all the talk 
of plans, the Chair would again humbly request the minority to 
put forward a plan that we can work together to solve the 
problem, because right now, no plan means benefit cuts of at 
least 33 percent, and as I mentioned earlier, a tax increase of 
50 percent. That is untenable, no matter the attraction some in 
this room may have for tax increases.
    The gentleman from Kentucky.
    Mr. MATSUI. If the gentleman would just yield for a minute, 
since he referred----
    Mr. HAYWORTH. The gentleman from Kentucky.
    Mr. MATSUI. I will reclaim my time----
    Mr. HAYWORTH. I was very generous with time.
    Mr. MATSUI. Let me just respond to you, because----
    Mr. HAYWORTH. I am sorry. I have the gavel. We are going to 
observe the edicts----
    Mr. MATSUI. I understand that----
    Mr. HAYWORTH. The gentleman from Kentucky.
    Mr. MATSUI. But will the gentleman please put his bill to 
the Floor so we can vote on it?
    Mr. HAYWORTH. When the gentleman comes forward with a plan, 
we can all move together. The first respect is definition of 
terms, and having been generous with the time, again, we will 
not take time away from the gentleman from Kentucky. You have 
your 5 minutes, sir.
    Mr. LEWIS. Thank you, Mr. Chairman. I find myself in a 
bind. My parents are 85 years old. They depend on Social 
Security. I have a son that is 30 years old. He is employed in 
a manufacturing company, he and his wife both. They make 
between them about $60,000 a year. And then I have all those 
other relatives that are in the Baby Boom generation that are 
going to be facing retirement before long. For some reason, 
because I have an ``R'' in front of my name, I am a Republican, 
then I am out and Republicans are out to destroy the Social 
Security system.
    I remember a few Christmases ago, as I was leaving my 
mother's home after Christmas, she stood on the front porch and 
she said, ``Watch out after my Social Security.'' So there is a 
concern out there with senior citizens because the rhetoric 
here puts fear in their hearts that their Social Security may 
not be valid and solid because politicians here want to use it 
as a political football. I think that is a shame. It is a 
disgrace.
    Democrats do not have the monopoly on compassion in this 
country. I am compassionate about my mother and my father. I am 
compassionate about my son. I am compassionate about the fact 
that some day, they may have to pay 50 percent more in payroll 
taxes, and my grandkids. I think it is time we stopped the 
foolishness here and we worked together to solve the problem.
    My question to Mr. Riemer and Ms. Entmacher, what is your 
solution? We know there is a problem. I am certainly willing to 
listen, but not to political rhetoric that you have no answers, 
just criticism. Do we want to go down the road and wait until 
the last minute, and as the Chairman just mentioned, put our 
kids in that position?
    I am compassionate about this. I want to save Social 
Security. It is a good program. It has worked very well for my 
grandparents, now for my mom and dad. I hope it will work well 
for me and my generation, and I hope it will work well for my 
kids and grandkids.
    But I just get sick of this. Every time we have a hearing, 
every time we try to do anything, it is bickering back and 
forth about a political agenda, charts and all this stuff that 
mean absolutely nothing to those people out there that when 
they hear this political debate, they are afraid about losing 
their Social Security, and my mother and father are two that 
are concerned about that. We know that it is going to be solid 
for them. We do not know how solid it is going to be for the 
Baby Boom generation. And we certainly know that there are 
going to be real problems for our kids and grandkids.
    So let us try to get some answers, not politics as usual. 
What is your proposal?
    Ms. ENTMACHER. If you would like an answer, I thought I 
tried to provide one in response to Mr. Matsui's question.
    Mr. LEWIS. What is it?
    Ms. ENTMACHER. First, if you take a look at the tax cut 
that was passed last year----
    Mr. LEWIS. That tax cut has absolutely nothing to do with 
Social Security.
    Ms. ENTMACHER. It has----
    Mr. LEWIS. Did we cut payroll taxes? Did we cut payroll 
taxes?
    Ms. ENTMACHER. If you will let me finish, I will try to 
answer your follow-up question.
    Mr. LEWIS. It had nothing to do with Social Security.
    Ms. ENTMACHER. It does because the plans that are being 
proposed, the Commission's plan, Mr. Shaw's plan to an even 
larger extent, and Mr. Armey's plan to an even greater extent 
than that, all use general revenues to move to private 
accounts. Everyone who is debating the future of Social 
Security is talking about using general revenues to fund 
private accounts or fund Social Security. Somewhere, they are 
taking money from the general revenue part of the budget into 
the Social Security system to deal with the financing gap.
    Now, there is a disagreement about whether that extra money 
should go into private accounts or if it should go into Social 
Security, but everyone is talking about taking money from the 
general revenue side of the budget and using it in some way, 
and the ways are different----
    Mr. LEWIS. And that is true, but what is your answer?
    Ms. ENTMACHER. I would say, take a look at the tax cut. 
When the tax cut was passed last year, assurances were made 
that we could save every dollar in the trust fund to strengthen 
Social Security----
    Mr. LEWIS. Look, the Social Security Trust Fund, not the 
surplus, but the Social Security Trust Fund is still in the 
same shape today as it was before the tax cut.
    Ms. ENTMACHER. But the issue is, you then have money, and 
then we get into a discussion about should that extra money 
that we are willing to invest in Social Security go into 
individual private accounts, where individuals bear the risk of 
how their investment performs, or should it be given to Social 
Security, let us say for diversified investment by a board that 
could invest part of that money into the same kinds of 
securities that people are saying individuals can put their 
dollar in at lower individual risk. That is the nature of 
debate. That is why the general revenue side and the tax cut is 
so relevant.
    And let me go further. Let me suggest that one of the 
things that has been happening in the last 20 years is that the 
tax structure within Social Security has become more 
regressive, and I am not looking to increase the payroll tax 
rate on anyone, but more and more of the earnings of the 
highest earners in America are not taxed. If you make more than 
$85,000 a year in this country----
    Mr. LEWIS. Wait a minute----
    Ms. ENTMACHER. You pay zero Social Security tax.
    Mr. LEWIS. Those individuals are paying the huge majority 
of the taxes in this country today. I mean, they are----
    Ms. ENTMACHER. Not if the tax cuts continue to go through. 
But historically, the amount of payroll that has been taxed has 
been much higher. It has been up at about 90 percent 
historically. Because the earnings growth in this society has 
been so much higher for people at the top than people at the 
bottom, who have actually lost wages in real terms, more and 
more of the high earnings are escaping Social Security 
taxation. If you restore that level of taxation to the 90th 
percentile, you could close a significant portion of the 
solvency gap.
    Mr. LEWIS. See, here is another dilemma. I do not think my 
kids want to give up their tax cut on their $60,000 a year.
    Ms. ENTMACHER. Well----
    Mr. HAYWORTH. That is very interesting. I would intervene 
here as the Chair, and I thank you for the vigorous discussion. 
I appreciate Ms. Entmacher laying out a plan that, in terms of 
philosophical moorings, talks about the government taking over 
investment in private business. So you have, rather than global 
crossing, U.S. crossing and a radical change where the 
government picks winners and losers, and also a radical 
increase in payroll taxes for people who commit the crime of 
succeeding in society through their hard work and ingenuity.
    The gentleman from California, Mr. Becerra.
    Mr. BECERRA. I thank the Chairman for yielding the time.
    Let me begin by thanking all of you for your testimony and 
your patience in being here. To Mr. Atwater, continue to have 
your troops go out there and talk to each and every one of us. 
I hope you succeed in your efforts. I believe at the end, 
Congress will reform the way we treat those pensioners who have 
received money through Social Security or should receive money 
through Social Security and through a separate pension, so I 
congratulate you on those efforts, so continue with that.
    Mr. ATWATER. Thank you very much. You can be sure we will.
    Mr. BECERRA. I know you will, and I am encouraging you to 
do more.
    Mr. ATWATER. Thank you.
    Mr. BECERRA. Rather than get into a whole lot of things, 
because I think we all have a lot to do, including catch some 
flights, let me just mention a couple of things.
    I want to congratulate Ms. Entmacher for her efforts to try 
to give an answer, because quite honestly, I think you hit 
right on the money on what our biggest problem is. We know we 
are going to have a difficulty in about 30 years for Social 
Security, yet what we are doing now is not making it easier to 
deal with that problem in 30 years. We are making it more 
difficult by diverting monies now to tax cuts, the chart 
showed, that go to major corporations like Enron to the tune of 
over $300 million at the expense of men and women who are 
working right now, contributing money, would love to have those 
guarantee certificates, but it is no different than the piece 
of paper that the legislation about a lockbox was written on. 
It is just a piece of paper.
    Ultimately, it is what each Member of Congress and the 
President does, we all do, to guarantee that in 30 years, the 
monies will be made available, and certainly, and this is 
where, Mr. John, I would disagree with something that you said, 
that when you talk to your daughter about paying down a Visa, 
it has nothing to do with a car payment, absolutely, it does, 
maybe not directly, but if she continues to rack up charges on 
that Visa account, she is going to have a lot harder time 
finding the money to pay her car payments on time. And the more 
we do as a government to act like any rational family to pay 
down our car payment or our Visa payment so we can take care of 
our other debts, the better off we will be.
    We could have used a ton of the money that went out in tax 
cuts and used it to pay down the national debt. The more we pay 
down the national debt, the more in 30 years we will have 
monies to do things in our general fund that will let us go 
ahead and address the needs, not just of our Social Security 
recipients, but our kids who have to go to school, our seniors 
who have to seek out medical care, to increase our 
transportation infrastructure, and it just seems that if we 
want to be wise, while we may not believe we have got the 
silver bullet yet or have the final solution on what we need to 
do for Social Security, in the meantime, let us not make it 
worse and divest ourselves of whatever money we had.
    When Chairman Shaw introduced his plan last session of 
Congress, we were talking about tremendous surpluses and it was 
clear that the Shaw plan would have to use those surpluses and 
the trillions of dollars to pay for that transitional cost of 
going towards privatized Social Security. We do not have that 
surplus the way we thought we did, and not only that, but we 
have a lot less of it because of these tax cuts that have 
passed and some of these tax cut proposals that are pending.
    So, quite honestly, this debate does not get any easier the 
more we start diverting monies toward some tax cuts that, for 
the most part, do not help the kids of the Members of this 
body. Most of those tax cuts will go to others. Certainly, 
those kids--I know my kids are not looking at seeing my estate 
taxes cut because I will not pay any estate taxes. I do not 
make enough money to be among the 2 percent wealthiest 
Americans to ever be able to benefit from an estate tax repeal 
because only 2 percent of every American who passes on will 
ever pay any of these estate taxes. But yet the $50 billion we 
use on an annual basis by having eliminated or repealed the 
estate tax will be gone forever, not available in the future 
for Social Security or anything else.
    It was an interesting discussion. I appreciated your time 
and your comments, and I hope that we will continue to hear 
from you, because whether it is trying to make sure that people 
who paid into a Social Security trust account and are also 
paying into another pension fund should be entitled to receive 
what they paid for or whether it is trying to make sure that 
women ultimately are treated better by our system, even though 
it tries to treat people who are low income well, it does not 
do enough for women, ultimately, we have to do it by being 
frugal and sensible now so we resolve it in the future.
    I will yield back my time, Mr. Chairman, and again, thank 
the panel for being here.
    Mr. HAYWORTH. We thank the gentleman from California, as 
again we reiterate our thanks to all the witnesses. One thing 
is certain. There are major differences of opinion and the date 
on the calendar draws nigh to November 5, so I guess the 
rhetoric will sharpen rather than lessen. Nevertheless, the 
Subcommittee will work together, hopefully in a nonpartisan 
fashion, to act on many of the recommendations you offer, and 
as Chairman Shaw promised before he had to leave, I guess we 
get together again on Wednesday.
    Again, thanks to the witnesses and those who joined us and 
this hearing is adjourned.
    [Whereupon, at 1:37 p.m., the hearing was adjourned, to 
reconvene on Wednesday, March 6, 2002, at 10:00 a.m.]

                               



 SOCIAL SECURITY IMPROVEMENTS FOR WOMEN, SENIORS, AND WORKING AMERICANS

                              ----------                              


                        WEDNESDAY, MARCH 6, 2002

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room B-318 Rayburn House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    Chairman SHAW. Good morning. Without objection, I will put 
my opening statement into the record and proceed immediately 
with the Majority Leader, with Mr. Armey.
    [The opening statement of Chairman Shaw follows:]

 Opening Statement of the Hon. E. Clay Shaw, Jr., a Representative in 
   Congress from the State of Florida, and Chairman, Subcommittee on 
                            Social Security

    Welcome. When it comes to saving Social Security, the only way we 
can develop a bipartisan proposal is through cooperation and mutual 
respect. The American people cannot afford for us to engage in 
demagoguery. It only poisons the well of potential compromise and 
impedes constructive action to strengthen Social Security. That is 
unacceptable. The cost of doing nothing to save the system is just too 
high to let politics stand in the way of progress.
    In his radio address on Social Security's 3rd 
anniversary, President Roosevelt said, ``[o]ur Government in fulfilling 
an obvious obligation to the citizens of the country has been doing so 
only because the citizens require action from their Representatives. If 
the people, during these years, had chosen a reactionary Administration 
or a `do nothing' Congress, Social Security would still be in the 
conversational stage. . . .''
    Fortunately, our predecessors found common ground and acted in the 
best interest of the American people. We must continue that tradition 
and work together now to assure the success of Social Security 
continues for all Americans.
    We can begin today to find common ground, in advance of major 
reform, to improve the program for women, reassure seniors that 
promised benefits will be paid, and better educate the public.
    As we heard at our hearing last week, Social Security is 
particularly important to women, since they live longer, earn less, 
take time away from the workforce to care for kids, and have less 
pension and asset income than men.
    Social Security's lifetime-inflation adjusted benefits, spouse and 
survivor benefits, and progressive benefit formula provide critical 
protections for women. Without Social Security, more than half of 
elderly women would live in poverty.
    The Commissioner of Social Security and experts testified about 
ways we could improve benefits for women prior to reform without 
negatively affecting Social Security's long-term solvency. Women should 
not have to wait for comprehensive reform for us to make changes to 
improve their lives.
    We also want to make sure seniors know that Social Security reform 
will not affect their benefits. Seniors often see and hear conflicting 
information reported in print media and television, fueling their 
concerns that cuts to their benefits are imminent, despite commitments 
by the House of Representatives and the President that their benefits 
will not be touched.
    Today, we will hear ideas on how to express the commitment to 
preserve seniors' full benefits. Rather than debate the merits of any 
single approach, I hope we can discuss ideas for how best to convey our 
assurance to seniors that we will continue paying full benefits and 
COLAs to retirees, disabled workers, and their families--many of whom 
depend on Social Security for much or all of their income.
    As we develop ways of better informing and assuring seniors about 
their benefits, we must ensure that the information provided to 
American workers is accurate and complete. Last week, our witnesses 
testified about the importance of informing the public about Social 
Security and its finances. The Commissioner of Social Security stated 
that she is looking at ways to improve the information provided in the 
Your Social Security Statement that is sent to all workers age 25 and 
older. Any change to this document should build public understanding 
and enhance the national dialogue on Social Security reform.
    I am delighted that so many of my colleagues wanted to testify 
today. I hope that in examining these issues of mutual concern, we can 
both improve Social Security and build a foundation for the kind of 
bipartisan partnership we'll need to save Social Security.

                               

    Chairman SHAW. As everyone knows, your entire statement 
will be made a part of the record, and you may proceed as you 
see fit. I will, after your testimony, Mr. Armey, proceed to 
questioning. I know there is going to be a vote at 10:30, so we 
will go to questioning of you, and then we will get to the 
other Members.
    So, Jennifer, we will be getting to you probably after the 
vote, but we will be proceeding, and we will lead off with Ms. 
Dunn immediately following Mr. Armey.

  STATEMENT OF THE HON. RICHARD K. ARMEY, A REPRESENTATIVE IN 
  CONGRESS FROM THE STATE OF TEXAS, AND MAJORITY LEADER, U.S. 
                    HOUSE OF REPRESENTATIVES

    Mr. ARMEY. Thank you, Mr. Chairman, and I will try to be 
brief and to the point.
    First of all, I want to thank you for holding this debate. 
There is no doubt that today America requires some serious 
policy debate on the subject of Social Security, and Social 
Security reform is made imperative today by the fiduciary 
circumstances of Social Security itself. Probably, and if I 
may, Mr. Chairman, point out through my adult lifetime there 
has probably been nothing more seemly in all of political 
discourse in America than the manner in which this Nation has 
debated Social Security. The fact of the matter is, any effort 
that has ever been made that I have perceived in my adult 
lifetime to seriously discuss Social Security from a policy 
perspective has been knocked down by reckless political 
diatribes, and the Nation has been able to afford that up to 
this point, because up till this point the Nation could 
entertain the belief that they would always have more receipts 
coming in out of current payroll taxes than disbursements to 
beneficiaries, but it is absolutely, unequivocally clear today, 
beyond anybody's ability to doubt it, that in the near term 
future most people agree by 2016 Social Security will be 
required by its current structure to pay out more than what is 
received in payroll tax receipts.
    This is a serious matter, and one that we should, as this 
Subcommittee has clearly indicated it is prepared to, begin to 
examine now and get prepared to deal with this as soon as 
possible. It would be most naive to not recognize this 
circumstance and inexcusably reckless to deny it if it is 
recognized.
    This is the situation very clearly. First of all, we must 
remember one fundamental fact, no American citizen ever has nor 
ever will receive a dime of Social Security benefit that is not 
received from current tax payments by their children. That is 
exactly what will happen in the year 2016. In the year 2016, we 
have a placebo by which we can console ourselves with the 
notion that we are still financially solvent by virtue of the 
trust fund, but the fact of the matter is, even if you make up 
for the shortfalls between the years 2016, and most people 
agree by 2038, you are going to make up that difference out of 
general revenue.
    So you basically have three circumstances, decisions that 
must be come to in 2016. Cut Social Security benefits for then 
current recipients. Let me emphasize, I know of no one who 
wants to do this. I know some who have felt it is desirable to 
do it, but I want to be as clear as I can be, I know personally 
that it is not necessary, nor desirable to face this dilemma by 
cutting retirement benefits for any senior citizen in America. 
Let me be emphatic about that. It is not necessary, and it is 
not desirable. I not only do not advocate that, but I will not 
tolerate it. Personally, I would consider it a moral affront to 
reduce benefits for seniors. I hope that is clear, and I hope 
it is clear enough so that tonight I will not hear about my 
secret plan to cut benefits. That kind of statement is purely 
darn asinine and mean spirited, and I resent it with a passion, 
because I have had to listen to it since 1964, and it is the 
worst kind of political irresponsibility. I know of no need to, 
nor is it in any way desirable to cut seniors' benefits. I 
repudiate any effort to do so as irresponsible, and I will not 
tolerate it because I see it as a moral affront. I hope that is 
clear. Now I can say it again, it is not.
    Now, I may speak for my party. I believe I do for the most 
part speak for the Republican Party in that.
    The other alternative might be to raise payroll taxes on 
our children. I do not believe it is necessary, nor do I 
believe it is desirable to raise payroll taxes on our children 
to meet this contingency in the year 2016. I have five young 
adult children. I was just recently blessed with even one more, 
grandchild. These young people today in their twenties and 
thirties have enough to do without us raising their payroll 
taxes to solve this problem. It is not necessary, it is not 
desirable. So let me say in the most unequivocal terms I can: I 
do not see any need for a plan to raise taxes on these young 
people, and I would repudiate any plan that does so.
    Now then, there is another option. The fact of the matter 
is we must prepare ourselves to deal with a cash flow problem 
that can be unmanageable if we do nothing between now and 2016 
or potentially manageable if we do something. There are a lot 
of plans out there. We have a lot of people who have done some 
serious adult thinking in this matter, and I want to personally 
express my appreciation for that. That is to say they have 
thought about Social Security as something other than a 
political cudgel to beat their opponents over the heads with. I 
should mention Clay Shaw, Jim Kolbe and Charlie Stenholm, Nick 
Smith have plans. And the other body, Senator Gramm has a plan.
    My own personal plan, which is not a secret plan, since I 
have cosponsored it. It exists in legislative language and is a 
bill before this House. I prefer to call the DeMint Plan. That 
is my personal favorite. In the DeMint Plan, it is not 
necessary to cut benefits to seniors, nor is it necessary to 
raise taxes on our children. What we do in this plan is 
recognize the power of the private capital markets, recognize 
the security of the private capital markets, and allow American 
working seniors or American workers, depending upon their 
income level, to take anywhere from 3 to 8 percent of the now 
12.4 percent of their earnings that is taken in payroll taxes 
for Social Security, and divert those taxes to personal 
retirement accounts that are safe, secure, and well 
constructed. It is the belief of actuarials, including the 
Social Security's own actuary, that as people do that, they 
will be able to grow the value of these accounts anywhere from 
four to six times as fast as the current return on Social 
Security which is paltry. And that as they do that, when they 
reach retirement age, they will possibly the Social Security 
requirement out of those private retirement funds, or insofar 
as the Social Security guarantee is not fulfilled by that, the 
obligation of the Social Security Fund to their retirement will 
be considerably less. As you go through time, those who opt in 
voluntarily to this plan--and I remind you it is a voluntary 
opt in--those who opt in voluntarily at a younger age will more 
certainly meet the Social Security guarantees out of their 
private retirement accounts, and having done so, alleviate the 
rest of us from what is now unfunded liabilities of the 
deficient Social Security, quote ``trust fund'' that we are 
going to face in the future.
    This is a good plan. It has been well examined. There is 
nothing secret about it, and it is not a plan to cut taxes.
    My final plea for this body is let it begin here in this 
group with this Subcommittee, duly elected people in Congress 
in a appropriately constituted committee and Subcommittee of 
the House of Representatives, given the authority to hold 
jurisdiction over this most serious and morally obliging area 
of public policy. Let it begin in here, that there be zero 
tolerance for irresponsible politics and whole insistence on 
serious adult policy discussions. It is time for the politics 
to end, and for serious policy debate to begin on this subject. 
We cannot delay it any longer.
    Those are my comments.
    [The prepared statement of Mr. Armey follows:]

 STATEMENT OF THE HON. RICHARD K. ARMEY, A REPRESENTATIVE IN CONGRESS 
      FROM THE STATE OF TEXAS, AND MAJORITY LEADER, U.S. HOUSE OF 
                            REPRESENTATIVES

    Chairman Shaw, Ranking Member Matsui and other committee Members, 
thank you for this opportunity to testify about Social Security. 
America deserves a real, national debate on Social Security reform. I 
am eager today to join you.
    The Social Security system is going broke. Last year's report by 
the Social Security Trustees--a group of non-partisan government 
experts--showed that Social Security expenditures will begin outpacing 
Social Security tax revenues in 2016. In just over 10 years Social 
Security will have to redeem its IOUs from the rest of the federal 
budget. Congress will be faced with the choice of transferring 
trillions of dollars from the general fund, or raising taxes and 
cutting benefits. In all, $22 trillion will be needed over the next 75 
years just to cover the liabilities of the current system. Every 
credible actuary, every expert, every independent official has 
certified these facts. It's simply not sustainable.
    Aside from the budget and demographic challenges we must face, 
Social Security is unfair for far too many Americans. The committee's 
bipartisan interest in making some benefit adjustments for women shows 
that many of you have already acknowledged this problem. I congratulate 
both parties for this realization. However, Social Security will not 
truly be fair for all Americans until we agree on comprehensive reforms 
that provide all individuals a greater ability to nurture their own 
retirement nest egg, and to own it.
    Here's just one of many examples to consider. First, we often talk 
about the lack of savings among Americans. Yet lost in this discussion 
is the fact that the federal government is taking 12.4% of every 
worker's income for Social Security. Particularly for low-income 
individuals, that's a portion of their income that could otherwise be 
saved in an IRA, 401k or company pension program. Workers could save 
more if they were taxed less.
    Next, consider a low-income individual who had 12.4% of their 
income taxed throughout their life instead of being able to save it. 
The individual worked hard and finally reached retirement, only to die 
soon thereafter as low-income individuals disproportionately do. Their 
lifetime ``savings'' that the government has been forcefully taking 
from them just died with that low-income individual. The same is true 
of the individual's spouse when he or she dies. Congress has tried to 
make adjustments for widows and orphans, but there remains no real 
opportunity for low-income workers to build wealth and pass it own to 
their loved ones and their community.
    A Social Security system based on personal retirement accounts can 
help correct the problems I just mentioned and much more. Chairman Shaw 
has a plan that uses accounts. Reps. Jim Kolbe, Charlie Stenholm, and 
Nick Smith have their plans. Rep. Jim DeMint and I have joined together 
to introduce our own bill, which he can describe in more detail later. 
We have our differences, but we solidly agree on the need for reform 
and the need to allow individuals a greater ability to provide for 
their own retirement security.
    For those who think I have a secret plan, take a look at the 
DeMint-Armey plan. It's H.R. 3535 and it's out there in plain day-light 
for everybody to see. Here's a brief review:

         The DeMint-Armey plan does not use benefit cuts or 
        tax increases.
         The plan allows workers to voluntarily put between 
        three and eight percentage points of their Social Security tax 
        into personal retirement accounts. It's based on a progressive 
        scale that allows lower-income workers to put more into their 
        accounts and to build more wealth.
         The investments in the accounts are diversified and 
        made within security requirements set by the government. While 
        decades of economic history would have to be turned on its head 
        for people to be worse off, Social Security would still act as 
        a safety-net for those individuals who might retire with less 
        in their account than they would with traditional Social 
        Security.
         As described earlier, the individuals own the 
        accounts.

    I need to remind you that like all reform plans there are 
transition costs. In the case of the DeMint-Armey plan, it would cost 
about $7 trillion over the next 75 years, but that's less than one-
third of the costs if we do nothing.
    I'd like to conclude on this notion of doing nothing. Say what you 
will of each of our respective plans and approaches, but under any 
responsible criteria a ``Do Nothing Plan'' is worse--much, much worse. 
There are those on this committee that say we are not facing an 
oncoming crisis, that if we make only minor changes, Social Security 
will be safe. That's simply not true. And, it's an abdication of 
responsibility. The ``Do Nothing Plan'' is a combination of benefit 
cuts, more tax increases and borrowing trillions of dollars.
    The ``Do Nothing Plan'' is secretly authored by those who want to 
needlessly scare grandma and grandpa about supposed benefit cuts while 
having nothing to offer their grandchildren. They have no plan to offer 
to the debate.
    So to those authors of the ``Do Nothing Plan'' who want to debate 
Social Security, I offer the following challenge. If you want to debate 
Social Security, come before this committee and offer your plan to 
save, strengthen and modernize Social Security. Until you have a plan 
of your own, there's no real debate to have.

                               

    Chairman SHAW. I would like the record to reflect that I 
have been very lenient with the gavel. In fact, I have allowed 
Mr. Armey to go for almost 10 minutes.
    Mr. ARMEY. Oh, I am sorry.
    Chairman SHAW. And, I would also like to say that I will 
certainly afford the same courtesy to Mr. Gephardt should he 
ever choose to come before this Subcommittee and have an open 
and full debate on Social Security.
    Mr. STARK. Well, he sent me.
    Chairman SHAW. Well, I will never deny, Mr. Stark, that you 
can be a junkyard dog. But I will say that I am reading some--
--
    Mr. CARDIN. Mr. Chairman, is Speaker Hastert planning to 
come before us with a program?
    Chairman SHAW. I have no idea, but we have our Majority 
Leader, and I would welcome the Minority Leader.
    Mr. CARDIN. Just wondering.
    Chairman SHAW. And let me continue, if you will. I am 
amazed, last night after the House finished its regular 
business and the Republicans went off to the National 
Republican Congressional Committee dinner, Mr. Gephardt did 
take to the Floor. I wish I were on the Hill at the time, or I 
would have gone down and tried to join him. And I just want to 
read a couple of things that he said, which I think are really 
much below the dignity of the office that he holds in a great 
political party.
    And that is, he says, ``Republicans are refusing to have a 
full and fair debate on their schemes of privatization. Do they 
have something to hide?'' And then later in his talk he said, 
``And you better believe that there are millions of people out 
there who care about Social Security, and are concerned, and 
rightly concerned, about secret Republican plans to wait until 
after the election to put forward plans that will cut their 
benefits.''
    Nothing could be further from the truth. During the last 
Congress, I went and personally went over with Mr. Archer a 
plan with Mr. Gephardt. We spoke for some time. We asked him to 
get back to us. I went down to the White House. Bill Archer 
went over this plan--it was the Archer-Shaw plan at the time--
went over this plan with the President, and the President's 
comment, after hearing it, he says, ``Gee, this sounds like we 
wrote it,'' speaking of Democrats.
    When I went to the White House for the signing of the bill, 
the Social Security bill--I believe it was the one that allowed 
people over 65 to work without being penalized, a bill that I 
was very proud of and the President was very proud to sign--I 
said to the President, ``Now let's do the rest of reform.'' And 
he looked at me and he said, ``You get the leadership on the 
Hill to go forward on the Democrat side,'' he said, ``and I'll 
be there.'' They never did, and he never did.
    I have sent my plan, which is in the bill form. It is not a 
secret plan, as yours is not. I have sent it over to Mr. 
Daschle. The wall of silence is deafening. I have never seen 
anything like it. I will have a full and complete hearing on 
any plan that the Democrat leadership will bring in here. I 
would like to do that. I think that what we should do is to try 
to work together to reconcile these plans.
    Secret plan? Is it a secret plan of the Democrats to run 
out of money in 2016 and cut benefits? I don't think so. But 
that is what is going to happen if we don't do something, if we 
don't get off the dime. And the politics of this thing are 
purely disgraceful. We are talking about the safety net of the 
most fragile part of our population. It is keeping millions of 
seniors out of poverty. We can do better but we cannot go it 
alone. One political party cannot go it alone. The Democrats 
cannot go it alone, the Republicans cannot go it alone. We have 
got to get together. I don't know how many times I have to put 
out my hand and ask for help, and ask for a bipartisan approach 
to this most important problem, and I am met with nothing but 
silence, and then people taking on the Floor on nights when 
they know that Republicans are not here and making 
irresponsible statements. I think it is below the dignity of 
this body, and it is certainly below the responsibility, the 
awesome responsibility that we have in this Congress, and 
particularly in this Subcommittee, to do something about Social 
Security.
    If the Democrats don't want personal savings accounts in 
addition to the existing system--and I say in addition because 
my plan doesn't touch the existing system at all; I leave the 
trust fund, everything totally alone--then fine. Let's have 
their plan, but there is no controversy here as to when we are 
going to run out of cash. We are going to run out of cash in 
2016. There will be no surplus, and the Social Security Trust 
Fund is going to have to turn to the Treasury to get money to 
pay off the Treasury bills. The Treasury bills will be 
completely gone in 2038. The program will be bankrupt. It will 
no longer be able to meet its responsibility.
    So I applaud everyone who is coming forward with a plan. 
Some I disagree with. Some I agree with in part. Some I totally 
agree with. But nevertheless, I think it is so important that 
we come forward with a plan, and then we try to pick apart each 
other's plans. There is nothing wrong with that. Partisanship 
is one of the things that makes us great in this country 
because we examine ideas, we dissect them, we tear them apart, 
and we point out the flaws. And a matter of fact, through the 
hearings that we have had on Social Security since I have 
Chaired this Subcommittee, have been the foundation for writing 
the plan that I have put forward. Mr. Rangel said something to 
me about, ``Gee, you wrote the plan.'' And I said back to him, 
I said, ``We wrote the plan because I took into consideration 
and thought every criticism that I have heard before this 
Subcommittee and have tried to answer it in the plan.''
    Now, do the most conservative Members of this body like my 
plan? No. Do the most liberal like it? No. So it must be a 
pretty good plan. I think mine is right in the middle. But 
anyway, I am still looking for someone in a leadership 
position, either in the Committee on Ways and Means or in the 
hierarchy of the Democrat Party, on either side, in the Senate 
or in the House of Representatives, to come forward and work 
with me in order to try to get this thing done. I think that it 
is truly unfortunate that we find ourselves, and we find me 
being in this position of just pleading for some bipartisan 
cooperation on this, because I am very, very concerned.
    And this is not just a problem in this country. Other 
countries have faced up to this. Over in the U.K., United 
Kingdom, Labor pushed through the plan that they have, and they 
are trying to work through it. But a pay-as-you-go system 
cannot work when you are finding that you are going to be 
looking at a time very shortly when there are only going to be 
two workers per retiree. There is just simply not enough cash 
coming into the system in order to take care of the benefits. 
So I would hope that we can work together. Mr. Matsui and I 
have worked together on a number of things. I would welcome his 
assistance. I would welcome his plan, as well as Mr. 
Gephardt's, Mr. Rangel's, or anyone else on this Subcommittee, 
the full Committee, or on the leadership of the Democrat Party.
    Mr. Matsui?
    Mr. MATSUI. Thank you, Mr. Chairman. Let me just say this. 
We welcome the opportunity to sit down with anyone in your 
party, including the President, to talk about this issue.
    I might just read a September 27, 1994, appearance by Mr. 
Armey on CNN ``Crossfire.'' Mike Kinsley asked Mr. Armey, ``Are 
you going to take the pledge? Are you going to promise not to 
cut people's Social Security benefits to meet these promises?'' 
Mr. Armey said, ``No, I'm not going to make such promises.'' 
The next day on September 28 on CSPAN the Majority Leader said, 
``I would never have created Social Security in the first 
place.''
    And so this isn't really about demagoguery. What this is 
really about is making sure that we protect the benefits. We 
saw what happened with Enron. We know exactly the situation 
there, and people need, obviously, a safety net, and we want to 
make sure that there is a defined benefit program at the end of 
the day for somebody who reaches 62 or 65 years old, that they 
are going to have those benefits available to them.
    And I might just point out, you know, Mr. Armey, for the 
first time I wish you were running for reelection because I 
thought your promises were very firm about protecting the 
current level of benefits for Social Security recipients. 
Unfortunately, you are not going to be here in 2003 when the 
President plans to take this program up again, and it will be 
left up to others, and as a result of that, we can't rely on 
your commitment and your promise, because we are not taking 
this issue up this year. We are going to take it up after the 
election.
    And I have to say, Mr. Armey, you have a plan, the Chair of 
the Subcommittee has a plan, the President has come up with 
three plans which his Social Security Commissioner disavowed 
last week. Why don't we bring those bills to the Floor so we 
can have a debate on them, and let's vote on them. Send them to 
the U.S. Senate if you have 219 votes. We would love to have 
those issues come up. The problem is, you know your plans are 
not credible.
    Mr. Armey, you have come up with a certificate of guarantee 
that CRS and everyone else says has no force of law. In fact, 
even your Heritage Foundation gentleman who testified last week 
said it doesn't have the force of law, it is just a moral 
issue. And so, it doesn't have any rationale at all except 
maybe to kind of cloak the issue in terms of what you really 
plan to do. And that is the frustration I think that a lot of 
Americans have about this. Your plan, for example, borrows from 
the general fund $21 billion. And in addition to that, it has 
the Social Security Trust Fund borrowing $20.3 trillion, and 
that is not even paid after 75 years, and so you have some real 
holes to pick up on your plan.
    Now you will say that yes your plan will pay it back in 
terms of the general fund money after 75 years, but the fact of 
the matter is, we don't know what it is going to look like 75 
years from now. Seventy-five years ago, 1927, Lindbergh flew 
over the Atlantic. We don't even remember things like that. 
There was no such thing as Enron Field in baseball 1927. So 
here we are talking about 75 years in the future. We could end 
up having a catastrophic situation because in the first 30 
years, your plan and Mr. DeMint's plan, surprisingly for 
somebody who is fiscally conservative, borrows $9.5 trillion 
from the general fund. Now, since we have had the tax cut, 
since we have had reexaminations and reevaluations of economic 
projections, obviously that money does not exist any more.
    So I would like you to put your plan on the Floor of the 
House so we can debate this issue, find out how we can fiscally 
responsibly pay for the borrowing that is going to occur over 
the next 30 years, because you have not explained that, nor has 
Mr. Shaw. We had a meeting, and I was part of that meeting, 
with Speaker Hastert, in which myself and Mr. Gephardt, Mr. 
Shaw, Mr. Archer, and Mr. Rangel appeared. And in Mr. Shaw's 
plan, I think it was the year 2037, he borrows from the general 
fund $11.7 trillion. And when the Speaker heard that, he said, 
``Well, how do we pay for that?'' And that is when everything 
disbanded and that is when we realized that Mr. Shaw's plan was 
not credible. Mr. Shaw should put his plan on the Floor of the 
House so we can vote this. Send it over to the U.S. Senate, 
have the Senate debate this issue. But, unfortunately, you are 
never going to bring this bill to the Floor of the House 
because you know it is not credible, you know you can't pay for 
it, and you know you can't make the budget balance as a result 
of it.
    Now let me just conclude by making one other--you made a 
lot of statements, but I will keep my remarks under 5 minutes, 
Mr. Chairman. In terms of this certificate of guarantee, the 
only question I have to ask, Mr. Armey, is that if a person--
because it is a valuable right--loses her certificate, will 
they be able to reapply and get another certificate, or is the 
paper not really worth anything? Because those certificates 
obviously have some value. So if someone loses it or it is 
ruined in a flood or something like that, is it expected that 
they will reapply and the Social Security Administration will 
give them another one?
    Second, will it have the individual's name on it, or will 
it just be a piece of paper that just says, ``We guarantee your 
benefits?'' Will it talk about the amount of money that 
individual will receive? Do we have any of these things that 
you could tell us about in terms of what the certificate will 
say and the value of the certificate, and whether or not, if 
after 2037, general fund monies will be used to pay for it, if 
we haven't fixed the system? And all of us want to fix the 
system. For anyone to suggest that we are not going to fix the 
system is irresponsible, and we are going to fix the system. I 
wish you were around, because obviously you want to protect 
these benefits, but you are leaving at the end of this year, 
and I feel very badly about that now, given your commitment to 
Social Security.
    Mr. ARMEY. Thank you. You have covered a lot of ground. Let 
me just say in 1994 Michael Kinsley asked me to give him an 
ironclad guarantee on a subject I don't understand. I am not in 
the habit of doing that. If I understood in 1994 what I 
understand now about what is possible in terms of fixing this 
system, I would have said, ``You are damn right, Mr. Kinsley, 
and can you get anybody from your party to do the same?'' Had I 
known what I know now, I wouldn't have had a doubt about it.
    I would not have constructed Social Security the way it was 
constructed in 1936. Had I constructed Social Security in 1936, 
I would have put the investments by the individuals into 
private capital markets where they could have been safe, 
secure, and could have grown, and incidentally could have grown 
a stronger America instead of a bigger government. That would 
have been a better plan in 1936. Unfortunately, we didn't have 
that plan in 1936.
    Enron has got nothing to do with Social Security. All Enron 
proves is that your mother was right when you were 12 years old 
and she told you not to put all your eggs in one basket. That 
is all it means. And to bring Enron into this Social Security 
discussion is nothing but demagoguery.
    The certificate shouldn't be necessary. If we didn't have 
politicians running around America trying to scare the hell out 
of every senior citizen every 2 years to get their votes, it 
wouldn't be necessary to talk about guaranteeing senior 
citizens.
    Mr. MATSUI. Time is running out but----
    Mr. ARMEY. That is unfortunate. Let me complete it.
    Mr. MATSUI. Commissioner Barnhart actually said that by 
sending these certificates, you are going to scare senior 
citizens. I think her point of view, being the Administrator of 
Social Security and having been on the Commission, the 
Actuarial Commission on Social Security, she probably has a 
little bit more insight into what senior citizens are thinking 
than perhaps you do and perhaps even I do, so I would go along 
with her observations about these certificates frightening 
senior citizens.
    Mr. ARMEY. Well, let me just say by virtue of the actuarial 
assessments given by the Social Security Administration's own 
people, the DeMint plan would have $7 trillion over the next 75 
years in transition costs if we acted on this kind of a belief. 
And I quote, I have said and I continue to maintain that 
incremental changes that do not alter the fundamental 
insurance-based structure of Social Security or its role as a 
secure foundation of retirement incomes are needed to extend 
the solvency of Social Security. If I believed that and acted 
on that, then I would be saying I am prepared to take $22 
trillion worth of transfer from general review to make up for 
the inevitable shortfalls. That was your belief that you said 
to me on September 7. As you know, the first thing you have got 
to do is quit being naive about the dilemma. It is real. It is 
coming. We have got to face it. I am just saying you will face 
it either with a good plan that reduces the final transition 
bill to $7 trillion, or you can face the whole $22 trillion 
which will be completely unmanageable and will force you to 
take steps that I find unacceptable.
    Mr. MATSUI. Do you know how we are going to get the $9.5 
trillion over the next 30 years?
    Mr. ARMEY. Do you know how we are going to get the $22 
trillion if we do what you have been suggesting, which is 
nothing, but stick your head in the sand and pretend all is 
copasetic? This is a serious matter.
    Mr. MATSUI. It is a very serious matter, and I hope you 
treat it seriously----
    Chairman SHAW. If both gentleman would yield----
    Mr. MATSUI. But I don't think you are really doing it with 
certificates----
    Chairman SHAW. Hey, hey. If both gentleman would yield, we 
are going to have to recess in order to make this vote, and 
perhaps when we get back, Mr. Matsui will explain how he voted 
on a resolution calling for Social Security without cutting 
future retiree benefits and without tax increases, how he 
proposes to pay for it----
    Mr. MATSUI. By not privatizing the system.
    Chairman SHAW. As he and I both--well----
    Mr. MATSUI. By not privatizing the system. Privatizing the 
system is going to create a huge hole interested Social 
Security system. You know it. We all know it.
    Chairman SHAW. I will be glad to----
    Mr. MATSUI. In fact it will actually create about a 54-
percent reduction in benefits for those that will--someone is 
going to have to explain that, Mr. Chairman.
    Chairman SHAW. If you can do it without borrowing, I will 
be your next campaign manager for whatever you plan to run for.
    We will be in recess just long enough to catch this one 
vote.
    [Recess.]
    Chairman SHAW. We will now go to the Committee on Ways and 
Means panel, and I will call Members in the order they came in. 
Mr. Stark said he could not----
    Mr. McDERMOTT. He is not coming back.
    Chairman SHAW. He is not coming back, and he asked that we 
make his statement a part of the record, and without objection, 
we will. Ms. Dunn, you may proceed.
    [The statement of Mr. Stark follows:]

STATEMENT OF THE HON. FORTNEY PETE STARK, A REPRESENTATIVE IN CONGRESS 
                      FROM THE STATE OF CALIFORNIA

    Thank you Chairman Shaw for the opportunity to testify today before 
the Ways and Means Social Security Subcommittee.
    It's unfortunate that the Majority proposes one gimmick after 
another to try to inoculate themselves from the public backlash against 
their efforts to privatize Social Security. I assume the Majority 
engages in gimmicks because it cannot pass meaningful legislation to 
make Social Security solvent. Here are just some of the gimmicks I'm 
referring to:
Gimmick #1
    First, the House passed H. Con. Res. 282, Keeping the Social 
Security Promise Initiative, putting the Congress on record as opposing 
Social Security benefits cuts. Although a nice gesture, resolutions do 
nothing to protect the Social Security benefits of current and future 
beneficiaries.
Gimmick #2
    Second, Representative Dick Armey has proposed that the government 
provide ``guarantee certificates'' to current Social Security 
beneficiaries. These ``guarantee certificates'' are worthless pieces of 
paper. They guarantee nothing, protect nothing and do nothing. If these 
certificates were a real guarantee, however, they would protect fewer 
Americans than current law. These certificates would only be given to 
current beneficiaries, leaving anyone not on the rolls out in the cold.
    If we are going down the route of certificates, however, why not 
make them legally binding and guarantee benefits to everyone who 
becomes eligible for Social Security? The certificates under H.R. 3135, 
Representative Armey & DeMint's bill, are not binding. Future 
Congresses, therefore, could repeal these ``guarantees.''
    And why stop with Social Security? If this legislation moves 
forward, I will offer an amendment to provide Medicare Guarantee 
certificates to every American guarantying them access to fee for 
service Medicare once they turn 65. Now that's a guarantee the American 
public would support.
Gimmick #3
    The third gimmick and falsehood promulgated by the House Majority 
is an idea that privatization is the savior of Social Security.
    The Enron debacle is a clear example of why that is not true. Let's 
just ask some of the Enron employees if they wish they had their Social 
Security benefits in the stock market.
    Recent surveys show that people are already delaying retirement 
because of stock market losses. Dumping Social Security benefits into 
stocks isn't going to make retirement more secure. In fact, it may well 
do the opposite.
    Social Security protects against the risk of death or disability, 
the risk of low lifetime earnings, the risk of unexpectedly long life, 
and the risk of inflation. Individual accounts would not accumulate 
enough money to protect most of those who become disabled or families 
who lose a provider.
    All Social Security privatization proposals reduce guaranteed 
Social Security benefits. The President's handpicked Social Security 
commission proposed cutting benefits for future retirees by 30-46 
percent, reducing disability and survivor benefits, raising the 
retirement age, and drawing on general revenues.
    Because of last year's tax cut, Congress couldn't pay for the 
transition to a private account Social Security system even if we 
wanted to! All the Social Security bills that propose individual 
accounts and do not cut benefits end up dipping into the general 
revenue fund to pay for them. If that is what Congress needs to do to 
make the Social Security system solvent, then Congress should directly 
transfer general revenue funds into the Social Security Trust Fund. 
This is what I proposed in the last Congress. This proposal would be 
simpler administratively and would cut out high priced individual 
account managers who charge expensive fees.
    Under privatization, lower-wage workers (which disproportionately 
includes minorities and women) would trade in their progressive Social 
Security benefit for a regressive individual account benefit. This 
occurs because individual savings accounts, which are based on a flat 
percentage of earnings (i.e. a non-progressive structure), would be 
substituted for Social Security benefits, which are calculated on a 
progressive basis.
    I ask the House Majority to have a little respect for the American 
people and stop trying to dupe them out of their Social Security 
benefits with gimmicks.
    If President Bush and the House Majority want to replace current 
guaranteed Social Security benefits for some risky individual account 
benefit, then they should have some pride in their proposal and 
honestly share the details with the American people.

                               

   STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Ms. DUNN. Thank you very much, Mr. Chairman. I appreciate 
your holding this hearing. I know that you are going to hear 
from a number of Members, but I would like to bring up a point 
that I don't want overlooked. When Barbara Kennelly, who is a 
dear friend and colleague of all of us, left this panel, she 
reminded us, ``Don't forget the women.'' And so I feel 
personally that my job is to call attention to the role of 
women, how they are treated under the Social Security Act.
    Let me start by saying that there is no more important 
retirement program for women than Social Security. Since its 
beginning, it has been a critical safety net that protects many 
older women from poverty. Any reform proposal needs to offer 
women the peace of mind they desperately need and deserve as 
they enter retirement. Despite its past successes, Social 
Security faces an enormous challenge as we enter the 21st 
century. The program that worked so well in the past, now 
shortchanges many women due to a combination of outdated 
societal assumptions and a coming demographic crunch. Millions 
of working women will contribute payroll taxes without seeing 
any value added to their benefit.
    The spousal benefit under Social Security entitles the 
spouse, who is usually the wife, to 50 percent of the other 
spouse's benefit whether or not she worked outside the home, 
and that is the key element. If a woman contributes payroll 
taxes, in other words, she has worked and is married throughout 
her working life, and earns a benefit higher than the amount 
equal to 50 percent of her husband's benefit at retirement, she 
gets to keep her benefit. According to the Social Security 
actuaries, however, this only occurs 37 percent of the time. So 
a married woman working as an occupational therapist, who 
averages about $27,000 a year in salary, could pay roughly 
$70,000 in Social Security taxes through the course of her 
career. Yet because of her husband's high-salary history, she 
would receive the same benefit as if she had not worked at all. 
And thus in my mind, my colleagues, the $70,000 is all tax 
money. It is all wasted. It is all thrown away from her payroll 
taxes.
    Obviously, with over 70 percent of mothers now working 
outside the home the current system is not an accurate 
reflection of the time, the money, and the effort women put 
into their own careers. Working women are also penalized by the 
benefits formula. Since Social Security benefits are based on 
an average of the individual's highest earnings over 35 years, 
women who leave the work force temporarily, perhaps to raise a 
family, will have zeroes for those years, and they will be 
factored into the calculation for the 35 years on which Social 
Security benefits are based at retirement.
    For example in my own situation, a woman earning a good 
salary as a computer systems analyst, who takes 8 years off to 
care for my children, will lose thousands of dollars in future 
benefits if I continue to be married and I continue to work. In 
my opinion, there is no more regressive public policy toward a 
working woman than a system that penalizes her for taking time 
out of her career to nurture a young child.
    For women under 35 the problems with Social Security are 
magnified. They are trapped in an arrangement that is virtually 
guaranteed to give them less than what they put in. As they 
contribute more and more money to Social Security, their 
promised benefits continue to shrink. In the short run, we can 
alleviate some of the inequity by revising the rules governing 
benefit calculations, especially those that harm divorced women 
and widows. Small changes in these areas will go a long way in 
helping women, and these changes are addressed in some of the 
legislation that you will hear testimony on today.
    In the long run we need to convert a Nation of 
beneficiaries into a Nation of owners and savers, and I believe 
that this will happen through the use of personal savings 
accounts. Personal accounts are not a panacea for all that ails 
the Social Security system, I admit, but they can be an 
important step in the right direction.
    Social Security in its current form does nothing to 
encourage savings and investment, the two pillars of a safe and 
secure retirement. And for women, personal accounts offer an 
opportunity to receive more from a system that has historically 
given them less. Personal accounts will help them to build 
financial assets and cultivate a sense of proprietorship.
    As former Senator Daniel Patrick Moynihan has recommended, 
these accounts could take the form of the thrift savings plan 
that so many of us, Members of Congress and others, currently 
enjoy. These plans are diversified in a broad range of bonds 
and equities to minimize risk for elder workers and retirees. 
In fact, during the last 12 months when the broader stock 
market has dipped, the two more conservative investment funds 
in our thrift savings have grown by 5.4 percent and 7.7 percent 
respectively, not bad when you consider that the rate of the 
return for the district I represent under current Social 
Security is under 2 percent.
    Last year President Bush's bipartisan Commission on saving 
Social Security released a report containing several suggested 
reforms that would restore fiscal integrity to the program. The 
merits of the ideas certainly are being debated. Honorable 
people can disagree about what is the best course of action. 
What can't be disputed, however, is the need to act. If we fail 
to address these problems, our inaction will be tough to 
justify to the future generation who will ultimately bear the 
burden.
    And I request that all the Members of this Subcommittee and 
other colleagues as we begin debate on this issue, don't forget 
the women.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Dunn follows:]

STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN CONGRESS FROM 
                        THE STATE OF WASHINGTON

    Thank you Mr. Chairman and let me express my appreciation for your 
leadership on this issue.
    Let me start by saying that there is no more important retirement 
program for women than Social Security. Since its inception, it has 
been a critical safety net that protects many older women from poverty. 
Any reform proposal needs to offer women the peace of mind they 
desperately need and deserve as they enter retirement.
    Despite its past successes, Social Security faces an enormous 
challenge as we enter the 21st century. The program that worked so well 
in the past now short changes many women due to a combination of 
outdated societal assumptions and a coming demographic crunch.
    Millions of working married women will contribute payroll taxes 
without seeing any value added to their benefit. The ``spousal 
benefit'' under Social Security entitles a spouse--usually the wife--to 
50 percent of the other spouse's benefit whether or not she worked 
outside the home. If a woman contributes payroll taxes throughout her 
working life and earns a benefit higher than the amount equal to 50 
percent of her husband's benefit, she gets to keep her benefit. 
According to the Social Security actuaries, however, this only occurs 
37 percent of the time.
    So a married woman working as an occupational therapist who 
averages $27,000 a year in salary could pay roughly $70,000 in Social 
Security taxes throughout the course of her career. Yet, because of her 
husband's high salary history she would receive the same benefit as if 
she hadn't worked at all. Thus, the $70,000 is wasted money. Obviously, 
with 70 percent of mothers now working outside the home, the current 
system is not an accurate reflection of the time, money and effort 
women put into their careers.
    Working women are also penalized by the benefits formula. Since 
Social Security benefits are based on an average of the individual's 
highest earnings over 35 years, women who leave the work force 
temporarily to raise a family will have zeros factored into the 
calculation for those years. For example, a woman earning a good salary 
as a computer programmer who takes 8 years off to care for her children 
could lose thousands in future benefits. In my opinion, there is no 
more regressive public policy toward a working woman than a system that 
penalizes her for taking time out of her career to nurture a young 
child.
    For women under 35 the problems with Social Security are magnified. 
They are trapped in an arrangement that is virtually guaranteed to give 
them less than what they put in. As they contribute more and more money 
to Social Security, their promised benefits continue to shrink.
    In the short run, we can alleviate some of the inequity by revising 
the rules governing benefit calculations, particularly those that harm 
divorced women and widows. Small changes in these areas will go a long 
way in helping women.
    In the long run, we need to convert a nation of beneficiaries into 
a nation of owners and savers through the use of personal accounts. 
Personal accounts, while not a panacea for all that ails the Social 
Security system, could be an important step in the right direction. 
Social Security in its present form does nothing to encourage savings 
and investment--the two pillars of a safe and secure retirement. And 
for women, personal accounts offer an opportunity to receive more from 
a system that has historically given them less. Personal accounts will 
enable them to build financial assets and cultivate a sense of 
proprietorship.
    As former Senator Daniel Patrick Moynihan has recommended, these 
accounts could take the form of the Thrift Savings Plan that so many 
federal employees--including Members of Congress--enjoy. These plans 
are diversified in a broad range of bonds and equities to minimize risk 
for elder workers and retirees. In fact, during the last twelve months 
when the broader stock market has dipped, the two more conservative 
investment funds in the TSP have grown by 5.4 and 7.7 percent 
respectively. Not bad when you consider that the rate of return for the 
district I represent under the current Social Security system is a 
paltry 2.2 percent
    Last year, President Bush's bi-partisan commission on saving Social 
Security released a report containing several suggested reforms that 
would restore fiscal integrity to the program. The merits of the ideas 
can be debated. Honorable people can disagree about what is the best 
course of action. What cannot be disputed, however, is the need to act. 
If we fail to address these problems, our inaction will be tough to 
justify to the future generations who will ultimately bear the burden.

                               

    Chairman SHAW. Thank you, Ms. Dunn. Mr. Pomeroy?

    STATEMENT OF THE HON. EARL POMEROY, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF NORTH DAKOTA

    Mr. POMEROY. Mr. Chairman, I thank you for this hearing and 
the opportunity to have a vigorous debate on this topic.
    I am frankly--and I want to be professionally polite to my 
colleagues. I think that we are debating sincerely held 
beliefs, but honest to God, Mr. Chairman, I am staggered by the 
suggestion that the existing Social Security program is unfair 
to women. Women will live on average 7 years longer than men. 
They will be in and out of the work force. They will have lower 
earnings history, on average. A system of social insurance 
reflected in Social Security that replaces at the lower wage 
earner and a greater percentage of income, and makes that 
payment absolutely assured month after month for as long as a 
person shall live, is the very thing that it literally the 
lifeline for millions of women living out their last years in 
retirement in the status as single people, most often widows.
    In addition to that, women have had particular benefit from 
two other features of the program, and these benefits often are 
not given appropriate focus as we talk about Social Security 
and the privatizers try to make it sound like it is some kind 
of savings account for retirement. There are very important 
attendant protections represented in survivors' benefits and 
represented in disability benefits.
    Now, it is, I believe, disproportionately women who benefit 
from the survivors' benefit. A person, right in mid-career, 
falls over dead, leaves the other spouse, again 
disproportionately women, sometimes at home, utterly without 
revenue stream. I know what I speak of on this one, Mr. 
Chairman, because it happened to my family. My dad died of a 
heart attack abruptly, totally without any prior indication, 
when he was 57 years old. My mom was a homemaker without 
employment skills. My brother and I were teenagers, and we 
received the survivors benefit, and it helped our family 
through the most difficult time we ever encountered. I frankly 
don't know what we would have done without it. And my mom was 
able to get some job training, and get into the work force, and 
my brother and I were able to save the payments that came in 
and get a college education, and everything that we have been 
able to do is because the revenue from Social Security allowed 
it to happen for our family. So these insurance benefits are 
extraordinarily important.
    In addition to that, there are disability benefits. So if 
you are in the workforce and you become disabled, unable to 
make your check, you will be able to access through the Social 
Security program this disability benefit. I used to be an 
insurance commissioner, and I will tell you that both the 
survivors benefit and the disability benefits, if you had to 
privately insure them to cover those risks would cost a bunch 
of money. There is the value of the--it is estimated that for a 
27-year-old worker with a spouse and two children, Social 
Security provides the equivalent of a $403,000 life insurance 
policy. If you try, and for that same 27-year-old worker, put a 
tab on what their disability policy might be valued, it would 
be $353,000.
    So those that want to talk about 2 percent returns and how 
terrible it is that we are not accruing these benefits, I 
really do think they need also to talk about the full array of 
protections that a person enjoys under Social Security and the 
hard dollar value that represents to American households.
    The final aspect, we are going to have our disagreements 
pretty deeply felt on the structure of Social Security, but 
what confounds me, Mr. Chairman, is that we are having this 
debate at a time when this Congress has committed itself to 
spending money coming in for Social Security on unrelated 
functions of government. You spoke well of, eloquently about 
meeting at the White House last year with the prior 
Administration. The difference between then and now is 
literally a $4-trillion projection in total revenues coming in 
between then and now. It has been the most stunning financial 
turnaround in the history of this country. Now we are taking 
cash coming in for Social Security, and we are spending it on 
unrelated functions of government.
    Now, whether you are a privatizer or whether you are a 
system protector, it seems to me that we could all agree this 
is bad business. We have got to save Social Security dollars 
for Social Security. It is only going to make our unfunded 
liability more difficult if we are spending the money on 
unrelated functions of government. That is why I am kind of 
offended by notions of paper certificates and all the folderol 
and the rhetoric. Let's join together and first get back to the 
position where we are lock boxing those Social Security 
revenues, not spending them on unrelated functions of 
government. Once we have gotten them done--we ought to be able 
to get that done together--then we can talk about how best to 
structure the system going forward.
    Thank you, Mr. Chairman, and Members of the Subcommittee.
    Mr. BRADY. Earl, can I ask you a question about your chart?
    Mr. POMEROY. Yes.
    Chairman SHAW. Let's wait until we get finished the--we 
will get back to it and everyone will get the chance. If we 
don't, we are just going to end up without--Mr. McDermott?

   STATEMENT OF THE HON. JIM MCDERMOTT, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. McDERMOTT. Thank you, Mr. Chairman.
    I am 116th in seniority in the Congress, so there is about 
300 and some odd below me. Seventy-five percent of this 
Congress has never seen, since they have been in Congress, 
anything but things going up, and it is great timing to talk 
about privatizing Social Security just when things are going 
down or there is a real bump in the road, because it gives 
people some time to contemplate about what we are really doing 
here. What is really aggravating to me about this is that it 
sounds a lot like the Contract on America. That was the 
contract that stipulated, we would have a balanced budget and 
guaranteed that we would have honest budgeting and so forth, 
and we just had a President run who said he would not spend one 
thin dime of Social Security on other things. Now, we are 
clearly not given that. It reminds me of, I don't know, it may 
be just part of the country or something, but you know, Lyndon 
Johnson told us we wouldn't have anybody going on the ground in 
Vietnam. That is what he told the Senate. And George Bush said, 
``Read my lips. There won't be any increase in taxes,'' and 
then we got a second George Bush who says, ``I can cut taxes, 
and I can balance the budget'' and do all this stuff, and 
clearly it is not happening. And then you have Enron, that 
promises to their people a pension, and look what happened to 
them? And now we have the Majority Leader here, promising 
seniors with a piece of paper. Now, I don't know how much you 
are going to spend on that paper. The estimate we have is $47 
million. We sent out those cards for people to get their tax 
refunds, and everybody would know that it came from the 
Republicans.
    Well, we are going to do it again. I suppose you put some 
sealing wax on there, maybe a little gold seal off in the 
corner and say, ``This is your certificate that says you are 
entitled to a Social Security retirement.'' What is cynical 
about that is that there are very few people who are going to 
get it. Most people are under 65 and this doesn't work for you 
if you're under 65. So I know the senior citizens are out 
there, and they are just sitting there at home, you know, kind 
of rocking in the rocking chair, and they are going to be so 
excited to get this thing from you, because they will know that 
it is for you, but anybody else in this country isn't going to 
get one, because you are not guaranteeing that to anybody else. 
And I think that is really a cynical kind of thing to be doing 
to the American public.
    Now, Social Security is not an investment and Earl Pomeroy 
put his thumb on what I was going to say, but I am going to say 
it again because it needs to be said. It is social insurance. 
If you are talking about Social Security, you are talking about 
survivors benefits and you are talking about disability. None 
of us could afford, most workers in this country could not 
afford to buy a disability policy that would run for the rest 
of their life. The cost of that would be prohibitive. The same 
thing is true on survivors benefits. And people get that, and 
if you mess with this system and say, ``Now put your money out 
there and see what you get in the end,'' you are taking away 
some fundamental things that most of us don't want to think 
about. You know, when you buy insurance you don't think about 
your house burning down, your car getting in a wreck, or you 
getting injured. You don't hope that you are going to collect, 
but you feel comfortable because you know you have that policy, 
and people have this policy and somehow it has been turned into 
an investment that you only get 2 percent on.
    Now, the other problem with this thing--there are many 
problems--but one of them is, between January 1973 and 
September 1974, the stock market went down by 43 percent. Now, 
if you got a defined contribution and you have been putting 
your money in there, and suddenly for a year things go down and 
it took 10 years, took until 1982, to get back to where people 
were in 1972. So if you are 65 in 1973 and you got all this 
money in that thrift savings plan, and all of us here lost 40 
percent or so, so nobody here can say he--well, there are a 
couple of you who were in the old plan, so you don't count, but 
all the rest of us, we are in that thrift savings plan, and it 
evaporated.
    You are not in that one?
    Chairman SHAW. I am in it. I was just asked. We could be in 
it but----
    Mr. McDERMOTT. Which one was smart and stayed in that one?
    Chairman SHAW. But I am going to tell you, those of us who 
had enough sense to mix it between bonds and stocks didn't lose 
40 percent.
    Mr. McDERMOTT. I see. And that is the point. That is 
exactly the point. All of these estimates are given as though 
everybody is going to put all their money in the stock market. 
And smart investing doesn't do that. Those people don't know 
whether they should put some in the stock market and some in 
bonds and some in government instruments. I mean, if you went 
through the Members of Congress and looked at how we put our 
money in the thrift savings plan, you would learn something 
about the American public, because we don't know which one to 
put it in. We walk around on the Floor saying to one another, 
``Where is your money? Where is your money? Have you moved your 
money out of this into that?'' And you are saying to people all 
over this country that we are going to put you in the same boat 
that we are in. Now, I suppose that is pretty good sense, but 
this is not the only time we had this. We had this fall in 
March 2000 to April 2001, the stock market fell again by 30 
percent.
    Chairman SHAW. Try to wrap up.
    Mr. McDERMOTT. Let me just say one last thing. I grew up in 
Chicago, and we learned very early in Chicago, about 5 years 
old, never touch the third rail up there on the elevated. And 
Ms. Dunn knows as well as I do that some senators in 1986 
reached out and touched that third rail, and they didn't come 
back. And I hope that you push this. I want you to run out 
there and throw yourself on that third rail and hold it.
    [Laughter.]
    Mr. McDERMOTT. Because you are asking for it. People are 
not stupid. They look at Enron, and they know that the people 
in Enron, the only thing those people have is their Social 
Security.
    Thank you.
    [The prepared statement of Mr. McDermott follows:]

STATEMENT OF THE HON. JIM MCDERMOTT, A REPRESENTATIVE IN CONGRESS FROM 
                        THE STATE OF WASHINGTON

    Mr. Chairman, Members of the Committee, thank you for inviting me 
to testify before you today.
    As I look at the character of the Congress, I am beginning to 
notice that I'm not exactly the youngest one around. I was elected in 
1988, which means that I'm about 116th in seniority around here. So 
about three fourths of the Congress has only been in this institution 
during the good times--when the economy has been on a roll and the 
Congress could avoid tough choices. But some of us know what a 
recession is all about. Some of us understand the value of security in 
an uncertain world. Some of us know the value of a defined benefit and 
an insurance program like Federal-State Unemployment and Social 
Security. I only hope that the new comers will listen because they will 
be the ones who will have to live with the decisions we make in regards 
to Social Security.
    With all do respect to my good friend from Austin Mr. Doggett and 
to Mr. Johnson, I think there must be something in the water that leads 
some Texans to make really big promises. Good ole Lyndon Johnson stood 
before the country and told us that he had no intention on sending our 
boys to Vietnam, the first George Bush asked us to read his lips while 
he increased taxes, the second George Bush promised to increase defense 
spending, cut taxes, and balance the budget, and Enron promised its 
employees a secure retirement while the company was going bankrupt.
    So here we are today deliberating on Mr. Armey's plan to promise 
seniors that there will be no reduction in their Social Security 
benefits.
    When Mr. Armey and other Republicans suggest that Congress, to the 
tune of 47 million dollars, send out certificates to seniors that say 
that they will be guaranteed their Social Security benefits it sounds 
to me a lot like another Republican Contract with America. I believe 
that contract stipulated a balanced budget and guaranteed an honest 
accounting of our federal budget by implementing zero baseline 
budgeting. In fact, it was just a short time ago that Republicans and a 
Texan candidate for President promised not to spend one thin dime of 
the Social Security surplus by putting the trust funds in a lockbox. It 
doesn't surprise me that the Republicans have been continually losing 
seats since 1994.
    What does surprise me is this thinly veiled attempt to pave a 
political path toward privatizing Social Security in the midst of an 
economic recession. Over the course of the past year and a half, the 
stock market has collapsed and defined contribution plans have defined 
an inadequate retirement for millions of Americans. Just last week we 
were all upstairs at a Ways and Means hearing to discuss the problem 
with the increase in risky defined contribution pension plans and the 
decline in safe, government insured, defined benefit pension plans. In 
fact, many of the witnesses and Members emphasized that the security of 
a person's retirement relies on the certainty of Social Security 
benefits, because as tempest of a collapsing economy illustrates, the 
stock market is no safe harbor.
    Some of my colleagues may argue that if we allow people to invest 
their payroll taxes in individual accounts that people will get a 
better return on their ``investment'' than Social Security. This is a 
false argument. First, Social Security is not an investment, its 
insurance. Second, their predictions are based on averaging those who 
win in the stock market and those who lose. Nobody loses under Social 
Security. Privatizing the program would allow hundreds of millions of 
Americans to lose their retirement investments. If anyone doesn't think 
it's possible, just take a look at what happened between January 1973 
and September 1974. The stock market declined by 43 percent and did not 
return to its 1972 high for almost 10 years. Or, let's look more 
recently. Between March 2000 and April 2001, the S&P 500 fell by nearly 
30 percent. If Social Security had been privatized, and a worker had 
his individual account invested in a fund that mirrored the S&P 500, 
his private retirement account would have declined in value almost 30 
percent. Is that the kind of security that privatizers are supporting?
    Most privatizers will say ``no'' they are ``championing privatizing 
plans that would guarantee benefits to seniors.'' But all of us know 
that the only way you can guarantee benefits is by obligating money 
from the Federal Treasury, which is exactly the program we have today. 
There is a reason that the Secretary O'Neill doesn't invest any federal 
trust funds in the stock market, it isn't safe or prudent.
    Aside from the fact that privatizing Social Security is neither 
necessary nor proper there is another thing that troubles me about 
privatizing this program. The Constitution expressly gave Congress the 
power to regulate commerce. If, however, our nation's most important 
social insurance program is invested in private enterprise, how will 
Congress balance the interests of the capital markets, consumers, and a 
nation, against the interests of individual Social Security accounts? 
That is, if everyone's Social Security was invested in Microsoft, would 
Congress have advocated for the Justice Department to review an 
antitrust issue? If everyone's Social Security was invested in Enron, 
would Congress try to somehow bail out a bankrupt and hopeless company? 
For those of you who think that Congress is already employing too much 
regulatory power just think what will happen when 300 million Americans 
want to reduce the risk of their investments by regulating or not 
regulating commerce.
    Social Security is America's most successful government program. On 
its own, it lifts 11 million seniors out of poverty. It is universal, 
efficient, portable, and provides seniors with a defined benefit. But, 
as all of you know, the changing demographics of our workforce are 
placing an enormous burden on the program and we must address the long-
term solvency issue the program faces. This is not an insurmountable 
obstacle. Just last year, the Congress passed a tax cut that, if made 
permanent, would double the 75-year budgetary shortfall that Social 
Security faces.
    If Mr. Armey and his supporters would retreat from their efforts to 
privatize Social Security, we could, I think, quickly find a way to 
address the financial challenges the system faces. But, unlike Arthur 
Anderson, we have to be honest about the accounting and budgetary 
assumptions we use, and we'll have to quit substituting a revenue 
stream based on a progressive tax with a revenue stream that relies on 
a regressive tax by actually putting the Social Security Trust funds in 
a real lockbox. Thank you.

                               

    Chairman SHAW. Mr. Foley?

STATEMENT OF THE HON. MARK FOLEY, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF FLORIDA

    Mr. FOLEY. Thank you very much, Mr. Chairman.
    I kind of regret that we always have to have a Social 
Security discussion and start pointing fingers at who is going 
to destroy it first. My grandmother came to this country from 
Poland. Her husband had died, and she raised two children on 
her own, my mother and her sister, and she depended on that 
Social Security check. I know most Republicans like me have 
parents and grandparents who depend on that Social Security 
check. So for people to infer somehow as Republicans that we 
came here to undermine and ruin the futures of seniors is 
absolute bull, and I reject it, and I reject the politics of 
it. I am tired of hearing about Enron because a few crooks 
stole out of that company and destroyed that company. Nobody 
makes the analogy, if they had invested $100 or $1,000 in GE 
where they would be today or a $1,000 in Johnson & Johnson.
    All we are trying to talk about is a reasonable debate of 
seeing how we can fix this vital valuable program. Even the 
``Palm Beach Post Times'' editorialized positively about a 
program Congressman Shaw designed on Social Security. This is a 
newspaper that is liberally based, if you will, and definitely 
doesn't usually support Republican proposals, but indicated, 
after studying Mr. Shaw's proposal, that it deserved merit and 
deserved consideration.
    I thank Mr. Shaw, the Subcommittee Chairman, and my Florida 
colleagues on the Committee on Ways and Means. I represent the 
seventh oldest population Medicare district in America. The 
American people, those receiving benefits as well as those 
paying into the system, have legitimate concerns as to the 
future solvency of the system and the delivery of the promised 
benefits. That is the reason I am here today. The Chairman and 
both represent congressional districts with large senior 
populations. In addition, it is imperative that Congress and 
the Administration reassure American workers that their future 
benefits from the system are secure.
    As the Members of the Subcommittee know, the Social 
Security system needs improvement to avoid insolvency, and 
frankly, the system needs to address inadequacies in how it 
treats women who left the work force to care for their 
children. That is why I applaud the Chairman, Mr. Shaw, and the 
Subcommittee for boldly addressing this politically sensitive 
issue.
    The Social Security system cannot cope with the upcoming 
demographic time bomb facing our country when the baby boom 
generation reaches retirement age. The Social Security trustees 
estimate cash flow deficits in the system starting in 2016 with 
a bankruptcy date of 2038. It is also estimated that the system 
will only be able to pay 73 percent of promised benefits. 
Absent any major reform, the Nation will be faced with a series 
of unpleasant choices, benefit cuts, tax heists, increased 
borrowing, or cuts to other governmental programs.
    We must look at ways to improve the system such as creating 
optional, optional, optional--can I repeat that enough--
personal retirement accounts as a supplement to the traditional 
benefit system. My colleague mentioned 401(k) plan that we have 
in Congress. I don't see any Member of Congress rejecting the 
government's assistance in creating a personal savings account 
for our future. Why not at least explore the potential, explore 
the potential of allowing seniors to make choices?
    Mr. Kolbe, Mr. Stenholm, and others have creative ideas 
that bear discussion. That doesn't mean we accept them. It 
doesn't mean we embrace them. But to sit here and bury our 
heads in the sand afraid of that third rail is misfeasance, 
nonfeasance, and malfeasance. In these personal accounts, 
workers, not the government, should be able to choose where to 
invest a portion, a portion of their retirement savings. The 
system must be structured in terms of preventing fraud and 
unsound investments like Enron.
    As I mentioned earlier, benefits for women must be changed 
to effect realities in today's society. Women are heavily 
dependent on Social Security benefits during retirement because 
they often have little or no pension savings or other sources 
of income. Any plan must improve benefits to adjust to the 
unique situations that affect divorced spouses and disabled 
widows. Without reform we are potentially committing the Nation 
to a massive new debt burden, tax increases, and benefit cuts. 
I urge the Subcommittee to move quickly on major reform.
    Again, I thank the Chairman, and I thank each Member for 
being willing to talk about something so vitally important to 
the Nation. It is about fiscal stability. It is about financial 
security. It is about not only this generation now on Social 
Security, but kids born as we speak today. I think if Democrats 
and Republicans are serious about trying to fix the system, we 
can. It doesn't have to be who runs this House. It is about who 
helps the seniors now and in the future.
    Thank you.
    [The prepared statement of Mr. Foley follows:]

STATEMENT OF THE HON. MARK FOLEY, A REPRESENTATIVE IN CONGRESS FROM THE 
                            STATE OF FLORIDA

    Good Morning. I thank Mr. Shaw, the Committee Chairman and my 
Florida colleague on the Ways and Means Committee, for allowing me to 
testify before the Committee on this important issue of improving 
Social Security.
    The American people, those receiving benefits as well as those 
paying into the system, have legitimate concerns as to the future 
solvency of the system and the delivery of promised benefits. That is 
the reason I am here today. The Chairman and I both represent 
Congressional districts with a large population of seniors. In 
addition, it is imperative that the Congress and the Administration 
reassure American workers that their future benefits from the system 
are secure.
    As the Members of the Committee know, the Social Security system 
needs improvement to avoid insolvency and frankly, the system needs to 
address inadequecies in how it treats women who left the workforce to 
care for their children. That is why I applaud the Chairman and the 
Committee for boldly addressing these politically sensitive issues.
    The Social Security system cannot cope with the upcoming 
demographic timebomb facing our country when the Baby Boom generation 
reaches retirement age. The Social Security Trustees estimate cash flow 
deficits in the system starting in 2016 with a bankruptcy date of 2038. 
It is also estimated that the system will only be able to pay 73% of 
promised benefits.
    Absent any major reforms, the Nation will be faced with a series of 
unpleasant choices: Benefit cuts, tax hikes, increased borrowing, or 
cuts to other government programs. We must look at ways to improve the 
system such as creating optional personal retirement accounts as a 
supplement to the traditional benefit system.
    In these personal accounts, workers, not the government, should be 
able to choose where to invest a portion of their retirement savings. 
This system must be structured in terms of preventing fraud and unsound 
investments.
    As I mentioned earlier, benefits for women must be changed to 
affect realities in today's society. Women are heavily dependent on 
Social Security benefits during retirement because they often have 
little or no pension savings or other sources of income. Any plan must 
improve benefits to adjust to the unique situations that affect 
divorced spouses and disabled widows.
    Without reform, we are potentially committing the nation to a 
massive new debt burden, tax increases, and benefit cuts. I urge the 
Committee to move quickly on major reform. Again, I thank the Chairman 
and the Committee for allowing me to testify today.

                               

    Chairman SHAW. Thank you, Mark, and thank all of you for 
being here, and for testifying before your colleagues of this 
Subcommittee.
    Mark, I agree with everything that you said, and 
particularly your statement regarding nonfeasance and 
malfeasance.
    Dr. McDermott, we were not sent here to get reelected. We 
were sent here for responsible government. But you are 
absolutely right, Social Security is the third rail of 
politics, and if it is misrepresented, many of us might not 
come back. But if the truth be known, the third rail of 
politics may very well switch to those that do nothing, that 
choose to do nothing. The problem that we have is that in 2016 
we are not going to be able to have enough cash to honor the 
obligation that we have to America's retirees. It is just that 
simple.
    Mr. McDERMOTT. Mr. Chairman, I agree with you, but I don't 
think sending out a certificate----
    Chairman SHAW. So we need to work together. Let me comment 
too on the other thing. I don't know of any of the plans that 
involve personal retirement accounts, and the one that I have 
as a supplement, it doesn't take anything out of the trust 
fund, it doesn't touch it, as Mr. Foley correctly 
characterized. It requires pre-approved investment houses. It 
required wide diversification of investment, and it requires a 
60/40 split between stocks and bonds, and quite frankly, that 
is why I have that in my own thrift savings account, because I 
think that is just the responsible way to go. And it allows 
American workers to choose and change that investment house in 
accordance with the performance that they have. Labor unions 
can set it up, and if they qualify and they are approved by the 
Social Security Administration and the panel set up, they can 
very well administer these funds for their workers. The workers 
are not taxed for this. This comes out of the general fund, 
which brings me to the question of how we are using the 
surplus.
    The tax cut was responsible for 12 percent of the loss of 
revenue. Expenditures were responsible for about 15 percent. 
The rest of it was because of drop in revenue. Now what----
    Mr. POMEROY. Mr. Chairman, what timeframe does that 
reflect?
    Chairman SHAW. Well, that is the last budget. Now, the 
problem----
    Mr. POMEROY. Not 10 years. Ten years I guess the figure is 
about 42-percent tax cut.
    Chairman SHAW. Well, I am just telling you where we are as 
far as this particular surplus is concerned.
    Now, the President has been mischaracterized here because 
when he was on the campaign trail, what he was saying was that 
without a recession, without a war, and without a national 
disaster, that he was committed to preserving the surplus, and 
he had the trifecta. He got them all.
    So at this point, is balancing the budget and protecting 
the surplus important? You are darn right it is.
    But is it more important to properly equip our soldiers in 
time of war? Yes. Is it more important to get people back to 
work and stimulate the economy so you can get our revenue back 
up? Of course it is. It is the responsible thing to do, and I 
think that is the question that we are going to be facing when 
we try to pass a budget this year, and I think it is going to 
be tough because people are going to get beat over the head. 
People are saying we are going to be going into the Social 
Security surplus. But I don't see how it can be avoided this 
year and meet our responsibility and commitment to do the 
things that we have to do. It would be a crime and certainly a 
blot on this Congress if we were not to properly supply our 
soldiers.
    Now, if we can do all of this and protect the surplus, we 
should do that, but we have got to first of all get America 
back to work, and we have got to be sure that we are using the 
maximum effort of the might of this government in order to 
prosecute the war that we are presently involved in.
    Yes, sir?
    Mr. POMEROY. May I respond, Mr. Chairman?
    Chairman SHAW. Yes, sir, please. I am not sure you disagree 
with me. I hope not.
    Mr. POMEROY. I think that we need to prosecute the war, and 
I acknowledge that the turndown in the economy certainly 
impacted budget projections, but the major factor over the next 
10 years was the tax cut passed last May.
    I thought it was very interesting when the House passed a 
sense of Congress a few weeks ago that all future--that kind of 
reaffirmed commitment to all future phase-ins of the tax cut 
must be implemented as initially enacted. Now, we can't bind a 
future Congress, but it was a place for the majority to once 
again go on record and affirm all aspects of that tax cut now 
that we know that that will mean the continued expenditure of 
Social Security money on other functions of government. Now 
that we know that basically that tax cut precipitates a raid on 
Social Security Trust Funds, that only makes----
    Chairman SHAW. No, it does not.
    Mr. POMEROY. That only makes the situation----
    Chairman SHAW. Wait. Is the trust fund affected by this?
    Mr. POMEROY. Well, Mr. Chairman----
    Chairman SHAW. Is the trust fund affected by this? Are 
there less Treasury--is there cash in the trust fund? Of course 
not. Are there going to be less Treasury bills in the trust 
fund? No. So it has no effect on the trust fund.
    Mr. POMEROY. On the balance sheet of this country I believe 
it is absolutely dollar-for-dollar impact. If you take cash 
coming in for Social Security, Mr. Chairman, and you spend it, 
it is gone. If you take cash coming in for Social Security and 
you pay off debt you improve the financial position of the 
country----
    Chairman SHAW. Reclaiming my time. Mr. Pomeroy, if we were 
to say that deficit spending was raiding the trust fund with 
the 40 years of deficit spending that this country went to 
before the Republicans took control of this country, there 
would be no trust fund.
    Mr. POMEROY. Mr. Chairman, I joined you last year in voting 
for lock boxes so we didn't raid the trust fund any more, and--
--
    Chairman SHAW. Didn't have anything to do with the trust 
fund.
    Mr. POMEROY. I am absolutely sick about the fact that these 
deficits put us back in a raid on the trust fund.
    Chairman SHAW. I hope you understand how the trust fund 
operates, but it does not have any cash in it. There is no 
money in the trust fund. It is simply Treasury bills drawn on 
the Treasury for the moneys that goes as a way of surplus into 
the general fund.
    Mr. POMEROY. Mr. Chairman, you have been indulgent with 
this debate, and I appreciate it, because I think it is so 
important. Cash coming in from Social Security that is not 
applied on reducing the debt held by the public, that is 
instead just plain old spent on other functions of government, 
will in the end make it harder for us to meet our commitments 
on Social Security. And I think regardless of whether you want 
to go with your plan or whether or not you want to stick with 
the kind of guarantees we now have, we all could agree on that. 
We are spending this money, and it is going to make it worse.
    Now, the President has proposed, Mr. Chairman, in his 
budget, compounding the problem even further by making the tax 
cuts permanent, you actually have a $4-trillion impact next 
decade--and if someone would turn that poster around please--
that is absolutely putting us on a course for a fiscal train 
wreck because as you can see with the line in red, the Social 
Security revenues coming in tail off, as you have noted, but 
the loss in revenues to the general fund accelerate next decade 
by making the tax cuts permanent to the tune of $4 trillion. So 
at a time when even the Majority Leader is talking about the 
subsidy from the general fund revenues into Social Security, we 
don't have the general fund revenues because they are gone.
    Chairman SHAW. Don't try to make this a cause and effect. 
The tax cut that the Congress gave the American people has 
nothing to do with the surplus going down. The surplus is going 
down because the baby boomers are coming into the--Mr. Pomeroy, 
certainly you understand----
    Mr. POMEROY. Mr. Chairman, how can you say that we--we just 
cut the heck out of revenues of this country and that has got 
nothing to do with the surplus going away? It caused the 
surplus to go away, and over 10 years it is undeniable that it 
is the single biggest cause of why we are spending Social 
Security dollars to run the rest of the government.
    Chairman SHAW. The surplus is a surplus regardless of 
whether we spend it or don't spend it. The surplus remains the 
same. Now you can argue that they are spending the surplus, but 
the surplus is defined as that moneys that comes into the 
Social Security Trust Fund that is not needed to pay out 
benefits, and that goes into the general fund.
    Now, if we spend it or if we cut down on general revenue by 
way of tax cuts and go into the surplus, then that is certainly 
an argument that you can make. But the decrease in the surplus 
itself has nothing to do with the tax cut. The surplus is 
actually going to go away in 2016 because there won't be enough 
cash coming in to the trust fund to pay benefits. And that has 
nothing to do with the tax cut. It has absolutely nothing to do 
with the tax cut.
    Mr. POMEROY. Mr. Chairman, because of the tax cut we don't 
have revenues that we used to have in the general fund, and in 
fact, the general fund----
    Chairman SHAW. That is correct.
    Mr. POMEROY. Doesn't operate in balance any more, and when 
the general fund isn't in balance, you have got to find the 
cash elsewhere. Unfortunately, we are finding the cash from the 
moneys coming for Social Security. We take it in on Social 
Security, we ship it over, and it is spent on unrelated 
functions of government. Now in the end, that will make it 
harder for us to meet our commitment to Social Security.
    Chairman SHAW. I think your reasoning is circular because 
the tax cut has nothing to do with the size of the Social 
Security surplus. Now you can argue that you are going to have 
to spend more of it because of the tax cut, and that is a 
legitimate argument if revenues don't turn around. That is a 
legitimate argument, but the----
    Mr. POMEROY. Mr. Chairman, do we agree that if you are 
spending Social Security dollars on something other than Social 
Security, you are making your problem worse. Do we agree on 
that?
    Chairman SHAW. Well, I agree to the point that if we have 
more revenue, we will have to go in debt less in order to take 
care of our commitments under Social Security, but in any 
event, we are going to have to go in the red. Every plan that 
is out there does it.
    I am going to yield now to----
    Mr. POMEROY. Thank you, Mr. Chairman.
    Mr. McDERMOTT. Could I just ask one question before we move 
off? You say we are going to go in the red. One of the things I 
don't understand about your plan is where do you get the $120 
billion in the first year to start your program? I mean, if you 
are allowing the money coming in to be diverted into the 
private, it is going to pay people who are already in the 
system----
    Chairman SHAW. It comes out of general revenue.
    Mr. McDERMOTT. But----
    Chairman SHAW. General revenue.
    Mr. McDERMOTT. One hundred twenty billion dollars more?
    Chairman SHAW. Is that the figure, $120 billion, first 
year? It is about $80 billion, but it does--it is $80 billion. 
It comes out of the--in my plan it comes out of general 
revenue.
    Mr. McDERMOTT. So we would be going further in debt to get 
that $80 billion because the revenue isn't coming in. I mean, 
we are going to be in debt----
    Chairman SHAW. Well, according to where the projections 
are. But let me say this, and I think this is very important, 
that the Social Security surplus will be used to put in these 
individual accounts, which is what--and nobody can argue with 
the fact that what is wrong with using Social Security money to 
save Social Security instead of dumping it into the general 
fund? And I think that is a very good idea, and I think it 
makes perfect sense.
    You know, if you are paying into a private pension plan, 
the corporation is administering, they are not going to pay 
their general--they can't spend it on anything they want to. 
They should spend it to invest in you and your pension fund, 
and that is exactly the same philosophy that we are using.
    Now, beginning in about 10 years, 8 or 10 years, there 
won't be that surplus, and at that time we are going to have to 
go into general revenue for a period of time. But it is 
projected, under the plan that I have out there, that over 75 
years it will actually produce a surplus.
    Mr. Matsui?
    Mr. MATSUI. Thank you, Mr. Chairman. If I could just----
    Chairman SHAW. Look at it. You might like it.
    Mr. McDERMOTT. I won't be here in 75 years.
    Mr. MATSUI. I hope that is not on my time.
    Chairman SHAW. Our grandkids will.
    Mr. MATSUI. Mr. Chairman, here is what the problem is. Here 
is the Office of the Actuary, Social Security Administration, 
December 10, 2001. So this is a report that is about 4 months 
old, and there may be some update, but it has not changed, much 
difference.
    If the Shaw bill came into effect this year for being 
effective in 2003, the first year borrowing would be $109 
billion. And then the second year borrowing in 2004 would be 
$111 billion----
    Chairman SHAW. Would the gentleman yield for a second on 
that? Because I want to agree with you. Yes, I misspoke. It was 
$80 billion under the other one, and the reason it is up to 
$109 billion is that we put 3 percent in for low paid wage 
earners, so your lower economic people actually would get a 
better hit than the higher income people.
    Mr. MATSUI. If this could not be on my time, I would 
appreciate that. And then in year five it is $359 billion. Year 
2006, which is only 4 years from now, it is $637 billion and so 
it accumulates to--in the next 20-plus years, about $3.6 
trillion. If there is no funds to pay for it, and you have to 
borrow it, it comes to $8 trillion. So in the next 30 years 
your bill will cost the general fund plus the interest costs in 
there, $8 trillion. I need to know how you are going to come up 
with that money, because we should really put your bill--Mr. 
Foley supports it--we should put that bill on the Floor of the 
House in the next couple weeks so we can debate it and then 
vote on it, because if in fact it is a bill you support, then 
we should really move forward.
    Mr. Armey and Mr. DeMint have a bill that will cost $22 
trillion over the next 75 years, and $8 trillion over--$9.5 
trillion over the next 30 years. We should put their bill on 
the Floor so we can vote on that bill as well. We need to vote 
on these bills that you have introduced and you are saying it 
is so wonderful, so we can find out where the support level is. 
This is what the frustration is.
    And let me mention, Mr. Pomeroy, you are absolutely right, 
we can't look at Social Security in terms of 1 year. You can't 
talk about what the cost of--you know, the percentage of the 
reduction of the surplus in 1 year, because Social Security is 
a 75-year program. We all agree with that.
    The cost of the war on terrorism plus the defense spending 
increases that are being projected is 8 percent--this is CBO 
numbers--additional spending 9 percent. The estimates on the 
budget numbers is 43 percent, and you know, that should be--
people should be held accountable for that because a 10-year 
cycle, you are supposed to take into consideration recession. 
You can't just say, oh, a recession occurred, so we have to 
reevaluate these numbers. These numbers should go on for the 
next 10 years, and there is going to be a drop in the economy. 
That should be taken into consideration, but the tax cut is 41 
percent of the reduction in the surplus over the next 10 years. 
And it is going to be more than that because the President 
wants to make this thing permanent, as Mr. Pomeroy said. And 
you couple that with the fact that your bill costs $8 trillion 
over the next 30 years, and your number, $637 billion--where 
are you going to get the money to pay for your bill?
    And that is why we need really to debate this. You need to 
put your bill on the Floor of the House so we can debate it, 
vote on it, and send it to the U.S. Senate. That is what we 
really need to do. I mean, will you do that for us so we can 
actually get this out there? Because I think, frankly, as Mr. 
McDermott, Mr. Pomeroy, and others have said, the real problem 
we have is that after the election you guys are going to move 
on Social Security, and with the $8 trillion you are not going 
to have, so you are probably going to have to cut benefits, and 
that is what we are really concerned about, because you won't 
have the money to pay for your program and the privatization, 
you are going to move ahead on privatization anyway, and they 
you are going to have to cut benefits.
    That is what the frustration that we have is, and that is 
why you have got to bring your plan out now before the election 
so we can debate. Just take it off the table so it is not part 
of an election debate.
    Now, let me just conclude by asking Mr. McDermott one 
question, if I may. What do you believe in terms of the whole 
issues of Mr. Shaw's plan? Could you go into that in some 
detail?
    [Laughter.]
    Mr. McDERMOTT. How many hours do I have?
    Everybody likes the idea of having choice and all, but the 
whole reason we had Social Security put together in the first 
place was because people weren't able to take care of 
themselves, and we decided as a society we would do that. And 
this individual accounts is basically splitting this up and 
saying, ``If you're smart, you'll do well, and if you're not so 
smart, you won't do so well.'' And if you do not guarantee that 
basic benefit----
    Chairman SHAW. Well, I do. You had better----
    Mr. McDERMOTT. I understand that, but you also have to come 
up with $100 billion to start this thing. If you are willing to 
tax to get that kind of money, I am willing to do it. Everybody 
in here gets the same tax cut. Every May everybody stops paying 
their Social Security tax because we all get up to the line of 
whatever it is, $49,000 or--I have forgotten the number--
$60,000, $80--well, whatever it is--and suddenly we don't have 
to pay that tax any more. If we raise that up a little bit and 
put it up to $125,000 or something, why, you know, we would 
have money. There is a lot of ways you can deal with this 
problem if you are serious and you want some additional dough, 
but if you are just going to try and take it out of the general 
fund, it simply is not possible.
    Chairman SHAW. Well, I would like to tell the gentleman, 
for the next 10 years under the Shaw plan, we only use up half 
the surplus, so----
    Mr. McDERMOTT. Half of the surplus?
    Chairman SHAW. Half of the Social Security surplus. So I 
ask you the question. What is wrong with taking the surplus--
now you can say, okay, fine, but you have already spent the 
surplus. Well, that is deficit spending. So if we say, let's 
set the Social Security surplus aside and use it to save Social 
Security instead of spending it on something else, and if we 
are going in the red and we are borrowing more money, let's 
have an honest debate upon that, and I think Mr. Pomeroy will 
be satisfied in that regard.
    But the program that I have put forward is, one, it is 
strictly voluntary. I think everybody is going to take it 
though. I can't imagine anybody turning it down. The 
investments, or some investment houses are going to do better 
than others, but they are going to be pre-approved investment 
houses. Nobody is going to manage their own money because most 
people just simply haven't had enough experience in order to do 
that.
    Mr. McDERMOTT. How do you deal with the problem though of 
the Federal Government on the one hand regulating Commerce and 
the Security and Exchange Commission (SEC) and all of this over 
here, and on the other hand you got everybody's pension in your 
pocket? You are going to have the Federal government trying to 
control what is going on.
    Chairman SHAW. We don't. No, I am getting the Federal 
government out of it. Now, you will hear from Jerry Nadler. He 
is here.
    Mr. McDERMOTT. You are willing to let us have no SEC?
    Chairman SHAW. He is going to be testifying, and he wants 
the government to directly invest, and I am looking forward to 
his testimony in that regard. But to do nothing involves, over 
the next 75 years a $20-trillion deficit. We can't go forward 
with that.
    Mr. McDERMOTT. We didn't have an SEC before.
    Chairman SHAW. Now, everyone agrees the cost of doing 
nothing is unacceptable, unacceptable. If anybody here--are you 
for just continuing the same program and not doing anything?
    Mr. McDERMOTT. No, we are going to have to do something, 
but we----
    Chairman SHAW. Now, Mr. Matsui----
    Mr. McDERMOTT. What is coming in we ought to----
    Chairman SHAW. Mr. Matsui is asking me why don't I put this 
down on the Floor? Well, we are hearing the argument. We are 
seeing right now exactly what is going to happen. We know right 
well. All of us have been in politics. You explained it as the 
third rail of politics. And the question is, will we be able to 
get the story out so that people really understand? People, 
once they understand, they are going to demand it. We have 
already started having hearings on college campuses, and we are 
going to have more. I want the young people to know. Young 
people should be madder than hell about what is going on 
because they are going to--they are the ones that are going to 
suffer.
    Mr. McDERMOTT. Are you going to send them a certificate? 
No, you are not. You are only going to send a certificate to 
old people. Send it to the 21 year olds----
    Chairman SHAW. I am going to give to the younger workers--
--
    Mr. McDERMOTT. They won't believe it.
    Chairman SHAW. Something that they have and they can own 
and will be inheritable wealth. And you know something else? 
This is the only chance to accumulate any wealth that poor 
people will ever have in this country. Why can't we join 
together and do this? There is nothing wrong with this. It is 
the right thing to do. And if the Democrats have a better plan, 
I will have a hearing on it, and I will adopt it. There is no 
question about it. But doing nothing is unacceptable. We have 
got to do it in a bipartisan way. We have got to have the 
American people to trust us on this rather than having the 
daylight scared out of them that we are spending their Social 
Security dollars on the shaky stock market. I mean, this is--
fine, come up with a better answer. I will be glad to listen to 
it.
    The problem is, there is none. No one is coming up with a 
better answer. If they have one, let's go with it. What is the 
order of witnesses? Mr. Hayworth?
    Mr. HAYWORTH. Thank you, Mr. Chairman.
    Well, this has been an interesting morning, because the 
desire of the Majority Leader was quickly laid aside. Perhaps 
the calendar has presented a new reality. The circumstances in 
which we find ourselves were irreparably changed by September 
11, but it seems there are more folks here concerned about 
November 5. And I dare say, just given the dynamic here, that 
someone could come up with a plan to cure the common cold and 
combine that with world peace, and there would be, given the 
nature of the calendar, plenty of folks who would try to find 
fault with it just being the nature of the adversarial 
relationship.
    Because what we have seen today is, despite the best 
efforts of the Chairman, who has laid forth a proposal to open 
debate, a national debate, there are those who take issue with 
having that debate in its current form and say let's rush 
something to the Floor. I dare say we could safely assume if 
something were going to the Floor, there would be a problem 
with moving too quickly, just the dynamics of the process.
    I am sorry my friend Dr. McDermott left because I was left 
in quandary but on one hand people are not stupid. But on the 
other hand, they shouldn't have any control over their future. 
Well, such are the vagaries of psychiatry.
    Congressman Pomeroy, thank you for being here. Perhaps you 
can answer now, since you bemoaned the plan and seem to 
advocate or tell us that tax cuts are bad and bring us the--
here we go, the visual aid. I wish television were here for 
you, my friend, because such wonderful visual aids, prepared by 
the Democratic staff of the House Budget Committee, not only 
questions in terms of accuracy applying in this debate, but I 
am just so sorry the TV cameras aren't here to help with this 
visual aid today.
    Well, quite simply, Earl, my question is this: If tax cuts 
are so bad, what is your suggestion? Is your plan to raise the 
payroll tax? That seemed to be what my friend, Mr. McDermott, 
was suggesting. Would you like to raise the payroll tax now?
    Mr. POMEROY. Congressman Hayworth, no, I certainly do not 
plan to raise the payroll tax, and really the chart I prepared 
not for television cameras, but to help us visualize what I 
think is a fiscal train wreck that we are heading into next 
decade.
    Many of you have talked about the shortfall that we will 
encounter by the year 2016, at which time the general fund 
needs to start making do on some of these IOUs that we have 
been shipping over because we do not have enough coming in on 
the Social Security revenues any more. At the very same time, 
the majority has put in place a plan that is going to cause a 
hemorrhage of revenue into the general fund.
    So, at the time the general fund has got to top off Social 
Security, the general fund doesn't have the revenues to do it.
    Mr. HAYWORTH. I appreciate my friend coming with a 10-year 
projection, a 20-year projection, in fact, as I am corrected by 
my friend from Wisconsin. Of course, we should point out for 
the record, it deserves amplification, our Chairman pointed out 
twice earlier, a 10-year, indeed, 20-year projection didn't 
mean a thing in previous Congresses, when the goal was always 
more, and more, and more spending.
    I trust you don't share that concern, in terms of the 
spending question. You have some concerns about spending, but I 
don't know, I don't want to speak for you. Let me just ask you 
this question: In terms of overall revenue, both with the 
Kennedy--JFK tax cut 1963 and the Reagan tax cut of the 1980s, 
did revenues to the Federal Government increase? Overall, did 
revenues, tax revenues, increase to the Federal Government? 
Because this gets to the heart of the fundamental debate.
    Do we grow the economy by offering opportunity to investors 
and to entrepreneurs to create jobs, to increase tax receipts 
for the government? Even dealing with the challenges we are 
going to have demographically, will that help the economy or, 
instead, do we sit back, and there are those advocates here of 
the radical redistribution of wealth, believe that the economy 
is a static model, where tax relief does not encourage growth, 
and thereby we maintain the status quo, which seems to be part 
and parcel of what is going on here because, quite simply, 
despite all of the calls for a plan, we have yet to see a plan 
offered by the minority.
    Mr. POMEROY. Congressman Hayworth, I think that the 
ideological clash is interesting and kind of reflects the 
excitement of making law here at the Capitol, but I do think 
that it will be better done if we recognize the underlying 
numbers, and so we are not making up numbers, we are agreeing 
that the Congressional Budget Office, for example, is a 
reasonable forecasting place, in terms of telling us the actual 
dollars that we are going to have to deal with.
    Mr. HAYWORTH. My question was, historically, did the tax 
receipts under both Jack Kennedy and Ronald Reagan, in 1963 and 
the 1980s, did, overall, tax receipts increase to the Federal 
Government in the wake of those tax cuts?
    Mr. POMEROY. There is a very robust debate on that, 
Congressman. In fact, as you know, following the 1981 tax cuts, 
Congress quickly had to enact some tax increases, in light of 
the soaring budget deficits.
    So, you know, that is an interesting historical point, 
but----
    Mr. HAYWORTH. Because we failed to learn the lesson of 
spending.
    Mr. POMEROY. The Congressional Budget Office has told us 
that, in light of what we are now on, we are going to be 
spending Social Security dollars on other functions of 
government for the bulk of this decade. Clearly, that cannot 
help the situation.
    Mr. HAYWORTH. Well, again, for the record, I would point 
out, not only as our current President said during the time of 
his campaign, but those of us who advocated a Balanced Budget 
Act, who continue to advocate put language in to say, in times 
of war or national emergency, obviously, we would have to deal 
with the priorities of national survival, and I would point out 
to the assembled Subcommittee and our distinguished guest 
panelists today that you cannot have retirement security and 
financial security without first a national security and a 
vibrant plan.
    I thank the Chairman.
    Chairman SHAW. The time has expired. We will call on Mr. 
Lewis, but before I do so I want to let everyone here know the 
intention of the Chair is to recess between 12:00 and 1:00 and 
reconvene the hearing at 1:00.
    Mr. Lewis?
    Mr. LEWIS. Thank you, Mr. Chairman.
    You know, we keep asking, Mr. Pomeroy, what the Democrat 
plan is, and I know Mr. Gephardt in his speech last night 
talked about our secret plan. It seems like the Democrat plan 
is so secret that even the Democrat Members don't even know 
what it is.
    This is preposterous that you have nothing to offer but 
criticism. We are putting plans on the table, but you have 
nothing to offer but criticism. Now I have a 19-year-old 
daughter. In 2016, she is going to be 35 years old, right in 
the middle of her career. If we do nothing, and in 2038, she is 
going to be 57 years old, if we do nothing, what is it going to 
cost her? What is it going to cost her?
    And let me ask you this too: What were the projections in 
2000 for the decline of the Social Security payments, the 
Social Security, it is going to start down in 2016, what was it 
in 2000, as opposed to today? You know, you are talking about 
the tax cuts. How has that changed from 2000 until today? Is it 
a big difference between the decline in Social Security in 2016 
and bankruptcy in 2038? What difference has the tax cut made 
between those two dates?
    Mr. POMEROY. If you look, in terms of----
    Mr. LEWIS. I think it was the same date. I don't think that 
has changed. I think 2016 is the same date, 2000, 2002, I don't 
think it has changed.
    Mr. POMEROY. Congressman Lewis, I thank you for your 
concern about what happens to the next generation that will be 
having to pay the tab.
    Mr. LEWIS. It is my daughter and my son.
    Mr. POMEROY. We have heard the Majority Leader, and I 
believe he made a very sincere personal pledge that the 
benefits will never be----
    Mr. LEWIS. But what I want to know is what are you offering 
to protect my daughter and my son? What is the Democratic party 
offering to protect them in 2016 and 2038, when there is going 
to be a $23-trillion deficit in Social Security?
    Mr. POMEROY. We have a commitment to reduce the debt held 
by the public and prepare financially this country.
    Mr. LEWIS. But is that going to help? Will that save Social 
Security? Will it save Social Security?
    Mr. POMEROY. You know what, I am absolutely confounded by 
the majority that wants at once to talk about the burden on the 
next generation at the very time they do nothing to eliminate 
the debt held by this country, which means when they are----
    Mr. LEWIS. Oh, I think the majority has paid the debt down 
by half a trillion dollars over the last few years.
    Mr. POMEROY. We could have paid the debt off by 2008 and 
left your children and my children a much stronger country, 
from a fiscal standpoint, to deal with the exploding 
entitlement obligations that will happen when baby boomers 
retire.
    Mr. LEWIS. Pardon me. Were you here in 1994?
    Mr. POMEROY. Yes sir.
    Mr. LEWIS. When I arrived on the scene here in 1994, you 
all had $200 billion deficits running as far as the eye could 
see, and we had a $5-trillion, $5.5-trillion debt. What were 
you doing about it then?
    Mr. POMEROY. Congressman Lewis, I voted for a budget plan 
in 1993 that was a major component of how we eliminated that 
deficit.
    Mr. LEWIS. Do you mean the tax increase?
    Mr. POMEROY. You bet it had a tax increase, and it got the 
deficit down.
    Mr. LEWIS. No, wait a minute.
    Mr. POMEROY. I just absolutely love the way that the 
Democrats----
    Mr. LEWIS. After the tax cut, you all had projections of 
$200 billion deficits as far as the eye could see, after the 
tax cut.
    Mr. POMEROY. Congressman Lewis, here is how we explain 
this----
    Mr. LEWIS. That is right.
    Mr. POMEROY. We tackled the deficit----
    Mr. LEWIS. I am interested in that.
    Mr. POMEROY. We talked the deficit, the financial markets 
responded, long-term interest rates came down, and the economic 
recovery was fantastic, beyond what either party projected. In 
addition to that----
    Mr. LEWIS. When did it happen?
    Mr. POMEROY. In a bipartisan way----
    Mr. LEWIS. When did that start to happen?
    Mr. POMEROY. In a predictable period of time following the 
lowering of long-term interest rates. Long-term interest rates, 
if you look from the beginning of 1993 to the end of 1994, 
which would be the end of that first Congress, came down and 
were directly linked to the strength of the economic recovery. 
Both parties worked together thereafter it, I have served with 
you now for several terms, to hold spending in check. We 
maintained the PAYGO system of fiscal discipline.
    Mr. LEWIS. I didn't see a lot of spending being held in 
check in 1994 when I got here, and the minority, your party was 
in charge then. I didn't see a lot of restraint there in 
spending.
    Mr. POMEROY. Oh, Congressman Lewis, I am afraid that you 
misunderstand the application of the 1990 budget discipline, 
which put pay-as-you-go requirements in on Federal spending, as 
well as spending caps. We maintained those caps in the 1993 
budget. We had hard caps, and we lived within them, and they 
were a major part of restoring financial integrity to this 
country.
    But, in any event, we are now----
    Chairman SHAW. The time of the gentleman has expired.
    Mr. Becerra?
    I am going to try to wrap this part of this thing up before 
this vote so that we can come in with the next panel as soon as 
we reconvene. Brevity on both sides would be appreciated.
    Mr. BECERRA. Mr. Chairman, because of the vote and because 
we are running somewhat late, I will be brief, and all of our 
colleagues----
    Chairman SHAW. And we are down to one victim. [Laughter.]
    Mr. BECERRA. And Mr. Pomeroy has been very gracious to stay 
so long in answering questions.
    I would like to just make a couple of clarifications. In 
some of the discussion that has occurred, we have heard the 
word ``Social Security surplus'' mentioned and, in some cases, 
it has been confused with the unified surplus, and at the same 
time Social Security surplus has been used and confused with 
the Social Security Trust Fund. We have to make sure that we 
are clear that the trust fund is very different from the Social 
Security surplus. The surplus is what comes in, the hard cash 
that contributors, workers are contributing every day that they 
work, and it goes into the system. It is a surplus.
    Once it goes into the trust fund, as I think, Mr. Chairman, 
you try to point out, we purchase that money and exchange 
Treasury certificates for that surplus money. Those Treasury 
certificates are there to guarantee that in the future those 
monies paid in will be available to pay out for future 
beneficiaries. But those moneys, through the trust fund that 
are now property of the Federal Government because the trust 
fund is holding securities in its place of that money, is 
spent, is spent to the point that today we know that we are in 
deficit, and we must use every single cent of what was a Social 
Security surplus that went into the trust fund and is now being 
spent to maintain the operations of government.
    I think the point that Mr. Pomeroy and some other folks 
have tried to make is that what was a Social Security surplus 
which could be used to save Social Security is not available 
because it is spent. It is like a passbook account. You deposit 
money in a bank, you have got a book that says you have got 
``X'' amount of dollars in there. The bank may put it in an 
investment like Enron. If that investment goes under, like 
Enron, you go in to collect on your passbook, and if that bank 
doesn't have any assets because of Enron, that bank can't pay 
you back.
    So what was a surplus and you put it into a passbook or you 
put into the Social Security Trust Fund, it is gone if it is 
spent, and we have to find some way to pay it back, and that 
means general revenues which could means cuts in other programs 
if you try to pay back on that Social Security money.
    I think the point that was made with regard to what will 
happen under the Shaw plan, Mr. Chairman, is that if we need 
$120 billion now, we don't have $120 billion right now. We are 
in deficit. If we are going to look for $120 billion, that 
means we are either going to cut programs, and it could be 
something to the tune of eliminating every single dollar for 
elementary and secondary education that we give to all of the 
schools, it would mean the elimination of any monies that we 
give to lower income workers under the earned income tax 
credit, it would mean eliminating every single dime we give to 
aid blind and disabled people under the Supplemental Security 
Income program, and it would mean eliminating all of the money 
we give to poor folks who are working who receive food stamps 
or women who have children who try to provide some nutrition to 
their kids under the WIC program, the Special Supplemental 
Nutrition Program for Women, Infants, and Children, and it 
would mean eliminating everything we do for those who are right 
now suffering as a result of the downturn of the economy 
through the Temporary Assistance for Needy Families program.
    Every single dime under all of those programs that I just 
mentioned would have to be eliminated in order to make up the 
$120 billion that it would cost to start the Shaw plan's 
additional accounts. So we have to be real. Like any family in 
planning its budget has to be real, we have to talk about 
dollars in and dollars out, and there is no way that you can 
just say, unless you are going to pull out the government 
credit card that you are going to be able to do this, and 
deficit spend and put it all on the backs of our children.
    So I think hopefully we will get to the point where we are 
able to show some numbers, and I think the chart that Mr. 
Pomeroy has put up tries to illustrate the numbers that you 
can't do this simply by double dipping. At some point you are 
going to have to pay for this stuff, and you can't continue to 
say that there is a surplus when, in fact, it is being used 
right now. Indeed, my understanding is that if you take away 
Social Security and Medicare monies from the Federal 
Government's use, you have a deficit over the next 10 years 
that is monumental, $2 trillion or so dollars. It is only 
because we have Social Security monies that are used by 
government that we are able to talk about any type of surplus 
at all.
    So I think it just gets confusing. If the average American 
were in here listening, he or she would be confused as well 
trying to figure out how the Federal Government balances its 
budget and goes about deciding what to spend.
    Certainly, if a wage earner had to balance a family budget, 
they would love to have the funny money we are talking about 
here, but it can't be done because ultimately they will have to 
pay for a college education and retirement, and that is where I 
think the numbers have to be reconciled then. You can't do it. 
We have to make sure then when we talk about a Social Security 
surplus, we make sure that we are talking about monies that 
will be available.
    Once the trust fund gets that money and it is given a 
Social Security certificate from the government, it will be 
spent by the government, whether it is for tax cuts, whether it 
is for this military operation to stop terrorism or whether it 
is just for regular operations of government, but we have to, 
at some point, be prepared to pay back to Social Security, and 
that means that you have got to come up with the money, hard 
dollars, not just the double-dipping and funny money that we 
keep hearing about.
    So I won't ask Mr. Pomeroy any questions, since he has done 
a remarkable job of responding, and, Mr. Chairman, I will yield 
back my time.
    Chairman SHAW. Your time has expired.
    I would say to the gentleman, like any family responsible, 
I think you would want to set aside something for your old age, 
you would want to set aside something for your kids' college 
education, and that is exactly what we are trying to do. For 
the next few years, we are going to have a deficit if we are 
able to put money aside in order to plan for the future 
retirement.
    But, again, I would say to both gentlemen from California 
that, hey, if you have got a better plan to save Social 
Security, you bring it in. I would like to hear it. But to 
simply say that if you pay down the debt, and now you have 
already made the point that you can't pay down the debt, it is 
very clear that you have no plan, and we need a plan, and we 
need it to be done in a bipartisan plan. Just as----
    Mr. MATSUI. Mr. Chairman----
    Chairman SHAW. Just a minute. Just as we did in welfare 
reform, just as we do in welfare reform, when we finally came 
together after the plan was voted down or vetoed by the 
President on two occasions, the Republicans and Democrats did 
come together, and because of that----
    Mr. MATSUI. If your plan is credible, Mr. Chairman, why 
don't you put it on the Floor? Let us vote on it. I mean, if 
you really believe your plan is credible, put it on the Floor 
so we can vote on it.
    Chairman SHAW. I know it is credible.
    Mr. MATSUI. Because it is not credible. You know it is not 
credible. That is why you won't put it on the Floor for a vote.
    Chairman SHAW. I know it is credible, but I think that we, 
and I think I have made this very clear, is that the 
disinformation that you, Mr. Gephardt, and the Democrats are 
putting out are going to make this, indeed, as Mr. McDermott 
said, the third rail of politics, and the question is can a 
Social Security reform package be passed without bipartisan 
support? The answer is clearly no. It would actually set us 
back to put something on the Floor that wasn't going to pass.
    Could any of these plans that we are going to hear about 
this afternoon pass if put on the Floor? No, and they simply 
wouldn't because Congress does not have the courage in order to 
go forward to do it, the collective courage, and we need to get 
that collective courage and do the right thing.
    Mr. MATSUI. Mr. Chairman, could I just----
    Chairman SHAW. We need today to start planning for seniors 
of tomorrow.
    Mr. BECERRA. Can I just add to your comments, Mr. Chairman, 
that I think one of the areas where this Congress has failed is 
that our previous President, Mr. Clinton, suggested that we 
save Social Security first, and before we start going into 
other areas, tax cuts or anything else, that we first plan to 
save Social Security. And I believe we failed the people of 
this country because, rather than talk first about what we do 
with Social Security, we went forward, some in this Congress 
went forward and cut taxes, and now the hole is even deeper.
    So I would suggest that one of the difficulties that a lot 
of us have is that rather than try to keep our money where we 
can then use it to save Social Security first, it has been 
spent, and now the problem becomes even worse. Rather than talk 
about it from a place where you had some money you could work 
with, that is gone.
    Chairman SHAW. Well, Mr. Becerra, why don't you join with 
me, and why don't you critique my plan and figure out how you 
would improve it, and maybe we can work it together. I would 
love nothing better than to find somebody on this Subcommittee 
to work with. I can't find anybody on the Democrat side.
    Mr. BECERRA. Mr. Chairman, if we could agree that we would 
try to keep our money in hand so we can use it to try to deal 
with the Social Security issues----
    Chairman SHAW. You read my plan and give me your conditions 
for support, and I will be glad to look at it.
    Mr. BECERRA. Mr. Chairman, the first question is how do you 
pay for the $120-billion hole?
    Chairman SHAW. Well, the question is that is part of the 
Social Security surplus----
    Mr. BECERRA. Which doesn't exist.
    Chairman SHAW. Why shouldn't that surplus be used to save 
Social Security?
    Mr. BECERRA. That is fine, Mr. Chairman----
    Chairman SHAW. It is paid in by American workers, and it 
should be set aside to save Social Security. And if we are 
going to spend beyond that, then fine, let us be honest in 
government and say exactly what the deficit truly is. There is 
one thing that----
    Mr. BECERRA. So would you do less with terrorism?
    Chairman SHAW. There is one thing you don't have to score--
--
    Mr. BECERRA. Would you provide less to domestic security?
    Chairman SHAW. There is one thing you don't have to score 
under our budget process, and that is the unfunded liability of 
Social Security. If you were to have to score that, this 
country would be bankrupt, and the balance sheet would do it.
    Mr. BECERRA. Mr. Chairman, I think it would be great if you 
could outline where the $120 billion that you are going to use 
from the Social Security surplus----
    Chairman SHAW. I am saying that it is coming out of the 
general Treasury, and I am also saying, very clearly, that it 
is going to require some deficit spending, but not nearly 
enough, not nearly the amount that is going to be necessary to 
save Social Security if Congress fails to do something and 
simply waits until 2016----
    Mr. BECERRA. But if you just acknowledged deficit spending 
means the----
    Mr. POMEROY. Mr. Chairman----
    Chairman SHAW. We are in recess.
    [Recess.]
    Chairman SHAW. We will be back in session. We are trying to 
go--I think, Mr. Kolbe and Mr. Stenholm, why don't you decide 
between you who wants to go first? Mr. Kolbe?

 STATEMENT OF THE HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF ARIZONA

    Mr. KOLBE. Thank you very much, Mr. Chairman, and thank you 
for holding this hearing. Mr. Matsui, thank you for being a 
part of this as well.
    I want to commend the Subcommittee for this discussion. I 
think it is very important that we begin this discussion.
    I also think that the future of Social Security is much too 
important to be used as a political football, and we need to 
strengthen Social Security without resorting to demagoguery, to 
political attacks, and to gimmicks.
    We have a complete statement which will be in the record. I 
am just going to summarize, if I might, two things that I want 
to talk about. One is bipartisanship, and the other is public 
understanding.
    Social Security reform has to be a bipartisan effort. The 
Social Security reform debate has been characterized as an 
either/or choice between two ideological poles: on the one 
hand, some say keep the status quo, fix it from that; and the 
others say full privatization.
    Defenders of the status quo say that any reform that 
includes a market-based component is going to undermine the 
current safety net features and expose workers to dangerous 
risks. And those who advocate full privatization suggest the 
creation of privately managed accounts will painlessly solve 
every challenge while, in fact, they ignore the existing long-
term liabilities and the needs of special populations.
    Both of these extremes may make for good, albeit myopic, 
rhetoric, and debate, but they fail to acknowledge the virtue, 
I think, of the hybridization. The complete solution to the 
Social Security problem can and must combine the best of the 
traditional program with new market-based options that reflect 
the reality of where the changing demographics in this current 
century are going to take us.
    The legislation that Charlie Stenholm and I have introduced 
and the reform plans the Commission recommended are not 
privatization plans. The Commission did not recommend 
dismantling Social Security, and it did not recommend reforms 
that will change benefits for current or near retirees. The 
President and the Commission should because commended for 
offering a variety of reform packages that Congress can use to 
facilitate a discussion with the American people.
    While it is easy for critics to attack specific proposals 
for reform and make promises about benefit levels, it is 
difficult to put together a plan that can hold up under a 
thorough actuarial and budgetary analysis, and I think we know 
that, having worked for 5 years on our plan.
    I respect the views of those on both sides of the political 
spectrum who have criticized what the Commission has suggested 
and the plan that we have introduced. But I think that 
criticism, Mr. Chairman, rings hollow until critics themselves 
present constructive alternatives that can be scored by the 
Social Security actuaries and the Congressional Budget Office. 
Likewise, those who believe that we have to guarantee all of 
the benefits promised under current laws have to explain where 
the money is going to come from to fund these promises without 
accumulating massive amounts of debt.
    And I said the second thing that we need to do, in addition 
to the bipartisan approach to it, is improving the public's 
understanding. An agreement on fiscally responsible legislation 
that truly makes Social Security solvent--without simply 
shifting costs to future taxpayers--is going to require 
leadership by our President and our colleagues.
    In order to facilitate a discussion with the American 
people, we encourage this Subcommittee to consider proposals 
that would improve public understanding of the challenges 
facing Social Security and promote a serious discussion of the 
options for dealing with those challenges. We would like you to 
consider two proposals that we have developed that are an 
initial way, before we get to any bill, Mr. Chairman, an 
initial way of having a more honest and accurate discussion of 
the challenges facing Social Security.
    The first would be a sense of Congress resolution that 
calls for a serious and thoughtful debate on proposals to 
strengthen Social Security this year in anticipation of 
legislative action we hope next year. The resolution would 
challenge Members from all sides of the debate to submit reform 
plans that can be analyzed and scored by the actuaries of the 
Social Security Administration and encourages the Ways and 
Means and Finance Committees to hold hearings on all the plans 
that are submitted.
    It would also set forth principles by which the plans could 
be judged: protecting current and near retirees from any 
changes to Social Security benefits, not raising Social 
Security payroll tax rates, prohibiting the government from 
investing the Social Security Trust Fund in the stock market, 
preserving Social Security's disability and survivors insurance 
programs, and a number of others, Mr. Chairman, that could be 
considered here.
    The second proposal is based on the report issued by the 
Social Security Advisory Board Technical Panel and outlines a 
variety of recommendations about how we measure the problems 
facing Social Security, how we can talk about those problems 
and criteria for evaluating the reform proposals. It is my view 
that improving--it is our view that improving the quality of 
the Social Security debate tremendously will help us, I think, 
get to where we have to go, Mr. Chairman, eventually, and that 
is to have a serious--we have to have this serious debate if we 
are going to have serious legislative proposals considered.
    With that, Mr. Chairman, let me just end by saying that we 
have never claimed that our plan is perfect. Each could go 
through the plan and select individual items that we like or we 
don't like--either we went too far or we didn't go far enough. 
But we would hope that people would look at our plan in its 
entirety and examine what it would mean for the future of 
retirement income, the Federal budget, and the health of the 
American economy.
    If everyone determines the acceptability of reform based on 
adherence to simplistic pledges of no benefit cuts or tax 
increases, we are never going to reach a bipartisan consensus 
that will pass legislation. Reaching an agreement on an honest 
solution to the long-term challenges facing Social Security is 
going to be difficult under the most challenges circumstances 
that our country faces today. But the difficulty of the task 
ought not to prevent any of us and certainly this Subcommittee 
from facing that.
    Thank you, Mr. Chairman.
    Chairman SHAW. Thank you, Mr. Kolbe. Mr. Stenholm?

STATEMENT OF THE HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. STENHOLM. Thank you, Mr. Chairman, Mr. Matsui. I, too, 
appreciate the opportunity to come before you today, and I 
still have really two reasons for being here, and that is Chase 
and Cole. That is Cindy, my 6\1/2\-year-old, and 4\1/2\-year-
old grandsons.
    A lot of people have asked me why have I been so involved 
in Social Security, and that is the two reasons. Six and a half 
years ago, when they were born--the first one was born, Jim 
came to me and asked if I would be interested in working on the 
Social Security future as well as all public pensions. We 
organized the Public Pension Reform Caucus. It has been a 
tremendous educational experience for me because, not sitting 
on the Committees of jurisdiction, all we learn is what we seek 
outside of our own Committee interests.
    The reason I got that involved, I mentioned that when Chase 
was born, I resolved then I didn't want that little fellow to 
look back 67 years from that day and say, ``If only my Granddad 
would have done what in his heart he knew he should have been 
doing when he was in the Congress, we wouldn't be in the mess 
we are in today.''
    No one today says status quo is acceptable for Social 
Security. Jim and I--and it is not just us. We have introduced 
now in our third Congress, and each time we have introduced a 
bill, we have been soundly criticized for parts of it. And 
where the criticism was valid, we changed it, we reintroduced 
it in the second Congress, and we introduced it in the 107th 
Congress, each time listening to the critics in a constructive 
way, without benefit of hearing but with benefit of the 
knowledge of the many people who do have a sincere interest, 
both sides of the aisle.
    One of the things that troubles me today and what has 
brought many of my colleagues before you today is best 
summarized in the recent column in Business Week by Howard 
Glickman, and I quote: ``In Washington, the issue of Social 
Security reform is a lot like the weather. Everybody likes to 
talk about it, but nobody really does anything about it. Now 
comes both political parties with their latest salvos. 
Unfortunately, most of what they are saying these days is 
either lame or cynical.''
    Well, we are here today to encourage this Subcommittee to 
provide the leadership to prove his words wrong and offer 
followership on both sides of the aisle to prove those words 
wrong.
    The guarantee certificates, while we understand the motives 
of those who propose the Social Security guarantee legislation, 
we have serious concerns about this proposal. I do not think it 
is helpful in the long term, and it is already--the amount of 
money to be spent on these certificates at a time when we are 
already running deficits is questionable. But whether it does 
anything like serious consideration of various proposals before 
this Subcommittee in preparation for next year--I am not naive 
enough to believe we will do anything constructive this year, 
but I am not going to give up on next year.
    Jim mentioned the need for bipartisanship. Again, we are 
not going to solve this as Democrats. We are not going to solve 
it as Republicans. The only way we will solve the future of 
Social Security is in a bipartisan way.
    My fellow Democrats must be more willing to acknowledge 
that the status quo is unsustainable and changes must be made, 
and I am rather frustrated with many of the comments many of my 
colleagues are making which suggest nothing needs to be done, 
while everyone privately and many publicly say something must 
be done.
    Republicans must be willing to acknowledge the legitimate 
concerns that Democrats have about protecting the safety net 
and maintaining the progressive nature of the system. Both 
sides need to be willing to acknowledge there is no magic-
bullet or free-lunch solution that will allow us to provide 100 
percent of promised benefits without trade-offs somewhere else.
    We need an honest discussion, and that is why Jim and I 
come before you today in saying have serious hearings on 
various proposals. Everyone is deserving of having their ideas 
heard, and at least lay the foundation and the groundwork for 
some serious effort in the future.
    I happen to be an individual very supportive of personal 
accounts. To those that continue to use the word 
``privatization,'' that is less than honest a description of 
what we are talking about, either Jim and I or the President's 
proposal, the Commission, and so forth.
    Personal accounts are not a magic bullet, though, that will 
save Social Security. But coupled with progressive reforms to 
the benefit structure, they offer all workers a much better 
deal than the current law can afford. Tough choices will be 
necessary to eliminate the deficit facing Social Security 
whether or not individual accounts are included in a reform 
plan. Including individual accounts in a reform plan does not 
require deeper benefit cuts than would otherwise be required. 
But neither does it make such reductions unnecessary.
    Last year, the Congressional Research Service issued a 
report examining several individual reform options contained in 
the comprehensive reform plan proposed by both opponents and 
proponents of individual accounts. This report found that total 
retirement income would be greater under a plan which contained 
individual accounts along with changes in the existing system 
to restore solvency than would be the case under plans 
consisting of the exact same changes in the traditional system 
without individual accounts.
    Although the CRS report demonstrates that individual 
accounts can be a valuable part of a plan to address the 
financing challenges facing Social Security, it provides 
further evidence that individual accounts alone do not solve 
the financing problems facing Social Security.
    In conclusion, Mr. Chairman, the rhetoric coming from many 
on the left criticizing the Commission for highlighting the 
fiscal challenges facing the system and suggesting that reform 
is not necessary has not been helpful. Similarly, rhetoric 
suggesting that personal accounts are the magic bullet that 
provide a painless solution without any tough choices is 
equally problematic. Both extremes make it much more difficult 
to reach an honest agreement on Social Security reform. Finding 
solutions which both address the financial problems in an 
honest and responsible manner as well as modernizing the 
program to meet the challenges will be a difficult task. We owe 
it to our children and grandchildren to do it, and we are here 
to say we look forward to working with you to accomplish that 
goal.
    [The prepared statement of Mr. Kolbe and Mr. Stenholm 
follows:]

  JOINT STATEMENT OF THE HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS 
    FROM THE STATE OF ARIZONA, AND THE HON. CHARLES W. STENHOLM, A 
           REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

    As Members who have dedicated ourselves to promoting an honest and 
open debate on the issue of Social Security, we commend the Committee 
for holding hearings on ways to improve Social Security. This is 
certainly an admirable goal. However, we are concerned about rhetoric 
emanating from both parties that fans political fires but does little 
to contribute to a responsible debate about Social Security and the 
need for reform.
    The future of Social Security is too important to use as a 
political football. An agreement on legislation to strengthen Social 
Security will require bipartisan cooperation. If we continue to poison 
the well for reform by making irresponsible claims today, we will 
surely leave a legacy of debt for future generations.

                         Guarantee Certificates

    The Social Security guarantee certificates under discussion at this 
hearing have become quite controversial. Our concerns do not stem from 
any desire to reduce benefits for retirees but from a desire to have a 
real debate on Social Security reform. We are concerned that the 
guarantee certificate legislation, however well intentioned, has 
distracted us from a serious discussion about the challenges facing 
Social Security. We should not be making promises to one group of 
citizens which will arouse even more anxiety in other groups. We should 
acknowledge the costs of the commitments we make.
    Our commitment to seniors is unwavering as is the commitment of all 
Members of Congress and the President. Seniors should have no doubts 
that we will do everything possible to ensure their financial security. 
However, the best way to protect seniors and provide an adequate 
benefit for widows and survivors is to enact a comprehensive reform 
package early next year which ensures that the Social Security system 
is strong for those currently receiving Social Security as well as 
their children and grandchildren.

                      The Need for Bipartisanship

    The Social Security reform debate has been characterized as an 
either-or choice between two ideological poles--``status quo'' or 
``full privatization.'' Defenders of the status quo argue that any 
reform that includes a market-based component will undermine the 
current safety net features and expose workers to dangerous risks. 
Advocates of full privatization suggest that the creation of privately 
managed personal accounts will painlessly solve every challenge while, 
in fact, they ignore existing long-term liabilities and the needs of 
special populations. Both extremes make for good, albeit myopic, 
rhetoric and fail to acknowledge the virtue of hybridization. The 
complete solution to the Social Security problem can and must combine 
the best of the traditional program with new market-based options.
    The legislation we introduced and the reform plans the Commission 
recommended, are NOT ``privatization'' plans. The Commission did NOT 
recommend dismantling Social Security, and it did NOT recommend reforms 
that will change benefits for current or near retirees. The President 
and the Commission should be commended for offering a variety of reform 
packages that Congress can use to facilitate a discussion with the 
American people.
    Reaching a bipartisan consensus requires compromises and tradeoffs 
by both sides. Democrats must be willing to acknowledge that the status 
quo is unsustainable and changes must be made. Republicans must be 
willing to acknowledge the legitimate concerns that Democrats have 
about protecting the safety net features of Social Security and 
maintaining the progressive nature of the system. Both sides need to be 
willing to acknowledge that there is no ``magic bullet'' or ``free 
lunch'' solution that will allow us to provide 100% of promised 
benefits without tradeoffs somewhere else.
    In order to have an honest debate about reform, both parties must 
be willing to put forth reform plans that can be scored by the Social 
Security actuaries and the Congressional Budget Office. Those who 
criticize reform proposals must be willing to offer their alternative. 
The failure to offer a plan should be read as tacit acceptance of the 
``Do Nothing Plan'' with all of the tax increases, benefit cuts, and 
debt that is associated. Likewise, those who believe we must guarantee 
all of the benefits promised under current law must explain where the 
money will come from to fund these promises without accumulating 
massive amounts of debt. While it is easy for critics to attack 
specific proposals for reform and make promises about benefit levels, 
it is difficult to put together a plan that can hold up under a 
thorough actuarial and budgetary analysis.

               The Role of Individual Accounts in Reform

    Personal accounts are not a magic bullet that will save Social 
Security, but coupled with progressive reforms to the benefit 
structure, they offer workers a much better deal than current law can 
afford. Tough choices will be necessary to eliminate the deficit facing 
Social Security whether or not individual accounts are included in a 
reform plan. The Directors of the Congressional Budget Office and the 
General Accounting Office, Federal Reserve Chairman Alan Greenspan, and 
numerous policy experts all have testified that Congress and the 
President must make tough choices to return Social Security to solid 
financial footing. However, individual accounts can help make the task 
easier for policymakers and limit the impact on future beneficiaries. 
Including individual accounts in a reform plan does not require deeper 
benefit reductions than would otherwise be required, but neither does 
it make such reductions unnecessary.
    Last year, the Congressional Research Service issued a report 
examining several individual reform options contained in comprehensive 
reform plans proposed by both opponents and proponents of individual 
accounts. CRS calculated the change in retirement income under each 
change by itself and in combination with individual accounts. In each 
case, the report found that total retirement income would be greater 
under a plan which contained individual accounts along with changes in 
the existing system to restore solvency than would be the case under 
plans consisting of the exact same changes in the traditional system 
without individual accounts.
    Although the CRS report demonstrates that individual accounts can 
be a valuable part of a plan to address the financing challenges facing 
Social Security, it provides further evidence that individual accounts 
alone do not solve the financing problems facing Social Security. The 
CRS report is consistent with the findings of the Commission and 
numerous independent analyses.

                     Improving Public Understanding

    An agreement on fiscally responsible legislation that truly makes 
Social Security solvent--without simply shifting costs to future 
taxpayers--will require leadership by the President and our colleagues. 
We call on the Members of the Ways and Means Committee to continue to 
engage in a serious discussion about the realities of Social Security 
reform.
    In order to facilitate a discussion with the American people, we 
encourage the Committee to consider proposals that would improve public 
understanding of the challenges facing Social Security and promote a 
serious discussion of the options for dealing with these challenges. 
Specifically, we ask your consideration of two proposals we have 
developed which would encourage a more honest and accurate discussion 
of the challenges facing Social Security.

                      Sense of Congress Resolution

    Our first proposal is a Sense of Congress resolution calling for a 
serious and thoughtful debate on proposals to strengthen Social 
Security this year in anticipation of legislative action next year. The 
resolution challenges Members from all sides of the debate to submit 
reform plans which can be analyzed and scored by the actuaries Social 
Security Administration and encourages the Ways and Means and Finance 
Committees to hold hearings on all plans that are submitted.
    In addition, the resolution sets forth several principles by which 
all plans should be judged. We suggest that any reform proposal should 
adhere to the following principles: protecting current and near 
retirees from any changes to Social Security benefits; not raising 
Social Security payroll tax rates; prohibiting the government from 
investing the Social Security trust funds in the stock market; and 
preserving Social Security's disability and survivors insurance 
programs. In addition, we believe that any reform plan should seek to 
achieve the following goals in addition to restoring solvency: 
maintaining a reasonable annual cash flow; reducing the pressure on 
future taxpayers and on other budgetary priorities; addressing the fact 
that many workers can expect to receive very low, if not negative, 
rates of return on their Social Security taxes by providing competitive 
rates of return; and strengthening and preserving the safety net for 
vulnerable populations and ensuring that retirees who work their entire 
lifetime will receive a benefit that keeps them above the poverty line.

         Increased Information for the Public and Policymakers

    As Congress begins to review and debate the proposals put forward 
by the Commission, all participants in the debate must be held to high 
standards of accountability. We respect the views of those on both 
sides of the political spectrum who have criticized the proposals being 
considered by the Commission. However, this criticism will ring hollow 
until critics present constructive alternatives that can be scored by 
the Social Security actuaries.
    Our second proposal is based on a report issued by the Social 
Security Advisory Board Technical Panel outlining a variety of 
recommendations about how we measure the problems facing Social 
Security, how we talk about those problems and criteria for evaluating 
reform proposals. Our proposal contains three basic elements drawn from 
the Technical Panel report, which would provide for a more informed 
debate on the challenges facing Social Security and our options for 
addressing these challenges:

         Require an annual report from the Commissioner of the 
        Social Security Administration which would provide more 
        information regarding the financing shortfalls facing the 
        Social Security system and a presentation of the levels of 
        benefit reductions or tax increases that would be required 
        under current projections.
         Direct the Commissioner of Social Security to develop 
        methodology to evaluate the impact of Social Security reform 
        proposals beyond simply determining whether or not a plan 
        restores trust fund solvency. Our proposal would direct SSA to 
        consider issues such as the fiscal health of the system 
        throughout the entire 75 year period, the effect of the reforms 
        on the rest of the federal budget, the impact of the reforms on 
        national savings, the amount of retirement income that would be 
        provided under the reforms compared to the benefits that 
        current law can fund, and the impact of the reforms on poverty 
        rates among the elderly.
         Require an annual report from the Congressional 
        Budget Office regarding the impact of the Social Security 
        system and Social Security reform proposals before Congress on 
        the federal budget and national savings levels.

    This type of information would improve the quality of the Social 
Security debate tremendously because the facts would be clearly 
established and stated. The reporting information called for in our 
proposal would not advantage or disadvantage any particular approach to 
reform. Rather, it would simply require that current law and alternate 
reform approaches be graded on a level playing field that recognizes 
their overall impact on the federal budget, as well as their effects on 
elderly poverty, national savings, and other considerations.

                       Enron and Social Security

    Increased public understanding of the problems plaguing Social 
Security would be particularly salient as critics claim that proponents 
of market based reform want to ``Enron'' Social Security. The Enron 
debacle is not about the inherent risk of private investment; it is not 
about whether Social Security should be reformed; it is about lack of 
diversification, poor accounting, and likely fraud--all three of which 
are being investigated by numerous Congressional committees and will be 
litigated in the courts.
    Under the Social Security reform plan we introduced and all three 
plans put forward by the Commission, workers would not be forced to 
move their Social Security contributions into the stock market. They 
would have choice--something severely lacking in the current Social 
Security system and in the Enron pension plan. Opponents of individual 
accounts propose collective investment of the Social Security trust 
funds, which would force all workers to put a substantial part of their 
Social Security funds into the stock market and would deny them the 
right to diversify their holdings.
    Individual accounts provide the best possible check against abuses 
by corporations, the securities industry, or the government by putting 
the decisions in the hands of individuals. If people don't like how 
their funds are being managed, they can vote with their feet and put 
their money elsewhere. That will make the government far more 
accountable in how it handles retirement funds. By contrast, under 
collective investment, individuals have no control over how their money 
is invested and no way to hold the government accountable.
    We are particularly concerned by apparent misinformation received 
by Enron employees about the health of the company. Similarly, we are 
concerned that Americans are receiving erroneous information about the 
health of the Social Security system. The truth is that Social Security 
is broken. We are not saying that the sky is falling today; however, in 
the absence of reform we will leave little to our children and 
grandchildren but a mountain of debt or to retirees broken promises and 
reduced benefits.

                         ``The Radical Center''

    We have tried to stake out the position of the responsible, radical 
center. The rhetoric coming from many on the left criticizing the 
Commission for highlighting the fiscal challenges facing the system and 
suggesting that reform is not necessary has not been helpful. 
Similarly, rhetoric suggesting that personal accounts are the ``magic 
bullet'' that provide a painless solution without any tough choices is 
equally problematic. Both extremes make it much more difficult to reach 
an honest agreement on Social Security reform.
    We have never claimed that our plan is perfect. Each of you could 
go through our plan and select individual items to criticize--either we 
went too far or not far enough. However, we encourage you to look at 
the plan in its entirety and examine what it would mean for the future 
of retirement income, the federal budget and the health of the American 
economy. If everyone determines the acceptability of reform based on 
adherence to simplistic pledges of no benefit cuts or tax increases, we 
will never reach a bipartisan consensus to pass legislation.
    Reaching an agreement on an honest solution to the long-term 
challenges facing Social Security will be difficult under the 
challenging circumstances our country now faces, but the difficulty of 
our task must not prevent us from confronting it.

                               

    Chairman SHAW. Thank you, Charlie. I have got 13 Chase's, 
but I am sure you will catch up.
    Mr. STENHOLM. I always know better than to brag about my 
grandkids. Somebody is always going to do better.
    [Laughter.]
    Mr. STENHOLM. But I will stack my two up against yours.
    [Laughter.]
    Chairman SHAW. How come I knew that was coming. Mr. 
DeFazio?

  STATEMENT OF THE HON. PETER A. DEFAZIO, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. DeFAZIO. Thank you, Mr. Chairman.
    Mr. Chairman, I have submitted a lengthy statement for 
inclusion in the record.
    Chairman SHAW. It will be made a part of the record.
    Mr. DeFAZIO. Thank you, Mr. Chairman. I will summarize 
briefly, and I do congratulated Charlie and Jim. They have put 
forward an honest proposal. I may disagree with it, but they 
have both taken on the issue of looking at--Charlie doesn't 
want to call it ``privatization,'' but the individual accounts, 
and the long-term solvency of Social Security. Most of the 
other plans that I have seen before the Subcommittee do not do 
that.
    My plan does. My plan has been evaluated by the actuaries 
of Social Security, and it has been found to reach a 75-year 
actuarial balance. It does it in a way that some find 
controversial, but like a number of years ago, Congress lifted 
the cap on the wages on which Medicare was paid. My proposal 
would lift the cap on the wages on which Social Security taxes 
are paid. It would, however, retain the current calculated 
growing cap for future benefits. That creates a great deal of 
money. In fact, that linked with my aggregate investment 
proposal where gradually we would have a private firm under 
contract to the trustees of Social Security invest a growing 
portion of the Social Security surplus or trust funds in 
equities would also help boost future returns to the fund, 
according to the actuaries--or potentially. None of us can 
predict the market.
    So at that point, we would have more than enough money for 
75-year actuarial balance, and, therefore, we can make a few 
improvements in the program, one improvement being to make the 
tax a little less burdensome on lower income working people, so 
the first $4,000 of wages would be exempt from FICA taxes. And 
that obviously in this year would provide a tax break to 
everybody who earns less than $88,900 a year, the current cap 
plus $4,000, a proportionally higher tax break to those at 
lower income levels. it would also improve benefits for people 
over age 85. We find a very disturbing trend of people 
outliving their assets, no matter how well they have provided 
for themselves, and falling into poverty at an increasing rate 
over age 85.
    And, third, it would add to the child care dropout years. 
It would allow individuals--since we like to talk about what we 
want to do for families, it would allow individuals a number of 
extra years to engage in home child care and not be penalized 
in the ultimate computation of their Social Security benefit.
    So that, in brief, is my proposal.
    Now, I think a couple of points need to be made. There are 
concerns about investment. As I said, the investment would be 
similar to FERS, the Federal Employee Retirement System, fund 
or the many State pension funds where a professional investment 
firm would be engaged by competitive bidding, and they would 
invest only in the fiduciary interest of the fund. If the fund 
ultimately grew too large, you could put in a stop where you 
would say, okay, if it was larger than, for instance, Fidelity, 
which is today the largest fund at 3.3 percent of overall 
market assets, you would then have the government be required, 
or the trustees, to enter into a second contract to establish 
another fund if we become worried about some sort of market 
manipulation, which we are not worried about with Fidelity, but 
if we did have those sorts of worries.
    Then, you know, finally, the key point to be made--and I 
was kind of amazed by the earlier discussion--is I think the 
basic point on which every plan should be considered is does it 
resolve the Social Security shortfall. The Social Security 
shortfall starts in 2038. In 2038, we can predict with 
conservative assumptions we will have assets with incoming 
taxes adequate to pay 73 percent of promised benefits. Maybe we 
will do better than that. Maybe we will do worse. I don't think 
we should wait and get much closer to that date. But if you add 
on a problem, that is, if you begin to deduct under some plans 
a portion of the cash flow to Social Security, the FICA tax, 
then you compound that problem, and perhaps, for instance, 
under one of the President's Commission's proposals, when you 
divert 2 percent, the drop-dead date for Social Security 
becomes 2024 instead of 2038. And then, of course, under the 
Chairman's own proposal--you know, I have listened to you and 
Mr. McDermott debate the merits of where and how it will be 
capitalized. I am not even going to attempt to enter into that 
debate. But I would observe, as far as I understand the 
Chairman's proposal, it doesn't deal with the underlying 
problem of the Social Security having exhausted the trust funds 
in the year 2038.
    So this is something that we have to keep before us, But 
you have got to be honest about this. There is no free lunch 
here. And the President's privatization Commission, they have 
punted altogether on this. I mean, they just said, well, we 
will transfer general fund money or we will change the 
actuarial tables or we will go to price indexing instead of 
wage indexing.
    They have got a short memory. Remember, we went to wage 
indexing because of the inflation in the late seventies. 
Congress changed the formula in the 1977 amendments. We used to 
index according to prices, and then we said, oh, no, wait a 
minute, we will go to wage indexing because wages are going up 
slower than prices. Well, now we are going to convert back. 
They think that that is going to save a bunch of money. Maybe. 
But it is also estimated to dramatically reduce benefits. So 
maybe it will either dramatically reduce benefits and save 
money, or maybe they will have guessed wrong and we will get 
back into a period of high inflation, and it will bankrupt 
Social Security more quickly.
    So these are the issues that are before us, but there are 
tough choices to be made. We can't avoid them.
    [The prepared statement of Mr. DeFazio follows:]

 STATEMENT OF THE HON. PETER A. DEFAZIO, A REPRESENTATIVE IN CONGRESS 
                        FROM THE STATE OF OREGON

Introduction

    Chairman Shaw, Ranking Member Matsui and other Members of the 
subcommittee, I appreciate the opportunity to testify today about the 
future of Social Security.
    I am in the middle of a series of 15 town hall meetings I've been 
holding throughout Southwest Oregon to discuss Social Security with my 
constituents.
    If there's one thing I want those who attend my town hall meetings 
to take away from those gatherings it's that Social Security is NOT in 
crisis. It is a fundamentally sound program that can remain so for the 
next 75 years and beyond with only minor changes.
    If there's one thing I would like the Members of this Subcommittee 
to take away from my testimony today, it's that when residents of the 
4th District of Oregon hear the truth about what privatization of 
Social Security means, they oppose it.
    I will go into the specifics shortly, but at the outset of my 
testimony I would like to put in a pitch for my own plan to ensure the 
solvency of Social Security. I have introduced legislation, H.R. 3315, 
the ``Social Security Stabilization and Enhancement Act.'' The Social 
Security actuaries have certified that my legislation would restore 75-
year solvency to the program. And, just as importantly to me, the 
reaction of Oregonians at my town hall meetings has been favorable.
    I would urge this subcommittee to seriously consider my proposal as 
a viable alternative to the wholesale dismantling of Social Security 
that privatization represents.

The Social Security Trust Fund and the Financial Challenges Facing 
        Social Security
    As you know, currently, Social Security is collecting more in 
payroll taxes than is necessary to send checks to beneficiaries.
    Congress made a conscious decision in the early 1980s, pursuant to 
a recommendation by the Greenspan Commission, to boost payroll taxes 
far above the level necessary to fund current benefits in order to 
build up reserves for when the Baby Boom generation began to retire.
    These excess payroll taxes are being credited to the Social 
Security Trust Fund and then invested in government bonds that pay 
interest to the Trust Fund. The Trust Fund already has assets of more 
than $ 1 trillion, and will grow to around $6.5 trillion by 2024.
    Some in Congress and the current Administration have claimed that 
the bonds held by Social Security are not assets, but rather are 
``worthless IOUs.''
    When you deposit money in your savings account at your local bank 
or credit union, the money doesn't just sit there waiting for you to 
retrieve it. The financial institution loans the money out to other 
customers and makes money by charging interest. But, the institution 
also has an obligation, when you return to withdraw some of your money, 
to have the resources to cover that transaction.
    Similarly, the money contributed to Social Security is not stacked 
up and locked away until a worker is ready to collect benefits. Rather, 
surplus Social Security funds have been used to fund other government 
programs or, more recently, at least until President Bush and 
Republicans in Congress created a fiscal mess with last year's tax cut, 
to pay down debt. Yet, no matter what the surplus has been used for, 
the Social Security Trust Fund has always received a U.S. Treasury bond 
in return.
    U.S. Treasury bonds are the safest investments in the world. That 
is why, when there are periodic global financial crises, investors flee 
for the safety and soundness of U.S. Treasury bonds.
    Because they are the preferred choice of investors around the 
world, it should be clear that U.S. Treasury bonds represent real 
financial assets. If some in Congress and the Administration continue 
to insist otherwise, then they've got some explaining to do to 
investors around the world, in which case I fear for the stability of 
our nation's financial system.
    For those who don't believe the Trust Fund exists, or don't believe 
it holds real assets, I would urge them to look at page 19 of the 
latest Social Security Trustees report. The chart on page 19 lists the 
current assets of the Social Security Trust Fund. As the chart shows, 
the Trust Fund holds bonds with varying maturity dates and varying 
interest rates (6.125 percent up to 10.375 percent). Clearly, the Trust 
Fund represents real assets.
    In fact, the bonds held by the Social Security Trust Fund state 
explicitly, ``The bond is incontestable in the hands of the Federal 
Old-Age and Survivor's Insurance Trust Fund. The bond is supported by 
the full faith and credit of the United States, and the United States 
is pledged to the payment of the bond with respect to both principal 
and interest.''
    That said, I agree that demographic changes--a growing number of 
retirees, proportionately fewer workers, and longer life expectancy--
create challenges for Social Security. But these financial challenges 
are entirely manageable without abandoning the concept of social 
insurance and the best anti-poverty program ever devised by the federal 
government.
    In 2016, the payroll taxes coming into Social Security will be 
insufficient to cover all promised benefits. The Social Security 
Administration (SSA) will then begin to draw on the interest earned by 
the Social Security Trust Fund to help pay full benefits.
    In 2025, incoming payroll taxes plus the interest income from the 
Trust Fund will be insufficient to pay all benefits. The SSA will then 
begin redeeming bonds held by the Social Security Trust Fund to cover 
full benefits.
    As the Social Security system begins to redeem these bonds over the 
next several decades, the government has to find the money to honor 
this debt. There is more than one way to do so.
    The most obvious way is to reserve current Social Security 
surpluses to pay off our massive national debt, thus saving hundreds of 
billions of dollars a year in interest payments that could then be 
devoted to Social Security.
    There had been consensus until last year in Congress on using 
Social Security surpluses to pay down debt. Unfortunately, President 
Bush and Republicans in Congress rammed through a $2 trillion tax cut 
last year under the misguided assumption that a projected $5.6 trillion 
10-year surplus somehow represented real money that could be returned 
to taxpayers with no negative fiscal consequences.
    Now, not only has the promise to pay down debt been broken, thus 
burdening our nation's children with a crushing debt they didn't 
create, but the bipartisan consensus to reserve Social Security 
surpluses for only paying down debt and shoring up the program has been 
abandoned.
    The budget recently submitted by President Bush would spend $1.5 
trillion in Social Security money over the next decade. Essentially, 
the President is funding tax cuts that overwhelmingly benefit those 
making over $373,000 a year by shifting working Americans' Social 
Security money into the bank accounts of our nation's wealthiest 
individuals. That is totally unacceptable.
    The federal government could also simply issue new debt to 
investors and use the cash raised to cover benefits.
    Again, however, the first two options have been made more difficult 
by the fiscal irresponsibility of Republicans in Congress and the 
current Administration.
    Another option to find the resources to redeem the bonds is to 
collectively invest a portion of the Trust Fund in equities other than 
federal debt. Diversification would increase liquidity and has the 
potential to increase the resources in the Trust Fund through higher 
rates-of-return without the risk inherent in a privatized system. I 
will have more to say about collective investment in a minute.
    The final key date for Social Security is 2038. In 2038, all of the 
bonds in the Trust Fund will have been redeemed, and Social Security 
will rely solely on incoming payroll taxes to fund benefits.
    In other words, without any changes whatsoever, for the next four 
decades, Social Security will be able to pay 100 percent of promised 
benefits.
    However, even after 2038, Social Security will never be 
``bankrupt'' in the sense that it couldn't pay any benefits whatsoever. 
If Congress sat on its hands and made no changes for the next four 
decades, under current projections, the program would still be able to 
cover 70-75 percent of promised benefits in perpetuity because of the 
payroll taxes flowing in from workers' paychecks.
    Therefore, we are here today discussing how best to plug that 
roughly 25 percent gap between expected revenues and benefits.
Uncertainty in Long-Term Projections

    Keep in mind, however, that even that projected deficit is highly 
speculative since it is very sensitive to underlying economic and 
demographic assumptions.
    As former Social Security Commissioner Robert Ball wrote in his 
book Straight Talk About Social Security, ``Think how things would have 
turned out if, in 1923, during the Administration of President Harding, 
experts had tried to forecast population growth and the movement of 
wages and prices up to 1998. Among other things, they could not have 
anticipated the impact of a worldwide depression, a second global war, 
and an unprecedented cold war.''
    In their intermediate assumptions, the actuaries project economic 
growth over the next 75 years will average only around 1.5 percent, or 
roughly half the average growth rate over the previous 75 years, even 
with the Great Depression figured in. I would argue that future 
presidents and Congresses are not going to sit by and let the economy 
grow at a dismal 1.5 percent for decades. If they do, then our nation 
will probably have bigger problems to deal with than what to do about 
Social Security.
    Leaving aside for a minute the glaring inconsistency between this 
low growth rate and privatization proponents' mantra that private 
accounts will yield at least a seven percent rate of return, it is 
important to understand that slight changes in assumptions can shrink 
the projected deficit in Social Security significantly.
    According to the Social Security actuaries, if economic growth is 
just one percent higher, which would still be below the historic 
average, then half of the projected long-term deficit disappears. If 
economic growth is two percent higher, or in other words, right around 
the historic average, then the deficit in Social Security virtually 
disappears.
    The story is similar if other economic or demographic assumptions, 
such as wages, productivity or life expectancy, are different that what 
is currently projected.
    Just as fundamentally, while privatization proponents predict 
disaster because of the decreasing proportion of workers to retirees, 
arguably the more important measure is the ratio of workers to overall 
dependents in society, which includes retirees, children, and non-
working adults.
    As Robert Reischauer and Henry Aaron note in their book Countdown 
to Reform, ``While the proportion of the population that is elderly has 
risen and will increase further, the proportion of children and nonaged 
adults who are not working for pay has fallen over the past three 
decades and is projected to fall further in the future. Consequently, 
the number of people each worker will support is projected to rise only 
modestly--approximately 6 percent--between now and 2040, even though 
the number of elderly will soar. The number of economically inactive 
members of the population per 100 workers was much in the past (156 in 
1960) than it was in the mid-1990s (103 in 1995) or than it is 
projected to be in the future (115 in 2040).''
    All of these caveats I've raised are not intended to lead to the 
conclusion that Congress should do nothing. Obviously, it is prudent to 
plan for the solvency of Social Security with a lot of lead-time using 
relatively conservative assumptions (though privatization proponents 
should consistently apply these conservative assumptions when scoring 
their own plans).
    But, a serious look at the assumptions underlying the projected 
deficit does lead me to the conclusion that the hysterical cries that 
Social Security is in crisis are simply false, and privatization is not 
a necessary or desirable direction in which to take Social Security.
The DeFazio Plan
    So how can we ensure the long-term solvency of Social Security 
while keeping the program intact? As I mentioned at the beginning of my 
testimony, I have offered legislation, H.R. 3315, the ``Social Security 
Stabilization and Enhancement Act,'' that I believe could serve as a 
model. There are three primary features of my bill: making the Social 
Security payroll tax burden more fair, boosting benefits for the most 
vulnerable seniors, and diversifying Trust Fund investments.

    1. Payroll tax cut: H.R. 3315 exempts the first $4,000 in wages 
from the Social Security payroll tax. This exemption would cut Social 
Security payroll taxes by more than 11 percent for an individual 
earning $35,000. The exempt wages would still be included for purposes 
of calculating benefits.
    2. Lifting cap on wages subject to Social Security payroll tax: 
Currently income above $84,900 is not subject to the Social Security 
payroll tax. By contrast, all wages are subject to the Medicare payroll 
tax. My legislation would merely treat wages the same for Social 
Security as for Medicare by lifting the cap on wages subject to the 
Social Security payroll tax. This change would only impact the 
wealthiest 5 percent of Americans. The cap would be retained for the 
purposes of computing benefits.
    3. Increase benefits up to 5 percent for those over age 85: Those 
over age 85 are highly vulnerable to poverty, particularly women who 
are widowed. My legislation would provide for a modest increase in 
benefits of up to 5 percent.
    4. Allow diversification of Trust Fund investments: H.R. 3315 sets 
up the Social Security Investment Oversight Board (SSIOB). Members of 
the SSIOB would serve lengthy, staggered terms. The SSIOB would be 
responsible for selecting private fund managers to invest up to 40 
percent of the Trust Fund on behalf of Social Security beneficiaries. 
When the Social Security actuaries scored my plan, they assumed half of 
the Trust Fund assets eligible for diversification under my plan would 
remain invested in U.S. Treasury bonds, while the other half would be 
invested in corporate equities. Investing would be limited to broad-
based index funds, therefore eliminating the danger of picking and 
choosing individual stocks. H.R. 3315 also requires that investing be 
done solely in the fiduciary interest of Social Security beneficiaries. 
This, along with using index funds, would help prevent Congress from 
interfering in investment decisions.
    The collective investment provisions I've written into my 
        legislation are consistent with those recommended by R. Kent 
        Weaver, a senior fellow at the Brookings Institute, in his 
        testimony last September before the President's Social Security 
        privatization commission. Noted Social Security experts like 
        Robert Ball, Henry Aaron, and Robert Reischauer have also 
        called for collective investment.
    Mr. Weaver noted several important advantages collective investment 
        enjoys over individual accounts.
    He testified, ``First, by pooling investments and keeping 
        transaction, marketing and reporting costs to a minimum, 
        collective investments can lower the costs of investing funds 
        dramatically and produce higher net returns than individual 
        retirement savings accounts.
    ``A second advantage that collective trust fund investment has over 
        individual accounts is that it lowers information costs for 
        consumers, as the costs of evaluating alternative investments 
        are spread over huge groups.
    ``A third important advantage that allowing Social Security trust 
        fund equity investments has over individual accounts is that 
        doing so would not undermine or erode the defined benefit 
        structure of Social Security, which provides a predictable 
        retirement income that spreads the risks of fluctuating asset 
        values and annuity prices across the population and over 
        generations.''
    To Mr. Weaver's observations about the benefits of collective 
        investment, I would add two of my own: collective investment 
        allows for the potential of increased rates-of-return on 
        investments without the risk of individual accounts. It is much 
        easier for private fund managers to ride out even a lengthy 
        downturn in the stock market than it is for an individual 
        nearing retirement.
    In addition, collective investment has the potential to increase 
        national savings. Under a system of individual accounts, it is 
        reasonable to expect that as individuals begin to accumulate 
        savings in their privatized accounts that they may reduce 
        savings elsewhere, such as in their 401(k)s or IRAs. To the 
        extent they reduce these other sources of savings, overall 
        national savings declines. By contrast because individuals 
        would not see the accumulation of wealth through collective 
        investment, they would not have an incentive to reduce savings 
        elsewhere. Therefore, collective investment will likely have a 
        greater positive economic impact than privatization.
    I know some of my colleagues have raised concerns about the federal 
        footprint that would be left in the stock market if we allow 
        collective investment of a portion of the Social Security Trust 
        Fund.
    It is important to keep in mind that state and local governments in 
        the United States already own substantial private assets, which 
        has not endangered the efficiency of financial markets. As the 
        Center on Budget and Policy Priorities noted in a February 26, 
        2001 report, ``At the end of the third quarter of 2000, state 
        and local pension investments in private assets (including 
        stocks and bonds) amounted to 28 percent of the U.S. Gross 
        Domestic Product (GDP), and state and local pension investments 
        in corporate equities amount to almost $2 trillion, or 19.5 
        percent of GDP. This scale is likely to be well beyond that 
        which the federal government would undertake if a portion of 
        the Social Security trust fund were invested in private 
        markets.''
    The Federal Thrift Savings Plan (TSP) is another example of a 
        public entity successfully investing in private assets.
    As I mentioned previously, the Trust Fund investment envisioned by 
        my legislation would be done by the private sector, and would 
        be limited to broad index funds. However, additional 
        protections could be written into law that should satisfy all 
        but the most ideologically rigid Members of Congress.
    For example, we could limit the size of any one Social Security 
        investment fund to roughly the size of the largest private 
        investment fund, which is currently Fidelity Investments with 
        3.3 percent of domestic equities. If a Social Security 
        investment fund reached this size, it would not receive any new 
        money and a new fund would be created and privately managed by 
        a different firm.
    Some have also raised the concerns about how voting rights for 
        shareholders would be exercised under a system of collective 
        investment. There are a variety of ways to address this 
        concern. The simplest would be to prohibit the shares held by 
        the Trust Fund from being voted by fund managers at all. Fund 
        managers could also be required to vote the shares in 
        proportion to other shareholders' votes, thus not affecting the 
        final outcome.
    A third, more controversial, option would be to require the fund 
        managers to vote the shares in the fiduciary interest of 
        shareholders. While there used to be a fair amount of 
        shareholder activism by state pension funds, this seems to have 
        dissipated. A recent study by Alicia Munnell of Boston College 
        shows that state funds have moved away from such practices and 
        have earned returns that compare favorably to those of private 
        retirement funds.
    5. LIncrease years of earnings used to compute benefits from 35 to 
38: Consistent with a recommendation of many non-partisan analysts, 
H.R. 3315 would increase the years of earnings used to compute benefits 
from the 35 highest years to the 38 highest years of earnings. However, 
my legislation also allows for three child-care dropout years, so 
individuals who stay home to care for children are held harmless by the 
increase.
The Pitfalls of Privatization

    Let me briefly touch on a number of the pitfalls of privatization. 
I believe proponents of privatization need to be much more honest with 
the American people about the implications of privatization. It is 
simply not possible to create a system of private individual accounts 
using existing payroll tax revenue and still protect Social Security 
recipients from benefits cuts. Spending tens of millions of dollars in 
Social Security money to send beneficiaries an embossed certificate 
promising to protect their benefits (which the Congressional Research 
Service notes would not be legally enforceable) cannot get around the 
fundamental fact, as the President's privatization commission 
acknowledged in its report, that privatization means large cuts in 
existing Social Security benefits.
Transition Costs
    Because the vast majority (70-80 cents of every dollar) of payroll 
taxes coming into Social Security go out immediately to pay benefits, 
diverting two percent of payroll taxes (or more depending on the 
privatization plan) creates a huge gap in financing of $1 trillion over 
the next ten years and $3 trillion over the next twenty.
    Some plans, including those advocated by the President's 
privatization commission, envision some sort of general revenue 
transfer to fill this gap. However, as I noted earlier, the surplus 
general revenue that theoretically could have been used for such a 
transfer no longer exists, thanks primarily to last year's tax cut.
    Another option to close the financing gap would be to raise taxes. 
However, that would result in double-taxing young people: once to fund 
benefits for current recipients, and again to fund their own individual 
account. A lot of young people believe privatization would be good for 
them, but in reality, it would actually represent more of a financial 
burden.
    A third option to close the gap is to cut benefits. I will discuss 
that option in a minute.
    The bottom line is that a system of private individual accounts 
does absolutely nothing to ensure the solvency on Social Security. In 
fact, diverting payroll tax revenue to private accounts actually 
accelerates the financial challenges facing Social Security. Diverting 
two percent of payroll taxes would accelerate the projected insolvency 
of the Trust Fund from 2038 to 2024--14 years sooner.
Benefit Cuts
    I have never seen an honest privatized Social Security plan that 
did not include massive benefit cuts. Sometimes these cuts are 
explicit, and sometimes they're hidden. But, that doesn't change the 
reality that the cuts would be necessary and real, and would cause 
severe hardship for beneficiaries.
    For example, the President's privatization commission proposed a 
disguised increase in the retirement age and slyly proposes tying 
initial benefit levels for future retirees to the growth in prices, 
rather than wages, as is now the case. As Ranking Member Matsui has 
noted, ``Wages rise faster than prices, and reflect the growth in the 
standard of living. If this change were adopted, retirees could not 
maintain the standard of living in retirement that they had earned 
during their working years, but instead would fall back to the reduced 
standard of previous generations.''
    The Center on Budget and Policy Priorities has estimated that so-
called ``price-indexing'' would reduce benefits by 40-50 percent. These 
benefit reductions would apply to all Social Security beneficiaries, 
including the disabled, widows, and children.
Rates-of-Return
    In order to make privatized individual accounts sound attractive, 
privatization proponents assume very high rates-of-return from an 
individual's investment in the stock market. But at the same time, in 
order to claim a crisis in Social Security, they create a false sense 
of alarm by assuming future economic growth will be slow. They can't 
have it both ways.
    Proponents have not been able to show, indeed, have not even tried 
to show, how the stock market would be able to yield seven percent 
returns in the future when economic growth is projected to be only 
around half of what it's been in the past. Many experts, including 
Peter Diamond of the Massachusetts Institute of Technology and Dean 
Baker of the Center for Economic and Policy Research, predict the stock 
market is likely to provide only around a 3.5 percent rate of return in 
the future given current levels of price-to-earnings ratios and 
projected economic growth rates. Mr. Diamond's research shows the only 
way stocks could yield seven percent in the future is if the market 
dropped in value by half first! I don't hear privatization proponents 
acknowledging the market needs to drop by 50 percent in order for their 
plans to add-up. I imagine that would make their plans sound less 
attractive to the American people.
    Privatization proponents also downplay the risk of investing in 
stocks. While the market has had a general upward trend, there were 
fifteen years in the past century in which the value of the stock 
market fell by more than 40 percent over the preceding decade.
    Or as the General Accounting Office (GAO) noted in an April 1998 
report, ``Although the 30-year average of the S&P 500 since 1970 
consistently outperformed the Treasury returns credited to the Social 
Security trust fund, the 10-year moving average of the S&P 500 
underperformed the trust fund's Treasury returns at times . . . In 
fact, nominal stock returns were less than the Social Security trust 
fund's annual yield in 17 years from 1950 to 1996--more than 35 percent 
of the time.''
    GAO also noted in a June 1999 report, ``Actual nominal (non-
inflation adjusted) returns for large company stocks varied widely from 
the annualized average return over long periods and have ranged from a 
low of minus 25.6 percent in 1974 to a high of 52.6 percent in 1954 . . 
. over the past 70 years or so, equity returns were negative in nearly 
1 out of every 4 years.''
    Gary Burtless of the Brookings Institution has modeled how 
individuals would have faired under a privatized Social Security 
system, had individuals invested in stocks since the beginning of the 
program. What Burtless found should give advocates of privatization 
pause. According to this research, the initial wage replacement rates 
for workers ranged between 20 percent and 110 percent, with an average 
rate of 53 percent. As his Brookings colleague Mr. Weaver noted in his 
testimony before the privatization commission, ``This difference of 
more than 5 to 1 in replacement rates is a fatal flaw for a program 
designed to ensure a basic income level.''
    If a worker, dependent on an individual account retired during a 
market downturn, they would see a substantial reduction in their 
retirement earnings. Investing the Trust Fund collectively as I've 
proposed would limit the risk for individuals and offers the ability to 
weather even a sustained market downturn.
    Further, as analysts like the GAO (in an August 1999 report) and 
the Center on Budget and Policy Priorities have pointed out, a simple 
rate-of-return comparison can be highly misleading unless a number of 
factors--like transition costs, disability and survivor's benefits, 
administrative costs and increased risk associated with privatization--
are also incorporated into the comparison. These factors all decrease 
potential rates-of-return under privatization.
    It is also important to keep in mind that the rate-of-return 
argument is essentially irrelevant to a social insurance program like 
Social Security. You don't complain if your rate-of-return on your fire 
insurance is zero, because that means your house didn't burn down. 
Social Security is an insurance program, not a get rich quick 
investment scheme. It provides the equivalent of $300,000 in life 
insurance and $200,000 in disability insurance in addition to a 
retirement benefit. Equivalent private sector life and disability 
benefits are often beyond the reach of working Americans.

Administrative Costs
    Administrative costs under the current Social Security system are 
less than one percent of total expenditures. By contrast, under a 
privatized system, individuals would likely lose at least 20 percent of 
their benefits to administrative costs. Administrative costs in the 
partially privatized system in Britain have reduced the account of the 
typical worker by 36 percent. While it's true that administrative costs 
can be lowered by restricting investment options and similar sorts of 
measures like those proposed by the privatization commission, doing so 
goes against privatization advocates' mantra of individual choice. Even 
if one weighted down a private accounts system with a bunch of 
provisions designed to minimize administrative costs, there is zero 
chance such a system could compete with the administrative efficiencies 
available under the current system or under a system allowing for 
collective investment.

Impact on Employers
    An often over-looked problem with privatization is the impact on 
employers, particularly small businesses. Eighty percent of the 
workforce earns less than $40,000. Forty-two percent of the workforce 
earns less than $15,000. Eighteen to twenty percent of the workforce 
earns less than $5,000 (of these, many work for 4-5 different employers 
per year.)
    The 25,000 largest employers file reports with the IRS every day by 
electronic deposit. All of these deposits are recorded in the general 
fund of the Treasury, which then transfers them to SSA on a daily 
basis. Other employers, depending on size, report every two weeks, 
every month, or, for the smallest employers, every quarter (4 million 
employers have 10 or fewer employees).
    However, all of these transfers are aggregate payments. There is no 
effort to distinguish between what payments are made on behalf of which 
employee. Even those filing quarterly don't have to match payments to 
specific workers.
    The only time employers have to tell the government about payments 
and earnings made on behalf of individual employees is when they file 
W-2s. These aren't given to the government until several months into 
the year.
    This is not a problem for a defined-benefit program such as Social 
Security because an individual's benefit level does not need to be 
reconciled until retirement. However, this does become an issue for 
defined contribution plans in which individuals want to track every 
dollar contributed in their name.
    There is a considerable lag--as much as seven to 22 months--between 
the time taxes are collected and the funds are credited to an 
individual's name by the Social Security Administration (SSA).
    Over 240 million W-2s are filed per year on behalf of 140 million 
people (35-40 percent of workers--58 million--have annual earnings 
reported to SSA from more than one employer).
    Thirty percent of W-2s are still filed on paper by 6.5 million 
employers. Eighty-five percent of employers still submit forms on 
paper.
    Only 100,000 employers provide data to the government on magnetic 
tape (the easiest format to deal with).
    Fifteen million individuals file as self-employed, who have their 
own unique reporting system through the Internal Revenue Service (IRS). 
The IRS then reports to the SSA at a later date. Further complicating 
matters, one-half of the self-employed also work for employers that 
send a W-2 to the SSA on their behalf.
    March-September is for processing by the Social Security 
Administration (verification of names, wages etc.).
    Five percent of W-2s have information that doesn't match and can't 
be corrected electronically. SSA then begins corresponding by paper 
with employers.
    After this, SSA is left with approximately 2 percent (4.5-5 million 
W-2s) of what is submitted that can't be reconciled. This error rate 
would probably not be acceptable under a system of private accounts.
    About 650,000 employers go out of business or start new businesses 
each year (represents a 10 percent turnover rate). This makes it even 
more difficult to reconcile information.
    Adding new administrative tasks, such as more frequent reporting 
requirements, could put a substantial financial and time burden on 
employers and increase the costs for a system of private accounts.
    According to the results of a survey by the Employee Benefits 
Research Institute (EBRI) study:

        LEmployers do not want to have to implement or administer a new 
        system of private accounts. On average, employers were only 
        willing to spend $400 total on all aspects of implementation. 
        Eighteen percent consistently said they were willing to spend 
        nothing.

    In addition, most small businesses have little or no experience 
administering 401(k) plans. Only 10 percent of small businesses offer a 
pension plan.
    Privatization proponents cannot continue to gloss over the 
substantial burden a privatized system of individual accounts would 
place on our nation's businesses, particularly small businesses.

Public Education Challenges
    Privatization will obviously create winners and losers. A 
significant public education component would be required to ensure 
individuals, particularly lower-income individuals, fully understood 
the choices available to them. Keep in mind that misleading marketing 
in the partially privatized British system led millions of pensioners 
to invest disadvantageous ways. This led to sanctions against fund 
managers and demands for a multi-billion government bailout of 
pensioners.
    According to the National Center on Education Statistics, 21 
percent of the adult population has only rudimentary reading and 
writing skills (at or below the fifth-grade level).
    As the former Chairman of the Securities and Exchange Commission, 
Arthur Levitt, put it, there is a wide gap between financial knowledge 
and financial responsibilities.
    A variety of surveys by the SEC, the Securities Industry 
Association, and the Vanguard Group have shown this disconnect. These 
studies have shown:

        47 percent of 401(k) plan participants believe stocks are a 
        component of money market funds;
        55 percent thought they could not lose money in government bond 
        funds;
        Less than half of all investors correctly understood the 
        purpose of diversification;
        Over half of all Americans do not know the difference between a 
        stock and a bond; and
        Only 16 percent said they have a clear understanding of what an 
        IRA is.

    Privatization advocates do a disservice to informed debate when 
they pretend that all Americans will win if they play the market. That 
clearly is not the case. And, those who have the most to lose by 
dismantling the guaranteed safety net offered by Social Security--
lower-income Americans--are the same people who are most ill-prepared 
to make critical investment choices.

The Chilean Model
    Finally, a few individuals who have attended my town halls have 
wondered about the privatized Chilean system that privatization 
advocates have touted as a model for the United States. Let's take a 
closer look at the Chilean system.
    Either advocates of the Chile privatization model haven't actually 
studied the details of the Chilean system, or they believe America's 
seniors deserve a more volatile retirement system with lower benefits 
and larger profits for private money managers.
    The first thing to understand about the privatized Chilean pension 
system is that it was imposed by a military dictatorship in 1981. 
Tellingly, however, the dictatorship protected one class of citizens, 
the military, which continues to receive pensions under the state-
sponsored pension system.
    The privatized system in Chile has also been less far less 
efficient than the previous social insurance system. Adding up the 
pensions under the privatized system and those still being paid under 
the previous system, along with cost of the minimum pension guarantee 
(the government subsidizes the private accounts if the rate of return 
you received from the market is too low), and the privatized system is 
at least three times as costly to run as the social insurance system it 
replaced.
    While the early returns on private accounts looked high, the 
returns were primarily attributable to one-time events--the selling-off 
of state enterprises and extremely high interest rates--with no 
relevance to the returns possible in the United States. In 1995, 
average returns fell to negative 2.5 percent, and have averaged only 
1.8 percent over the last several years.
    Further, the administrative costs of the privatized Chilean system 
have run around 15-20 percent of annual contributions. By contrast, the 
administrative costs of Social Security in the United States are less 
than one percent. Commissions to private money managers in Chile 
reduced the average return in the early years of privatization from 
12.9 percent to a mere 2.1 percent. That helps explain why the profit 
margins of the money managers averaged more than 22 percent.
    There are also problems with underreporting of contributions by 
businesses and individuals as well as inadequate coverage from private 
pensions (40 percent of beneficiaries require additional assistance).

Conclusion

    Social Security is a fundamentally sound program that offers 
guaranteed, inflation-protected, annuitized benefits for retirees, the 
disabled, and survivors. These benefits simply cannot be duplicated by 
the private sector. While the program faces modest financial challenges 
decades in the future, those challenges can be managed without 
dismantling the current system via privatization.

                               

    Chairman SHAW. Well, I agree with you as far as tough 
choices.
    Mr. Nadler? And I would like to invite Mr. Rodriguez to 
come over. We will go to Mr. Nadler, Mr. Smith, and then Mr. 
Rodriguez.

   STATEMENT OF THE HON. JERROLD NADLER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. NADLER. Thank you very much, Mr. Chairman, for the 
invitation to testify before the Subcommittee today.
    I agree with the basic premise of this hearing that we must 
act now to improve Social Security benefits for women, to 
ensure that seniors get their promised benefits, and to improve 
public information about Social Security, its benefits, and its 
finances.
    The President, however, is working in the complete opposite 
direction. His privatization proposals will cut benefits and 
raise the retirement age and completely mislead the public 
about Social Security and its finances. In fact, his recent 
statement completely misleads the public, as Paul Krugman 
showed in the New York Times yesterday, when the President said 
that if someone had invested his money instead of putting it 
into Social Security, had invested it in stocks 45 years ago, 
he would have three times the amount of--he could get now three 
times--he could retire on three times the benefits in Social 
Security. That is totally misleading. It ignores the fact that 
for the last 45 years his taxes would not have been paying for 
the current generation of retirees, so how would their 
retirements have been financed. It ignores the fact that his 
taxes were partially paying for survivors and disability 
benefits. And, yes, if you completely ignored the current 
generation of retirees and if you eliminated survivors benefits 
and disability benefits, and if the stock market went up all 
the time, then, yes, the President's calculations would be 
correct. But without those assumptions, the President's 
calculations are totally misleading.
    The President's Social Security Commission recommended 
privatizing Social Security, cutting benefits for women, 
raising the retirement age, and weakening the guarantee of 
promised benefits. In short, it called for ``ending Social 
Security as we know it,'' which is, I think, a fair summary of 
all their various proposals.
    The Commission sought to confuse and mislead Congress and 
the American people about the financial status of Social 
Security. Their initial draft report included obvious 
misstatements and scare tactics about Social Security's 
finances.
    The American people should know that, despite a new a Bush 
budget deficit, a war, a recession, and the dramatic fall of 
stock prices in the past year, Social Security never lost a 
dime. In fact, seniors got an increase in Social Security 
benefits, and the program still has a large budget surplus.
    Of course, if the program had been partially privatized, 
Social Security would have taken a tremendous hit. But as it 
is, it didn't lose a dime.
    This is not to say that Social Security is perfect. We must 
improve Social Security benefits for women to make the system 
fair to both sexes. Many women, unfortunately, still lag behind 
men in salary. Women often work outside of the home fewer years 
than men, since women still bear a disproportionate share of 
society's burden of raising children and caring for the 
elderly. As a result, women get smaller Social Security checks, 
on average. The formula for calculating benefits should be 
changed to account for time spent caring for children or the 
elderly. Social Security payments for widows and widowers 
should be increased. Furthermore, we must re-examine Social 
Security's policies as they relate to divorce. Divorce is a 
fact of life for all too many Americans, and Social Security 
should not punish elderly divorced women.
    One thing that certainly will not help women or anyone else 
is privatization.
    Privatization is unfair, unworkable, and unnecessary.
    Why is privatization unfair? Privatization, or the 
diverting of revenue from Social Security into personal 
accounts, will dramatically worsen the financial condition of 
Social Security and require significant cuts in guaranteed 
benefits.
    Let me point out, by the way, that those who say, well, we 
have got a problem, here is our solution, where is yours, those 
of you who oppose privatization, that is beside the point. 
Privatization makes the problem worse, not better. It doesn't 
help the problem. It worsens Social Security's finances. That 
being the case, you can't stand there and say, well, where is 
your solution, unless you are saying, well, we don't have a 
solution, do you?
    This would have a dramatically effect especially on retired 
women and women nearing retirement, not to mention cuts to 
existing survivor and disability payments, putting children and 
those with disabilities at risk. It is just plain unfair. It 
will decrease or eliminate the leveling effect of Social 
Security which gives middle- and lower-income people higher 
relative benefit in order to provide a basic income support for 
all and will, therefore, increase the disparity in the system. 
Privatization hurts women, who generally earn less, live 
longer, and take time out from the paid work force to care for 
children.
    Why is privatization unworkable? It cannot restore solvency 
to an insolvent system. Diverting 2 or 4 percent of payroll to 
individual accounts simply makes the funding problem worse. 
Privatization plans that claim to restore solvency to Social 
Security do so only because they also cut guaranteed benefits, 
increase the retirement age, or create huge deficits in the 
non-Social Security Federal budget. Cutting benefits, raising 
the retirement age, or adding general fund revenues can make 
the program solvent with or without private accounts. The 
transition costs to a private system are enormous. Furthermore, 
$1.6 trillion of the surplus no longer is available to finance 
the transition costs because of the tax cut.
    Why is privatization unnecessary? Last, the trustees 
predict a system that is solvent for 35 years and with more 
realistic economic assumptions is probably solvent as far as 
the eye can see. The trustees' predictions have been wrong--
overly pessimistic--every year for the last 8 years. Every year 
they have postponed the date of trust fund insolvency or 
projected trust fund insolvency, despite their statements that 
the situation is getting worse and worse. A reading of their--
can I have another 30 seconds, sir? Thank you.
    A reading of their reports from 1993 to 2001 show the 
system getting healthier every year without any changes being 
made to the system. The trustees' pessimistic predictions are 
unreliable because they don't take into account the effect of 
the predicted long-term labor shortage on wages, productivity, 
unemployment, or immigration policy.
    We all know that stock investments are risky. A 
privatization scheme that would, of necessity, drastically 
reduce guaranteed benefits and depend on stock investments to 
make up the balance might very well work out well for many, but 
could leave millions of others in poverty. To avert this, some 
of the congressional privatization plans are now so risk-averse 
that they don't make any money and don't solve any problems. In 
order to minimize risk, these plans limit investments to lower-
risk bonds, but then the rate of return is smaller and the 
accounts will not make up for the cuts in guaranteed benefits. 
It just doesn't add up.
    [The prepared statement of Mr. Nadler follows:]

STATEMENT OF THE HON. JERROLD NADLER, A REPRESENTATIVE IN CONGRESS FROM 
                         THE STATE OF NEW YORK

    Thank you, Mr. Chairman, for the invitation to testify before this 
Committee on Social Security.
    I agree with the basic premise of this hearing, that we must act 
now to improve Social Security benefits for women, to ensure that 
seniors get their promised benefits, and to improve public information 
about Social Security, its benefits, and its finances.
    However, the President is working in the complete opposite 
direction. His privatization proposals will cut benefits and raise the 
retirement age, and completely mislead the public about Social Security 
and its finances.
    The President's Social Security Commission recommended privatizing 
Social Security, cutting benefits for women, raising the retirement 
age, and weakening the guarantee of promised benefits. In short, it 
called for ``ending Social Security as we know it''.
    I believe that the Commission sought to confuse and deliberately 
mislead Congress and the American people about the financial status of 
Social Security. Their initial draft report included obvious 
misstatements and scare tactics about Social Security's finances.
    The American people should know, that despite a new Bush Budget 
deficit, a war, a recession, and the dramatic fall of stock prices in 
the past year, Social Security never lost a dime. In fact, seniors got 
an increase in Social Security benefits, and the program still has a 
large budget surplus.
    This is not to say that Social Security is perfect. We must improve 
social security benefits for women to make the system fair to both 
sexes. Unfortunately, many women still lag behind men in salary. Women 
often work outside of the home fewer years than men, since women still 
bear a disproportionate share of the burden of raising children and 
caring for elderly parents. As a result, women get smaller social 
security checks. The formula for calculating benefits should be changed 
to account for time spent caring for children or the elderly. Social 
Security payments for widows and widowers should be increased. 
Furthermore, we must reexamine Social Security's policies as they 
relate to divorce. Divorce is a fact of life for all too many 
Americans, and Social Security should not punish divorced elderly 
women.
    One thing that certainly will not help women or anyone else is 
privatization.
    Privatization is unfair, unworkable, and unnecessary.
    Why is privatization unfair? 1) Privatization, or the diverting of 
revenue from Social Security into personal accounts, will dramatically 
worsen the financial condition of Social Security and require 
significant cuts in guaranteed benefits. This would have a dramatically 
negative affect especially on retired women and women nearing 
retirement. Not to mention cuts to existing survivor and disability 
payments--putting children and those with disabilities at risk. That is 
just plain unfair. 2) Privatization will decrease or eliminate the 
leveling effect of Social Security, which gives middle and lower income 
people higher relative benefit in order to provide a basic income 
support for all. It will increase the disparity in the system. 3) 
Privatization hurts women--who generally earn less, live longer, and 
take time out from the paid workforce to care for children.
    Why is privatization unworkable? 1) Privatization cannot restore 
solvency to an insolvent system--diverting 2% or 4% of payroll to 
individual accounts simply makes the funding problem worse. It would 
hasten the insolvency of the system. 2) Privatization plans that claim 
to restore solvency to Social Security, do so only because they also 
cut guaranteed benefits, increase the retirement age, or create huge 
deficits in the non-social security federal budget. Cutting benefits, 
raising the retirement age, or adding general fund revenues can make 
the system solvent with or without private accounts. 4) The transition 
costs to a private system are enormous. Furthermore, $1.6 trillion of 
the surplus is no longer available to finance the transition because of 
the tax cut. 5) There are large administrative costs to setting up 
millions of small investment accounts. Why not simply put that money 
into Social Security directly to make the system more solvent?
    Why is privatization unnecessary? 1) The trustees predict a system 
that is solvent for 35 years and with more realistic economic 
assumptions, is probably solvent as far as the eye can see. 2) The 
Trustees predictions have been wrong (overly pessimistic) every year 
for at least eight years. Each year they have postponed the date of 
Trust Fund insolvency despite their statements that the situation is 
getting worse and worse. A reading of their reports from 1993 to 2001 
show the system getting healthier every year without any changes being 
made to the system. 3) The Trustees' pessimistic predictions are 
unreliable because they don't take into account the effect of the 
predicted long term labor shortage on wages, productivity, 
unemployment, or immigration policy. I would be happy to go into more 
detail if you wish during the question and answer period.
    We all know that stock investments are risky. A privatization 
scheme that would, of necessity, drastically reduce guaranteed benefits 
and depend on stock investments to make up the balance might very well 
work out well for many, but could leave millions of others in poverty.
    To avert this, some of the Congressional privatization plans are 
now so risk adverse that they don't make any money, and they don't 
solve any problems. In order to minimize risk, these plans limit 
investments to lower risk bonds and mutual funds. Fine, but then the 
rate of return is smaller, and the accounts are less likely to make up 
for the cuts in guaranteed benefits needed to set up the accounts. 
Privatization just doesn't add up. And this ignores the transition and 
administrative costs.
    Nevertheless, it is clear that this Administration and most 
Republicans in Congress want to privatize social security, which is a 
fancy way of saying they want to cut benefits and raise the retirement 
age. Presumably, they understand what they are asking for. I hope the 
American people understand their plans as well.
    I must add a word about Enron. Tragically, many Enron employees 
lost millions of dollars in their retirement funds because they were 
invested in the private market. Imagine if their Social Security funds 
were invested in Enron as well.
    Some people made millions off of Enron, but many more lost 
everything. That is what happens in the private financial markets. Some 
people win and some people lose. People who invest need to understand 
these risks. As Members of Congress, we are the real trustees of Social 
Security. We know that everyone cannot hit it big on the stock market, 
and that many must lose.
    I believe if given the choice, most Americans would choose a rock-
solid Social Security guarantee, to a stock market gamble.
    Thank you, Mr. Chairman.

                               

    Chairman SHAW. Mr. Smith?

STATEMENT OF THE HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. SMITH. Mr. Chairman, thank you. Delighted to be a 
cosponsor of your bill. It helps move us ahead in the debate 
and discussion.
    I started writing my first Social Security bill actually 
when I was in the State Senate before I came to Congress, 
introduced my first bill in 1994, and have introduced four 
bills that have been scored by the Social Security actuaries as 
keeping Social Security solvent.
    It seems to me, Mr. Chairman, that one thing should be just 
so absolutely made clear, and that is that the cost of doing 
nothing is greater than proposals to help accommodate the 
insolvency of Social Security.
    Mr. Nadler, you suggest that the economy, if it is strong 
and wages are high, that it is going to help. It is only going 
to help in the short run. In the long run, because we tie 
benefits to wages, those resulting retirement benefits of the 
higher-wage earner are going to neutralize the fact that we 
have a strong economy in the short run. That is why when I 
first introduced my first bill in 1994, we had a lot more 
surplus coming in from the Social Security Administration. 
Using that surplus for the transition, which is the huge 
challenge in going to any system that is going to give a 
greater return and help solve the problem is something that we 
need to do and deal with now rather than putting off.
    I have heard a lot of people say that the problem really 
doesn't hit until 2034 or 2036 when the trust fund runs out. 
The fact is we need to talk about and decide in any discussion 
what we are going to do in terms of coming up with the money 
starting in 2014 or 2016 when the Social Security taxes are 
less than what is needed to accommodate promised benefits.
    The estimate now by the actuaries is today's unfunded 
liability ranges someplace between $7 and $9 trillion. Put in 
tomorrow's dollars, that means over the next 75 years we are 
going to have to come up--if we do nothing--have to come up 
with $120 trillion more than comes in from the Social Security 
tax.
    Part of the question that we are facing also is how long 
individuals are going to live. We are now looking at some of 
the futurists' projections that individuals within the next 30 
years are going to have the option to live to be 100. It not 
only tremendously complicates every private retirement plan, 
but certainly the government's.
    In my bill, I reduce benefits for the higher income at the 
same time I allow some personal investment. Government is 
always going to pay these benefits. So, again, let me stress my 
opinion that the question is: Can we do something to Social 
Security that is going to reduce the long-term costs of doing 
nothing? The answer is yes. In my bill, the cost of not doing 
anything is approximately 18 percent greater in total cost than 
coming up with my bill that uses the traditional market returns 
that the actuaries have suggested is going to be something like 
6.8 percent.
    I would like to agree with Congressman Nadler in the 
benefits for women. I have three provisions.
    One is account sharing for married couples so that you add 
the husband and wife together and divide by two, so each 
individual has their personal account that is exactly the same; 
and if you do have a divorce, then they still have their 
individual equal accounts based on the income earnings of both 
individuals divided by two.
    The imputed earnings for non-working spouses it seems to me 
is a policy we would like to encourage mothers to stay home 
with children, so mothers that are staying home with any child 
that is under 3 years old gets, if you will, a free credit year 
at her ultimate maximum earning.
    Also, what I do is for the surviving spouse increase it 
from 100 percent to 110 percent for the surviving spouse to 
encourage staying in their own home.
    In my legislation, I am also, Mr. Chairman and Mr. Matsui, 
trying to go a little further than just Social Security. I am 
doing retirement Social Security. So I am involving in 
additional legislation that will encourage additional savings 
and investment for individuals with fewer tax penalties, if you 
will, to encourage other savings in both the Roth IRA, the 
401(k), and other venues of the Committee on Ways and Means 
that will allow individuals, encourage individuals, to save 
more.
    I think in my conclusion, since the light has turned red, 
it is just so important we move ahead with this. My experience 
in introducing these four bills that were scored to be solvent 
is that each bill, because we give up the time period of the 
surplus coming into Social Security, every year we give up 
something that is not going to be there anymore, every proposal 
I have had has to be somewhat more drastic and more complicated 
to end up with a scoring that can then make it solvent. So, 
again, the longer we put this off, the worse we are going to 
be.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Smith follows:]

STATEMENT OF THE HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM THE 
                           STATE OF MICHIGAN

         The atmosphere on the topic of Social Security reform 
        has changed quite a bit since I started working on this in 1993 
        and introduced my first bill in 1994. The President's 
        commitment to reform could push this effort over the top.

The Social Security Solvency Act

         I hope that Congress will consider offering my bill 
        or something similar to strengthen Social Security. My bill is 
        a carve-out approach, allowing workers to invest 2.5% of their 
        paycheck into an account they own and control. It has generally 
        transparent financing, with an infusion of cash from the 
        general fund in the beginning, to be repaid later. It includes, 
        however, a number of features that should be considered.
         The Transition Problem. As you all know well by now, 
        nearly any Social Security reform plan based on savings would 
        be more stabile and generate greater returns over the long-term 
        than what we can expect from the current pay-as-you-go system. 
        The difficulty, however, is getting from here to there. So let 
        me discuss a few of things I did to smooth the transition.
         New bend point for benefit calculations. My 
        legislation would create a new, 5% bend point affecting higher 
        earners. The introduction of the bend point is phased in to 
        prevent the creation of notch. This will significantly restrain 
        the growth of benefits for higher earners. This is necessary to 
        maintain the progressivity of the Social Security benefit 
        structure, in my view, because a worker-owned account based on 
        a percentage of income will allow higher-income individuals to 
        save more in their accounts than lower-income individuals.
         Multiple tiers of account management. Worker-owned 
        accounts pose some challenges related to controlling 
        administrative costs. My proposal does this by limiting fairly 
        sharply the range of investment options available before an 
        account reaches $2,500 in assets.

Benefit protections for women

         Account sharing for married couples. A private 
        account plan needs a way to provide for nonworking spouses. My 
        solution to this problem to split the contributions made by a 
        married couple equally between each spouse's account. This also 
        simplifies the division of account money in the case of divorce 
        or separation.
         Imputed earnings for nonworking spouses who care for 
        children. My bill would reduce the length of the earnings 
        history that AIME is calculated on for a spouse who takes time 
        off to care for a child between birth and three years of age. 
        This could reduce the 35 year work history period by as much as 
        five years.
         Increase in widow and widower benefits. My bill would 
        increase the deceased spouse benefit from 100% of the deceased 
        spouse's benefit to 110%. This is designed to help some 
        surviving spouses who are squeezed by the need to maintain 
        their household.

Doing the whole job

         We need to settle on one proposal that restores the 
        solvency of the Social Security system. This is where the 
        President's Commission fell down on the job by offering three 
        proposals. The controversy this causes makes people nervous. 
        People are justifiably worried that the benefits that they've 
        paid for are in jeopardy. I think that reform has to answer the 
        question, ``Where are my benefits going to come from?'' If it 
        doesn't, the public will be skeptical, and rightly so.
         Resolving the Social Security shortfall is critical 
        to our long-term financial health. We now face a series of 
        financial challenges related to the aging of our population. 
        Social Security is one, but we also have to resolve the even 
        more serious shortfalls in Medicare and Medicaid that are 
        looming.
         There's a huge benefit to tackling the Social 
        Security problem sooner rather than later. Today, compound 
        interest is working against the solvency of our pay-as-you-go 
        financing system. If we begin to save some money to help pay 
        benefits, compound interest will start to work in our favor.
         We should be bold in our recommendations. Compromises 
        will be made on any proposal set forth. So don't compromise 
        before the negotiations begin.

                               

    Chairman SHAW. Thank you, Mr. Smith.
    Mr. Rodriguez? And I would like to invite Mr. Jones and Mr. 
Etheridge, if you can find room at the table, and we will just 
keep going with the witnesses and handle everybody as one 
panel.
    Mr. Rodriguez?

 STATEMENT OF THE HON. CIRO D. RODRIGUEZ, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. RODRIGUEZ. Chairman Shaw and Ranking Member Matsui, let 
me thank you for the opportunity to be here before you as we 
discuss the important challenges facing Social Security.
    I serve as the Vice Chairman of the Congressional Hispanic 
Caucus (CHC) and proudly represent the 28th Congressional 
District of Texas. As Members of the CHC, we all come from 
various districts throughout the country, urban and rural. As 
an example of this diversity, I can share that my district is 
the seventh producer of peanuts in the country. I want to 
highlight the importance of diversity within the CHC and within 
our own districts.
    I am here to speak about Hispanics and Social Security and 
the drastic effects to the system will have on this vulnerable 
population.
    We must remember the initial purpose of Social Security, 
and that is, a retirement system created to help alleviate 
poverty among elderly Americans. Social Security has become the 
single most effective Federal anti-poverty program in our 
history, lifting more than 11 million seniors from poverty.
    Latinos are critically affected by the proposed changes to 
our Social Security system. A significant segment of the 
workforce, Latinos represent a disproportionate percentage of 
those who lack employer pension coverage.
    We work in small companies. We are underrepresented in 
Federal and State jobs. And so, we usually come from segments 
of the workforce that do not have any pension coverage. More 
than other segments of the general population, Latinos depend 
heavily on Social Security for their dignity in their senior 
years.
    The Latino population is growing rapidly. Currently Latinos 
represent 8 percent of the total U.S. workforce, and by 2010, 
Latinos are projected to account for 13.2 percent of the work 
force. From 1997 to the year 2020, the number of Latinos that 
are 65 years and older is projected to double. Unfortunately, 
despite gains in education and other areas, Latinos still 
remain concentrated in low-wage jobs that provide few benefits. 
While more than half--I will repeat that--more than half, 51 
percent of Anglo workers have employer pension coverage, the 
same is true for only 32 percent of Latinos. So you can see 
that a disproportionate number of Latinos rely on Social 
Security.
    Accordingly, Latino retirees are more than twice as likely 
as Anglo retirees to rely solely on Social Security benefits as 
a means of economic support. In addition, Latinos are less 
likely than Anglos to receive income from interest on savings 
and investments. For example, in 1998, of all of the persons 
reporting interest income, only 5.3 percent were Latinos.
    I would like to applaud the efforts of this Subcommittee to 
pay special attention to the needs of women.
    While reforming the Social Security system has serious 
implications for Latinos, the women in our community, the 
Latinas, may be the most severely impacted of all. Latinas are 
more likely than other women to work inside the home and are 
less likely than other women to have retirement savings. 
Moreover, Latinas are less likely than other workers to have 
access to private pension coverage, and they tend to receive 
the lowest wages of all workers. Latinas relying heavily on 
Social Security benefits. Changes in marital status or loss of 
principal wage earners places Latinas in particularly 
vulnerable situations.
    Given the paramount importance of Social Security to 
Hispanic men and women, we must approach so-called reform 
efforts with caution, weighing the impact on this key and fast-
growing population.
    I am concerned that the plans to privatize Social Security 
would drain needed resources from the Social Security Trust 
Fund and jeopardize benefit payments to retirees and disabled 
workers and their survivors. The leading plan proposed by the 
President's hand-picked Social Security Commission would drain 
$1.5 trillion from the trust fund in just the next 10 years, 
money that is already being used for other purposes.
    Privatization would require cuts in guaranteed Social 
Security benefits. The President's Social Security Commission 
recommended a privatization plan that cuts benefits for future 
retirees by up to 46 percent. Everyone would be subject to 
these cuts--not just workers who choose to have an individual 
account. And Latinos would be hit the hardest.
    Social Security privatization would expose individual 
workers and their families to the greatest financial risk. 
Under privatization, benefit levels would be determined by the 
volatile stock market, and we all know the problems that that 
might cause.
    Latinos who are more than other groups dependent on Social 
Security as a guaranteed income stream in retirement would lose 
under privatization.
    Other proposals, while well-meaning, will not help us reach 
our goal of ensuring the future solvency of Social Security. 
For example, the proposed guarantee certificates would not 
address our needs.
    I would like to take this opportunity and ask that I be 
able to submit additional testimony for the record.
    As we look at the impacts that privatization and other 
proposals like the guarantee certificates would have on Social 
Security, it is importance to highlight specific populations.
    In addition to Latinos, we must consider the baby boomers 
and their kids and the impact on them and finally how we can 
achieve solvency in the future. I ask that you proceed with 
caution before making any decisions.
    Thank you for allowing me to be here before you.
    [The prepared statement of Mr. Rodriguez follows:]

 STATEMENT OF THE HON. CIRO D. RODRIGUEZ, A REPRESENTATIVE IN CONGRESS 
                        FROM THE STATE OF TEXAS

    Thank you, Chairman Shaw and Ranking Member Matsui, for the 
opportunity to address the Subcommittee on Social Security in reference 
to ``improvements'' to the Social Security system for women, seniors, 
and all working Americans.
    I serve as Vice Chairman of the Congressional Hispanic Caucus and 
proudly represent the 28th Congressional District of Texas. I am 
pleased to be here today.
    As you may know, the Congressional Hispanic Caucus (CHC) is 
comprised of 18 out of the 21 Hispanic Members of Congress. CHC Members 
represent diverse districts and populations throughout Arizona, 
California, Guam, Illinois, New Jersey, New York, Puerto Rico, and 
Texas. Our Members are as varied as the districts we represent, but we 
all recognize and support the need to address ethnic and racial 
disparities impacting our community.
    Latinos are critically effected by any proposed changes to our 
Social Security system. A significant segment of the workforce, Latinos 
represent a disproportionate percentage of those who lack employer-
pension coverage.
    The Social Security retirement system was created to help alleviate 
poverty among elderly Americans and meet the retirement needs of all 
workers. Social Security has become the single most effective federal 
anti-poverty program in our history. Its benefits lift more than 11 
million seniors out of poverty.
    Social Security provides a real and necessary safety net for 
seniors who lack other retirement options, whether it be a pension 
provided by an employer or retirement savings accounts. Seniors do not 
profit from Social Security, but they do have the chance for a 
dignified retirement. More than other segments of the population, 
Latinos depend heavily on Social Security to live their senior years in 
dignity.

DEMOGRAPHICS--LATINO GROWTH

    The Latino population is growing rapidly. By the year 2005 Latinos 
are projected to become the largest minority group in the United States 
and a significant segment of the workforce. Currently Latinos 
constitute 8 % of the total U.S. workforce; by 2010 Latinos are 
projected to account for 13.2% of all workers.
    Moreover, projections tell us that from 1997 to 2020 the number of 
Latinos 65 years of age will nearly double.

LACK OF RETIREMENT INCOME

    Unfortunately, despite gains in education and other areas, Latinos 
still remain concentrated in low-wage jobs that provide few benefits. 
Many do not have very many resources when they reach retirement age.
    While more than half (51%) of Anglo workers have employer-pension 
coverage, the same is true for only one third (32%) of Latino workers.
    Accordingly, Latino retirees are more than twice as likely as Anglo 
retirees to rely solely on Social Security benefits as a means of 
economic support. In addition, Latinos are less likely than Anglos to 
receive income from interest on savings and investments. For example, 
in 1998, of all persons reporting interest income, only 5.3% were 
Latino.
    These figures highlight the need to include Latinos in the debate 
of ``improvements'' to the Social Security system for working 
Americans.

LATINAS

    I would like to applaud the efforts of this committee to pay 
special attention to the needs of women within the general discussion 
of Social Security reform efforts. In light of this very necessary and 
critical focus, I would like to take a moment to highlight the specific 
needs of Latinas, the women in our community.
    While reforming the Social Security system has serious implications 
for all Latinos, Latinas may be the most severely affected by reform 
efforts. Latinas are more likely than other women to work inside the 
home and are less likely than other women to have retirement savings. 
Moreover, Latinas are less likely than other workers to have access to 
private pension coverage.
    Overall, they tend to rely heavily on Social Security benefits, and 
they tend to receive the lowest wages of any group of workers. As a 
result, changes in marital status or loss of a family member who is the 
principal wage earner places Latinas in a particularly vulnerable 
situation.

PRIVATIZATION

    Given the paramount importance of Social Security to Hispanic men 
and women, we must approach so-called reform efforts with caution, 
weighing the impact on this key, fast-growing population.
    I am concerned that the plans to privatize Social Security would 
drain needed resources from the Social Security Trust Fund and 
jeopardize benefit payment to retirees, disabled workers and survivors. 
The leading plan proposed by the President's appointed Social Security 
commission would drain $1.5 trillion from the Trust fund in just the 
next 10 years, money that is already being used for other purposes.
    Privatization would require cuts in guaranteed Social Security 
benefits. The President's Social Security commission recommended a 
privatization plan that cuts benefits for future retirees by up to 46%. 
Everyone would be subject to this cut--not just workers who chose to 
have an individual account.
    Finally, Social Security privatization would expose individual 
workers and their families to much greater financial risk. Under 
privatization, Social Security benefits would no longer be determined 
primarily by a worker's earnings and the payroll tax contributions he 
or she made over their career. Rather, benefit levels would be 
determined by the volatile stock market, by a workers luck in making 
investments, and by the timing on his or her decision to retire. In 
light of the Enron disaster, we know the risk.

GUARANTEE CERTIFICATES

    Other proposals, while well-meaning, will not help us reach our 
goal of ensuring the future solvency of Social Security. For example, 
the proposed ``guarantee certificates'' offered by several of my 
colleagues would ``guarantee'' full and timely payments of Social 
Security benefits for a beneficiary's lifetime, plus cost of living 
adjustments.
    Several question have been raised as to the legal effect of these 
bills as introduced. I await the answers to surface.
    But even if those questions are resolved, the certificates would 
not change the budget crisis we face, would not help reduce our 
national debt, would not remove the risk of privatization, let alone 
expand benefits to meet growing, future needs.
    I worry that these initiatives would spend 10 million dollars and 
divert us from the true work at hand. We need to focus on reaching a 
bipartisan agreement to provide a true guarantee of Social Security 
benefits by making the Trust Fund financially healthy over the next 75 
years.
    All Americans, to one degree or another, benefit on the continued 
success of Social Security. For many Americans, and particularly those 
in the Hispanic community, Social Security provides the shield against 
poverty and destitution. Our national values should include caring for 
our elders, and for providing a helping hand to the disabled among our 
workforce.
    I thank the subcommittee for the opportunity to share my views, 
personally thank Chairman Shaw and Ranking Member Matsui and the other 
Members here for taking the time to listen to my testimony today.

                               

    Chairman SHAW. Thank you. Mr. Etheridge?

   STATEMENT OF THE HON. BOB ETHERIDGE, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. ETHERIDGE. Thank you, Mr. Chairman. I want to thank you 
and the Ranking Member for allowing me to testify today. I know 
you have had a long day. I was here earlier this morning. I 
appreciate your time.
    You know, Social Security is--and I don't know that I will 
say anything new that hasn't already been said today. But 
Social Security has been the bedrock of American security for a 
long time, really since 1935, and it has been our Nation's 
probably most successful government initiative, lifting 
millions of seniors and working families out of poverty.
    There was a time when, before Social Security, Mr. 
Chairman--and as I read history--when many of our seniors 
suffered in abject poverty, and too often many of them did not 
have the basic human needs of food and shelter. Many died 
homeless on the streets in this country.
    The creation of Social Security is one of the landmark 
achievements of the 20th Century. Together, we declared that 
seniors should not be forced to live in Third World poverty 
here in America. Together, we made a compact with our seniors, 
like my mother and my mother-in-law, who both lost their 
husbands at earlier ages. If they would work hard, then you and 
I and others would make sure that we cared for them as they 
aged.
    And, Mr. Chairman, Congress does not have the right to 
break that compact.
    Now Social Security is facing a serious challenge. The 
solvency of the system will deteriorate over the next few 
decades, and we must act to uphold our end of that compact. 
There are those, including the Commission that the President 
appointed, who feel that privatization of Social Security is 
the answer to the problem. And I respectfully disagree.
    Last year, the President appointed this Commission on 
Social Security. Unfortunately, that Commission was a stacked 
deck, in my opinion. Every single member of that Commission 
supported privatization. That is fine if you want to go that 
way, but it is not fair to the other folks who should have a 
seat at the table. The Commission was forced only to consider 
privatization plans and did not include a single Member who 
represented the groups that would be more affected by changes 
in the system, for instance, minority, women, and seniors. In 
the end, the Commission offered three flawed plans, in my 
opinion, to privatize Social Security and failed to provide a 
plan to restore the solvency of the system.
    Mr. Chairman, I cannot support any privatization plan that 
would jeopardize the retirement security of our seniors and 
working families. Many of them do not have a second plan. I 
think the recent Enron scandal clearly demonstrates that we 
cannot allow the retirement system and security of working 
people in America to become victims of unrestricted corporate 
greed. And that is just what we saw.
    Social Security was designed to be a safety net and to be a 
compact between generations, not a privatized vehicle to create 
wealth for some and wind up leaving others in poverty.
    There are many problems with privatization of Social 
Security. First, taking money out of the trust fund to create 
private accounts would fundamentally weaken the system. One 
plan offered by the Commission would remove $1.5 trillion from 
the trust fund over 10 years. I am not going to get into all 
the details.
    Privatization also means benefit cuts. Another of the 
Commission's plans would reduce the benefits promised to future 
retirees by as much as 46 percent. Every plan has a 
``clawback'' provision. That means that in a privatized system, 
beneficiaries will not receive both the full value of their 
private accounts and along with their full Social Security 
benefits. And there are a lot of people who are depending on 
it.
    In addition, a system based upon individual accounts would 
also disproportionately, as we have heard already, hurt women 
because they would suffer from low account deposits and likely 
lose their spousal benefits. Minorities would be literally 
shortchanged because private accounts would erode the 
progressivity of the system. Finally, the transition costs 
associated with privatization puts the system's solvency and 
the retirement security of those who depend on it at risk.
    I am disappointed that the majority now proposes to issue 
certificates to Social Security recipients. It bothers me 
because it reminds me of last year when we passed and sent a 
letter to every taxpayer that they were going to get a tax cut.
    Mr. Chairman, I held a townhall meeting in Rocky Mount, and 
a lady came up to me and wanted to know where her $600 was. And 
she showed me the receipt that she got $3 and change, and she 
was quite upset. She had lost her job, had to sell her car to 
provide food for her family. You know, these kinds of things 
aren't what we ought to be about in good policy. What people 
want is us to sit down as caring, elected representatives and 
come up with solutions and not play ``gotcha'' with their 
lives. People want their representatives to do what is right.
    I will close, Mr. Chairman, with saying that I trust we 
won't do the certificates. I am willing to work with anyone in 
good faith to strengthen the bedrock of Social Security. It is 
important. But we must put aside our gimmicks and ideological 
differences like phony guarantee certificates and privatization 
plans, and work together to make Social Security what it was 
intended to be, what it has always been, for those who are 
living on the edge who really have nothing else. We have a 
responsibility. Time is running out.
    Thank you, Mr. Chairman, for allowing me to be here today, 
and I look forward to working with anyone to get the job done.
    Thank you.
    [The prepared statement of Mr. Etheridge follows:]

STATEMENT OF THE HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF NORTH CAROLINA

    Mr. Chairman, I want to thank you and Ranking Member Matsui for 
allowing me to testify today.
    Social Security is the bedrock of American retirement security. 
Since President Franklin Roosevelt signed it into law in 1935, Social 
Security has been our nation's most successful government initiative 
lifting millions of seniors and working families out of poverty. But, 
there was a time before Social Security, Mr. Chairman, a time when 
seniors suffered in abject poverty. Too many couldn't afford basic 
human needs like food and shelter. Too many died homeless in the 
streets.
    The creation of Social Security is one of the landmark achievements 
of the 20th Century. Together, we declared that seniors should not be 
forced to live in third-world poverty here in America. Together, we 
made a compact with our seniors like my mother and my mother in-law 
that would last from generation to generation. That compact said that 
if you work hard all of your life; you and your family will be cared 
for in your old age.
    Mr. Chairman, Congress does not have the right to break that 
compact.
    Now, Social Security is facing a serious challenge. The solvency of 
the system will deteriorate over the next few decades and we must act 
to up hold our end of the compact. There are those, including the 
President, who feel that privatizing Social Security is the answer to 
this problem. I disagree.
    Last year, the President appointed his Commission on Social 
Security. Unfortunately, that Commission was a stacked deck. Every 
member on the Commission supported privatization. The Commission was 
forced only to consider privatization plans and did not include a 
single member who represented the groups that would be most effected by 
changes in the system--beneficiaries, minorities, women, and seniors. 
In the end, the Commission offered three flawed plans to privatize 
Social Security, and failed to provide a plan to restore solvency to 
the system.
    Mr. Chairman, I cannot support any privatization plan that would 
jeopardize the retirement security of our seniors and working families. 
The recent Enron scandal clearly demonstrates that we cannot allow the 
retirement security of working Americans to become the victim of 
unrestrained corporate greed. Social Security was designed to be a 
safety net compact between generations, not a privatized vehicle of 
massive wealth for some and massive poverty for others.
    There are many problems with privatizing Social Security. First, 
taking money out of the Trust Fund to create private accounts would 
fundamentally weaken the system. One plan offered by the President's 
Commission would remove $1.5 trillion from the Trust Fund over 10 
years. Republican Leader Armey's privatization bill, H.R. 3135, would 
drain the Trust Fund of so much money that Social Security would begin 
paying out more benefits than it brings in by 2003--next year.
    Privatization also means benefit cuts. Another of the Commission's 
plans would reduce the benefits promised to future retirees by 46%. 
Every privatization plan has a ``clawback'' provision. That means that 
in a privatized system beneficiaries will not receive both the full 
value of their private account and along with their full Social 
Security benefits.
    In addition, a system based upon individual accounts would also 
disproportionately hurt women because they would suffer from low 
account deposits and likely lose their spousal benefits. Minorities 
would be literally short-changed because private accounts would erode 
the progessivity of the system. Finally, the transition costs 
associated with privatization puts the system's solvency and the 
retirement security of those who depend on it at risk.
    The Republican Majority now proposes to issue sham certificates to 
Social Security recipients. This reminds me of last year's tax cut, 
when the Republican Leadership decided to use taxpayer dollars to send 
letters to every American informing them that they were going to get a 
tax cut. A constituent of mine from Rocky Mount received one of those 
letters. It promised her and her family $600. When her check arrived, 
all she got was $3 and change. She had to sell the family car to pay 
her family's bills. She was counting on that money.
    Mr. Chairman, people count on their Social Security benefits too. 
And these guarantee certificates would not be worth the paper they 
would be printed on. We can find something better to do with the $10 
million it will cost to send out these worthless certificates. Folks in 
my District have learned the hard way to be skeptical when this 
Administration promises them ``the check's in the mail.''
    I am willing to work with anyone in good faith to strengthen the 
bedrock that is Social Security. But, we must put aside partisan 
gimmicks and ideological differences like phony guarantee certificates 
and privatization plans that would only make Social Security's 
budgetary problems worse. I urge this subcommittee and all of my 
colleagues in the House to get serious about Social Security reform. 
Time is running out.
    Thank you Mr. Chairman for allowing me to join you today.

                               

    Chairman SHAW. Mr. Jones?

  STATEMENT OF THE HON. WALTER B. JONES, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF NORTH CAROLINA

    Mr. JONES. Thank you, Mr. Chairman and Ranking Member 
Matsui. Thank you for this opportunity.
    I join each and every one that is here today and that has 
been here earlier, knowing that we do have an obligation to do 
what is necessary not only for the current recipients but also 
for those who are in college and high school. So let me begin 
my comments by saying that months ago I introduced H.R. 832, 
the Social Security Guarantee Act, that would help eliminate, I 
believe, concerns over benefit reduction by seeking to give 
seniors a stronger claim to their retirement benefits. 
Specifically, it would require the Secretary of the Treasury to 
issue to each Social Security beneficiary a certificate 
including a written guarantee of a fixed monthly benefit, plus 
a guarantee annual cost-of-living increase. By issuing this 
certificate, we hope to eliminate the fears of seniors and stop 
the ugly senior scare tactics that have doomed Social Security 
reform prospects in the past.
    Critics claim the Social Security Guarantee Act is a 
gimmick because guarantee certificates passed by this Congress 
are not legally binding on other Congresses and, therefore, can 
be changed at any time. Mr. Chairman, in reality, H.R. 832 and 
its guarantee are legally binding because at the very least it 
will be politically binding. Although a future Congress could 
change or repeal the new law, once retirees have a written 
document in their hands explicitly guaranteeing their benefits, 
in my opinion, few elected representatives would be willing to 
repeal it.
    Other skeptics wonder why the guarantee certificate only 
covers current retirees and not everyone. Without comprehensive 
reform of the Social Security program, Congress cannot make the 
same guarantee for future retirees. Social Security 
expenditures begin exceeding Social Security revenues in 2016 
and by 2038 the trust fund is empty. That is why I believe H.R. 
832 is an important first step toward meaningful Social 
Security reform.
    At the end of the day, we as Members of Congress must 
uphold our moral obligation. We have a duty to our seniors to 
ensure their retirement security will not be jeopardized. At 
the same time, we cannot lose sight of the overall goal of 
reforming the Social Security program so that today's workers 
will have the retirement that they so richly deserve as they 
have earned it.
    Mr. Chairman, I would like to just make a couple of 
statements, and then I will close because the gentleman to my 
right, Jim DeMint, and I have very similar bills, and either 
one of the bills that the Subcommittee decides they want to 
take further is fine with me. But I sincerely believe for this 
debate to move forward--and hopefully we will find a common 
ground on both sides of the political aisle to do what is 
right, not only for the current but for the next generation. I 
believe sincerely even though there are skeptics to this 
certificate of guarantee, I think it will be most meaningful to 
those seniors who are beginning to receive their Social 
Security retirement checks as well as those in the very near 
future. I want those who might see this as a gimmick to know 
from my standpoint that I was very sincere when I put this bill 
in several months ago, because I believe that the seniors will 
better understand this debate about reform if we can put a 
certificate of guarantee into their hands, just like when 
people buy stocks or people buy U.S. savings bonds.
    So, with that, Mr. Chairman, I will conclude my comments 
and thank you and the Ranking Member for giving me this time.
    Thank you.
    [The prepared statement of Mr. Jones follows:]

  STATEMENT OF THE HON. WALTER B. JONES, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF NORTH CAROLINA

         Chairman Shaw, Ranking Member Matsui, thank you for 
        inviting me to speak on the topic of Social Security guarantee 
        certificates. I am pleased to have this opportunity to speak 
        about legislation aimed at protecting the Social Security 
        benefits of our nation's current retirees.
         With the need to reform the Social Security program 
        becoming more pressing, Congress must keep in mind the key 
        principle that any responsible reform plan will assure current 
        retirees that their benefits will not be reduced.
         That principle is nothing less than a moral 
        obligation of a government to its people. Current retirees have 
        worked too hard for a secure retirement to see it jeopardized 
        in the name of reform. Reducing benefits despite this 
        expectation, would be a fundamental breach of trust between the 
        government and retirees.
         The Social Security Guarantee Act would help 
        eliminate concerns over benefit reduction by seeking to give 
        seniors a stronger claim to their retirement benefits. 
        Specifically, it would require the Secretary of the Treasury to 
        issue to each Social Security beneficiary a certificate 
        including a written guarantee of a fixed monthly benefit, plus 
        a guaranteed annual cost-of-living increase.
          By issuing this certificate, we hope to eliminate 
        the fears of seniors and stop the ugly ``senior scare'' tactics 
        that have doomed Social Security reform prospects in the past.
         Critics claim the Social Security Guarantee Act is a 
        gimmick because guarantee certificates passed by this Congress 
        are not legally binding on other Congresses, and therefore can 
        be changed at any time. In reality, H.R. 832 and its guarantee 
        are legally binding because at the very least it will be 
        politically binding. Although a future Congress could change or 
        repeal the new law, once retirees have a written document in 
        their hands explicitly guaranteeing their benefits, few elected 
        representatives would be willing to repeal it.
         Other skeptics wonder why the guarantee certificate 
        only covers current retirees and not everyone. Without 
        comprehensive reform of the Social Security program, Congress 
        cannot make the same guarantee for future retirees. Social 
        Security expenditures begin exceeding Social Security revenues 
        in 2016 and by 2038 the trust fund is empty. That is why I 
        believe H.R. 832 is an important first step toward meaningful 
        Social Security reform.
         At the end of the day, we, as Members of Congress, 
        must uphold our moral obligation. We have a duty to our seniors 
        to ensure their retirement security will not be jeopardized. At 
        the same time, we cannot lose sight of the overall goal of 
        reforming the Social Security program so that today's workers 
        will have the retirement that they deserve as well.

                               

    Chairman SHAW. You get extra points for leaving a minute on 
the table. Mr. DeMint?

STATEMENT OF THE HON. JIM DEMINT, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF SOUTH CAROLINA

    Mr. DeMINT. Thank you, Mr. Chairman, and I appreciate all 
of your work on this issue. You are one of the few who has been 
willing to put the time into developing a plan of your own and 
to work out all of the difficulties in guaranteeing the 
benefits of Social Security in the future.
    Chairman SHAW. You get an extra minute.
    [Laughter.]
    Mr. DeMINT. An extra minute. Thank you. That is what I was 
shooting for.
    Thank you, Congressman Matsui and my colleagues at the end 
of the row here.
    I would like to submit my comments for the record, and I 
have, if I could, I would like to set those notes aside and 
just talk from my heart for a minute. Because as has been 
pointed out many times today, we are talking about America's 
most important social contract. It is a sacred promise to our 
seniors, and we need to make sure it is there not only for 
today's seniors, but for all future generations of Americans.
    But as we look at different types of reforms, I think it is 
important to build a foundation before we do that. I was 
encouraged this morning, as I heard the debate move from 
whether or not we should do anything to Social Security to 
beginning to talk about which plan is the best way to change 
Social Security. And many have asked, as Mr. Gephardt has, let 
us have an honest debate. We can't have an honest debate on 
whether or not to change Social Security. We can have an honest 
debate on what is the best way to do it, and I feel like maybe 
the Subcommittee this morning in the discussions have begun to 
change that gear.
    But before we put all of these different debate plans on 
the table, I think it is real important that the American 
people know the truth about Social Security, otherwise all of 
this talk is going to confuse and frighten them. Many of you, 
as I do, have seniors coming into your office regularly with 
problems on Social Security. They are so confused and 
frustrated. They do not understand how it works. They seldom 
have anything in their hand that tells them what they are 
supposed to get or if there is any kind of a guarantee that 
they are going to continue to get it.
    They are very confused, and I think it would be easy to say 
that there is no reason for us to act and guarantee their 
benefits if there were not discussions up here, as we heard 
last night from Mr. Gephardt, that there is a secret plan to 
cut their benefits. This is shameful, and we need to do 
something of substance that tells these people that their 
benefits are safe, and they are. We know that, but they don't. 
We need to do whatever we can to get the truth to them.
    There is a lot of talk also about we need to do this 
because of Enron. Enron did not tell their employees the truth 
about how their company stood. We need to tell seniors, first 
of all, that their benefits are safe, and we need to 
communicate an honest message to working Americans today.
    I have proposed, along with Walter Jones and a number of 
others, that we do what you often do with any contract is you 
put it in writing. You can call it a gimmick, but we know in 
this country that it is not a contract, it is not an agreement 
unless you put it in writing.
    Americans need to hear us say that their benefits are 
guaranteed. They need to see us go down to the Floor and vote 
to guarantee their benefits, and they need to receive something 
in writing that tells them that their benefits are guaranteed. 
We know it, and they need to know it. This is not a gimmick. If 
we said it is just a piece of paper, we could say the same 
thing about our Constitution, but that is a clear piece of 
paper, as far as our intent. Even our currency, our dollar 
bills, is just a piece of paper, and we could vote to devalue 
it, but because it is a tangible, visible value, politically, 
it makes it impossible or almost impossible to do that.
    Our seniors need to know that we are committed. And that is 
why Walter and I, and many others are supporting the idea of if 
someone has paid into Social Security their whole life, when 
they retire, it is not too much to give them a certificate that 
tells them what their benefit is going to be and that it is 
guaranteed, and it is guaranteed, and we need to make sure they 
know it.
    The next thing we need to know is quit lying to working 
Americans. Every year they get a certificate in the mail that 
suggests to them they have a passbook savings account, that we 
have kept everything they have put in it, and it even says, of 
course, your benefits will be there for you, even though we 
know the Social Security actuaries tell us that it is not going 
to be there unless we change something.
    We need to change that statement in a way that lets working 
Americans know that Social Security is a program that we are 
committed to, but changes are necessary to guarantee their 
benefits, and I think we can guarantee their benefits.
    The first step is to reassure our current senior citizens 
that their benefits are safe. The second step is to tell 
working Americans that we need to make some changes to 
guarantee their benefits in the future. The third step is to 
begin to debate honest plans to save Social Security in the 
future.
    I commend you, again, Mr. Chairman, for taking us in that 
direction, and I would ask this Subcommittee to seriously 
consider putting our contract with seniors in writing and 
changing the statement that we send every year to working 
Americans that is now misleading them, we need to tell them the 
truth.
    Thank you.
    [The prepared statement of Mr. DeMint follows:]

STATEMENT OF THE HON. JIM DEMINT, A REPRESENTATIVE IN CONGRESS FROM THE 
                        STATE OF SOUTH CAROLINA

    Thank you, Mr. Chairman, for the opportunity to testify today. I 
commend you and the Subcommittee for your efforts to improve Social 
Security for today's retirees as well as for future generations.
    The first issue I want to address is the need to tell seniors the 
truth about their benefits--that they are safe, secure, and guaranteed. 
However, this is not true for their children and grandchildren, which I 
will discuss later.
    Mr. Chairman, Social Security is the cornerstone of our retirement 
system. It is the principal source of retirement income for two-thirds 
of the elderly, and makes up 90 percent of the income of about one 
third of all Americans over the age of 65. For many seniors, Social 
Security is all they have.
    After years of being told their taxes were being saved for their 
retirement, many retirees are concerned that shrinking surpluses caused 
by a weakened economy and the attacks of September 11th will 
somehow harm their benefits. Of course, this is not true. Every penny 
of the benefits for today's retirees will be paid in full. The Social 
Security trust fund receives credit for surplus Social Security tax 
dollars regardless of whether those funds are spent on debt reduction 
or to fight the War on Terrorism.
    Seniors are also concerned that reforms needed to strengthen Social 
Security for their children and grandchildren may, in some way, harm 
their benefits. This is also false. Everyone agrees that modernization 
must not change the benefits of today's retirees. The President has 
made this point clear time and time again.
    Mr. Chairman, Social Security is a defining American promise and 
every member of this subcommittee knows this promise will be kept. But 
older Americans drawing Social Security today have a right to know this 
too. They have a right to know their benefits are secure so they can 
enjoy the sunset of their lives without fear or confusion. Mr. 
Chairman, I believe we must take steps now to reinforce our commitment 
to them.
    That is why I introduced H.R. 3135, the Social Security Benefits 
Guarantee Act, which is similar to a bill my friend from North 
Carolina, Walter Jones, has introduced. This legislation would require 
the Secretary of the Treasury to issue to each Social Security 
recipient a personalized certificate that includes a written guarantee 
of a fixed monthly benefit plus an accurate annual cost-of-living 
increase. This written bond would provide today's seniors the truth 
about the safety of their benefits, giving them peace of mind when 
people try to scare them for political gain. And, by putting a 
retiree's entitlement in writing, future Congresses will be less 
inclined to break the sacred promise of Social Security.
    Mr. Chairman, the intent of this legislation is not to change the 
way Social Security operates. Instead, its purpose is to reaffirm our 
commitment to today's seniors. The intent is not to change the way 
benefits are authorized. These certificates would only guarantee what 
is in current law, which is constrained by the accounting mechanism we 
call the Trust Fund. The fact that in 2038, the Trust Fund will not be 
authorized to pay full benefits is a problem that requires fundamental 
reform, not a certificate that restates the promise of current law.
    Mr. Chairman, some people believe the money needed to send these 
guarantee certificates could be better spent. I disagree. According to 
the Congressional Budget Office, the cost would be only $1 million per 
year. Given that the Social Security Administration's annual 
administrative budget is $8 billion and given that the commissioner 
currently spends seventy times this amount sending statements to 
younger workers, it is certainly justified to use this small amount to 
reassure seniors of the safety of their retirement.
    The second issue I want to address is the need to tell younger 
Americans the truth about their Social Security benefits--that they are 
not safe, not secure, and certainly not guaranteed.
    Mr. Chairman, Social Security is in trouble for younger Americans. 
According to the last report of the Social Security trustees, the 
program will begin paying out more than it collects by 2016. Between 
2016 and 2038, the program will require approximately $5 trillion in 
additional cash assistance from the general fund. After that, Social 
Security will become insolvent. Unless we solve this problem now, 
future generations will be stuck with unbearable tax increases followed 
by devastating benefit cuts. Mr. Chairman, younger Americans have a 
right to know this, and I believe we must take steps now to inform them 
of what the future holds for Social Security and their retirement.
    That is why I introduced H.R. 634, the Straight Talk on Social 
Security Act, along with my Democratic colleague from Missouri, Karen 
McCarthy. This bipartisan legislation would require the Social Security 
Administration to improve the ``Your Social Security Statement'' sent 
to all non-retired workers over age twenty-five.
    I am pleased with the recent efforts made by the Social Security 
Administration to boost the public's understanding of the program 
through these personal benefit statements. The Social Security 
Statement is the most significant vehicle we have to increase public 
understanding of Social Security. But, unfortunately, much of the 
information currently contained in it is both flawed and misleading. As 
a result, millions of Americans are being misinformed about how much 
retirement income they will actually have and about how much in taxes 
they will actually have to pay.
    Specifically, the Statement fails to adequately inform people how 
the program's future financial problems will affect the payment of 
their benefits. While the current Statement hints that a problem may 
exist, it reassures readers that ``of course'' Social Security will 
``be there'' when they retire.
    Mr. Chairman, younger workers have a right to know that the future 
of Social Security is anything but secure. They have a right to know 
that starting in 2016, the program will begin to experience massive 
deficits, and that Congress will have to come up with the money to pay 
back that which has not been saved.
    It is not enough to just inform workers that changes ``may'' be 
needed. They have a right to know how those changes will affect their 
retirement. That is why this legislation requires the Social Security 
Administration to inform workers that after 2038, the program will not 
be able to pay all of their promised benefits. For example, the Social 
Security actuaries predict benefits will drop by 27% in 2039 and 
continue to fall thereafter.
    Mr. Chairman, the Social Security Statement also completely fails 
to address the changes that will be needed to convert the Social 
Security trust funds into real economic assets. While we may want to 
pretend that these funds will extend the life of Social Security, we 
all know they are only funds in an accounting sense and can only be 
fulfilled with higher taxes, lower spending, or more debt. That is why 
my bill would inform workers that the trust funds are not cost-free.
    Finally, Mr. Chairman, the Social Security Statement fails to 
adequately explain Social Security's past and future performance in 
terms of what it will pay back to workers for the payroll taxes it 
collects. This relationship between benefits and contributions is known 
as rate of return.
    While the Social Security Administration could not possibly provide 
each worker with their own individualized rate of return estimate, it 
can provide general estimates for typical workers born in different 
years. And that is exactly what my legislation would require.
    According to a recent a Social Security Administration study, 
inflation-adjusted returns averaged more than 25 percent annually for 
Social Security's first retires in the 1940s, and are estimated to 
average roughly 4 percent for today's retirees, roughly 2 percent for 
baby boomers, and 1 percent for those who will be born 40 years from 
now. Since these estimates do not include the cost of repaying the 
trust fund, rates of return will actually be much lower.
    Informing younger workers of this trend is absolutely crucial in 
helping working Americans plan for retirement, especially for low- and 
middle-income workers who will depend almost entirely on Social 
Security for their retirement income. For these workers, Social 
Security payroll taxes are so high that they crowd out their ability to 
personally save for retirement. Social Security is their only 
retirement plan, and they have a right to know that the program's 
performance is declining.
    Mr. Chairman, people can disagree about the reforms needed to solve 
Social Security's long-term financial problems, but we should all agree 
that working Americans have a right to some simple, plain, straight 
talk on Social Security.
    H.R. 3135, the Social Security Benefits Guarantee Act, is an 
effective means for telling today's retirees the truth about the 
security of their benefits, and H.R. 634, the Straight Talk on Social 
Security Act, is an effective means of telling tomorrow's retirees the 
truth about the problems facing the program. Americans have a right to 
know this information, and I urge you move both of these bills so they 
have it.

                               

    Chairman SHAW. Thank you, Mr. DeMint.
    Three of the four, Mr. Etheridge, Mr. DeFazio, Mr. Nadler, 
and Mr. Rodriguez, both in a critical way, used the word 
``privatization.'' I would like a definition of that.
    Mr. Nadler, will you give me a definition of privatization, 
as you use the term?
    Mr. NADLER. Sure. What I mean by privatization and what I 
think is generally meant by privatization is any proposal that 
would direct any part of the 12.4 percent of Social Security 
away from Social Security or away from how it is currently 
used, away from the Social Security Trust Fund and into a 
system of private accounts.
    I do not mean by privatization any proposal such as made by 
President Clinton and by various others since then to have the 
Federal government help people set up individual accounts over 
and above the 12.4 percent from some other source of funds.
    Chairman SHAW. That is what mine does.
    Mr. NADLER. If it is not from that 12.4 percent, and that 
12.4 percent stays the way it is, then it is not what I would 
call privatization. It is a different system.
    Chairman SHAW. Thank you, sir. Mr. Rodriguez?
    Mr. RODRIGUEZ. My definition is any proposal which diverts 
funds from the existing Social Security Trust Fund. In 
addition, any proposal which puts in danger baby boomers and 
their ability to receive Social Security benefits. Also, we 
need to protect the kids of the baby boomers. I feel very 
strongly about preserving the trust fund. We need to understand 
that Social Security also applies to the disabled, as well as 
the blind, and other SSI recipients. It is really important for 
us to understand the initial intent of Social Security, to 
alleviate poverty among seniors, and to provide for the disable 
and other vulnerable segments of our work force.
    If we are looking at private investments outside of Social 
Security, I can understand the importance of that. The bottom 
line is that one out of three Hispanics do not have a private 
pension form, we don't, and Latinas are hit even worse, they 
need Social Security.
    Chairman SHAW. Would you object to a program that we would 
develop alongside of Social Security that, if we didn't touch 
the trust fund at all, and that we set up individual retirement 
accounts for American workers and put 3 percent for low-wage 
people and then 2 percent after you got to a higher wage 
person, if we didn't touch the trust fund----
    Mr. RODRIGUEZ. If you didn't touch the trust fund, I would 
be willing to look at that.
    Chairman SHAW. And take it out of general fund. Thank you, 
sir.
    Mr. NADLER. Mr. Shaw, could I add one thing?
    Chairman SHAW. Yes.
    Mr. NADLER. I would simply say that----
    Chairman SHAW. Are you nervous that you agreed with me?
    Mr. NADLER. No, no. I am not clear on what your proposal 
is. I just want to say, I mean, if it is similar to the 
President's proposal of several years ago, President Clinton's 
proposal, I agreed with that proposal, but----
    Chairman SHAW. I don't recall him having a proposal.
    Mr. NADLER. Oh, he did, and in fact the--but that is not 
the point. I don't want to debate President Clinton at this 
point.
    Chairman SHAW. But my plan also incorporates helping out 
women, taking some of the things that you----
    Mr. NADLER. Well, that sounds fine. I would simply point 
out that if you don't----
    Chairman SHAW. And Mr. Smith agreed with you.
    Mr. NADLER. If you are going to--yes, he did, and I agreed 
with him. He had some good ideas.
    If you are going to fund some sort of private accounts, and 
you are not going to take it from Social Security, that is, 
from that 12.4 percent, you have got to take it from somewhere 
else, and if you are going to make it sizable, that is going to 
be a huge amount of money, and if you want to take it out of 
the Federal budget, well, that is fine if the money is in the 
Federal budget, which the current situation does not seem to 
allow, given those tax cuts we did last year. But I am not, in 
principle, in fact, in principle I am in favor of setting up 
some sort of private thing over and above Social Security, as 
long as you don't touch the Social Security Trust Fund.
    Chairman SHAW. Take a look at my bill. Maybe you would like 
to add your name to it.
    Now, Charlie, according to these two Democrats down here, 
they are defining your program as privatization, but I clearly 
heard either you or Mr. Kolbe or both of you say this was not 
privatization.
    Mr. STENHOLM. Well, I don't look at it as privatization. If 
you are going to put the definition on ours as privatization, 
then you will----
    Chairman SHAW. I didn't, they did.
    Mr. STENHOLM. No, you are asking, I am talking to my two 
colleagues, Mr. Chairman. That then you would also say that the 
Federal retirement system that all of us are in and that our 
Federal employees are in are a privatized system. You can 
stretch it to that far, but before I get into a debate or 
discussion about our plan, I would like for folks to read it. 
It has been amazing to me to listen to the criticism of Jim's 
and my plan of obviously people who have never read it, but are 
talking in platitudes about, as we have heard again today.
    I mean, you compare it to the President's plan. The 
President has not got a plan specifically as yet, but he has 
got a concept that I happen to agree very strongly with, and I 
have for 6 years. And I am perfectly willing to debate my 
colleagues regarding whether it is good, bad, or indifferent. 
That is why we came today is to, hopefully, this hearing begins 
a serious discussion of solutions. With all due respect to 
those that believe the first step is a certificate, I mean, 
that is not the worth the paper it is printed on, and it is 
going to cost anywhere from $10 to $40 million to send it out. 
You can already get that from the Social Security system. Any 
time you wish to write in and find out what your benefits are, 
you write, they tell you these are your guaranteed benefits, 
and it is just as good as any certificate that you get planted 
after this.
    So we are talking now in political terms.
    Mr. DeMINT. Could I respond, Mr. Chairman?
    Chairman SHAW. Sure. Go ahead, Mr. DeMint.
    Mr. DeMINT. Just the real cost that CBO gives us, it is $8 
million the first year because it goes to all of those who are 
currently retired. It is $1 million every year thereafter to 
give a certificate of guarantee to every new retiree. Now we 
spend $70 million a year to give a statement to working 
Americans to tell them something is there that is not. I think 
we could spend a million dollars a year to tell senior citizens 
the truth.
    Chairman SHAW. Well, it could go out with a Social Security 
check. You could get your Congressman to do that.
    Mr. STENHOLM. Could I respond again?
    Chairman SHAW. Please.
    Mr. STENHOLM. To me, $8 million is still a lot of money. 
Now part of the debate surrounding this has to do with the 
budget, and surpluses, and the fact that we now have got 
deficits as far as the eye can see. And the economic game plan 
that we are under right now, as proposed by the President, we 
will be in the Social Security Trust Fund for the next 10 
years.
    I heard my colleague, Mr. Hayworth, this morning go back to 
the eighties and the fact we didn't cut spending. If you are 
going to talk about cutting spending, then you have got to quit 
saying $8 million is not a lot of money and compare it to $70 
million that we are wasting. Let us cut out the $70 million. 
For Heaven's sakes, Jim, let us not add another $8 million. The 
folks I represent, $8 million, $1 million, $100,000 is still a 
lot of money, and yet we come in here and say, ``Oh, pooh, $8 
million and $1 million a year is nothing,'' and we call 
ourselves conservatives.
    Chairman SHAW. I will tell you what we are going to do. I 
am not going to get this into a debate between the two of us. 
We have got two more Members that have shown up. We will have 
the whole Congress in here pretty soon.
    [Laughter.]
    Chairman SHAW. Will the two other Members come to the table 
that plan to be heard. Maybe they can just go ahead and testify 
real quick. If you can testify just in a couple of minutes, I 
will hear you before the vote.
    Anybody that can sum up in 2 minutes is invited to the 
table. Jan, come on up. You can pull right up to the end of the 
table there. Two minutes.
    Ms. SCHAKOWSKY. I will do my best, Mr. Chairman.
    Chairman SHAW. Thank you. I appreciate your being here. By 
the way, I want to say, Charlie, I admire you. You are one of 
the pioneers on this thing, and I really appreciate you. You 
broke a lot of ground, and we will take care of chase. Do not 
worry.
    Mr. STENHOLM. I appreciate that.
    Chairman SHAW. We are slow, but we will get there.
    Mr. STENHOLM. I appreciate the opportunity. I am sorry I 
caused you to go into a debate.
    Chairman SHAW. Well, you are good at that, Charlie, and 
that is fine. You ought to do what you do best, thank you. Yes, 
ma'am?

STATEMENT OF THE HON. JANICE D. SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. SCHAKOWSKY. Thank you so much, Mr. Chairman. I am 
Congresswoman Jan Schakowsky from Illinois.
    I appreciate the opportunity to be able to talk to you 
about the issue of Social Security benefit guarantee 
certificates and the future of Social Security.
    I wanted you to know, and the Subcommittee to know, that 
from 1985 to 1990 I served as Executive Director of the 
Illinois State Council of Senior Citizens. And given that 
experience of being the Executive Director of a senior citizen 
organization, I can assure you that senior citizens will 
clearly understand these certificates for what they really are, 
which I believe is an attempt to provide political cover for 
those who want to be seen as fans of Social Security while, at 
the same time, are promoting privatization proposals that will 
undermine it. Senior citizens, I believe, will be skeptical of 
these certificates for several very good reasons.
    First of all, there is the budget record development. 
Despite all of the rhetoric about putting Social Security 
revenue into a lockbox, the lock to that box has been picked by 
the Republican budgets. It is true that the lockbox resolution 
that passed the House provided certain exceptions, such as war 
or recession, but it is not true that one of the exceptions to 
the lockbox was providing tax breaks to the wealthy.
    The Congressional Budget Office has indicated the single 
largest factor in the disappearing budget surplus as last 
year's tax cut, and the Bush budget proposal will take $553 
billion of the Medicaid surplus and $1.5 trillion of the Social 
Security surplus over the next decade. I doubt that a 
certificate will assure senior citizens that Social Security 
solvency is a priority, given those figures.
    And second, there are those unfortunate statements by 
Treasury Secretary O'Neill. Last May, in an interview in the 
Financial Times, Secretary O'Neill stated, ``Able-bodied adults 
should save enough on a regular basis so that they can provide 
for their own retirement, and for that matter health and 
medical needs.''
    And in July, Secretary O'Neill stated that, ``The Social 
Security Trust Fund does not consist of real economic assets.''
    Well, if the Treasury Secretary believes that the assets in 
the trust fund are just worthless paper, why should Social 
Security beneficiaries have any faith in a paper certificate?
    The third reason that they will be skeptical are the 
disturbing references to Social Security found in the economic 
report of the President.
    Chairman SHAW. We want to be sure to get over here to Jim, 
too. I understand, Mr. Forbes, you want to put your statement 
in the record?
    Mr. FORBES. Mr. Chairman, I will be glad just to do that in 
the interest of time.
    Chairman SHAW. Okay. Well, you just go ahead and submit 
yours for the record.
    [The statement of Mr. Forbes follows:]

  STATEMENT OF THE HON. J. RANDY FORBES, A REPRESENTATIVE IN CONGRESS 
                       FROM THE STATE OF VIRGINIA

    Thank you Chairman Shaw and Ranking Member Matsui for having me 
before your distinguished Committee this morning. I want to commend you 
for holding this important hearing and for having the foresight and 
conviction to address this important issue. I believe that hearings 
such as this one are more than just a forum for witnesses to express 
their views. Today's hearing is in fact the practice and strengthening 
of our democracy. As such, I am humbled to have the honor and privilege 
of speaking to you on behalf of the people of the Fourth District of 
Virginia.
    I can think of no other issue that is of greater concern to the 
seniors in my district than the stability and future of Social 
Security. To my constituents, and myself, Social Security is more than 
just another government program that administers benefits to those who 
qualify. Social Security is a sacred trust between the Federal 
government and its citizens--a trust that we must not allow to be 
broken.
    Today 44 million Americans--one in six--depend on Social Security 
retirement, disability, and survivor benefits. Thanks largely to Social 
Security, seniors today are the least likely group to be poor. For 
years now, however, Congress and the public have known that Social 
Security would soon be facing serious financial challenges due to 
shifting demographics. Due to the aging of the baby boom generation, 
the number of retiring Americans receiving benefits is beginning to 
overwhelm the number of working Americans paying into the Social 
Security system. In addition, important medical advances and healthy 
behavioral changes, are allowing Americans to live longer. The result 
of these factors is that beginning in 2016, Social Security payments 
will exceed worker contributions into the trust fund.
    This is a scary prospect for the millions of Americans who receive 
Social Security benefits. Many of these individuals depend upon their 
monthly Social Security checks to survive. As we fight our global war 
on terrorism, we must not lose sight of the fact that terror can come 
in many forms. It is every bit as frightening to an elderly man or 
woman when their Social Security check is late--or doesn't arrive at 
all. Too many seniors are living from one check to the next while 
balancing food against medicine. As their Representatives in Congress, 
we should at least provide them with the security of the promise of 
Social Security.
    It is also a scary prospect, Mr. Chairman, for the millions of 
workers who are currently paying into the system. They have been paying 
into the Social Security trust funds because they have to, not because 
they believe in the promise of Social Security. In fact, numerous 
studies have shown that more young Americans believe in UFOs than in 
their future Social Security checks. As Members of Congress, it is 
incumbent upon us to restore younger worker's faith in Social Security 
and us.
    In the coming weeks, Congress may consider legislation that will 
lead to changes in Social Security, strengthening it and improving it 
for generations to come. As we consider changes to Social Security, 
Congress must address the concerns of our Nation's seniors by taking a 
Hippocratic oath to protect Social Security. We must all pledge to 
``first do no harm.'' Mr. Chairman, we must maintain our determination 
to keep the promise of Social Security. We should not raise Social 
Security taxes and we should not cut benefits. We must use the 
innovative spirit that is America's hallmark to meet this challenge and 
find a way to strengthen and improve Social Security.
    It is a surprise to many when they learn that Social Security 
recipients have no legal right to their benefits. In 1960, the Supreme 
Court held in Flemming v. Nestor that Congress could change or 
discontinue Social Security benefits at any time. In other words, 
Americans have no legal property right to their Social Security 
benefits. Our seniors deserve more than just Congress' good word that 
Social Security will be there for them.
    By establishing a property right for retirees, Congress would 
ensure that the benefits of those who depend on Social Security would 
be permanently protected under the law. Our seniors deserve no less.
    I also want to commend the President for addressing this issue in a 
straightforward manner. While the events of September 11th have 
required us to focus on winning the war on terrorism, I know that 
saving Social Security is high on the President's agenda. I believe 
that next to winning the war on terrorism, reforming and protecting 
Social Security will be one of the great legacies of this 
administration and this congress.
    Recently I was pleased to hear the President lay out his principles 
for reforming Social Security. The President made it clear that 
reforming Social Security must not change existing benefits for current 
retirees or near-retirees, and it must preserve the disability and 
survivors' components. The promises made to current retirees must be 
kept. Every senior receiving, or about to receive, Social Security 
benefits should rest assured that their hard earned benefits will be 
there for them.
    We must also seek and gain the consent of the governed. Any 
proposal to reform Social Security must be carefully scrutinized and 
presented in daylight for everyone to see and review. We must also 
continually seek the thoughts and ideas of those that rely on Social 
Security. During my brief time in Congress, I have made it a priority 
to seek the advice and counsel of the seniors in my district by 
creating a Social Security Advisory Board. I have also heard the 
importance and real life impact of Social Security through numerous 
town hall meetings that I have held throughout the Fourth Congressional 
District.
    In the end, to protect Social Security we must come together as a 
Congress. We must resist the temptation to use this issue for political 
gain. The future of Social Security is too important for one party to 
use as political leverage over the other.
    Again, I want to thank the Committee again for the opportunity to 
appear before you today, and I commend you again for addressing this 
vitally important issue.

                               

    Chairman SHAW. Would you go ahead and submit your whole 
statement to the record?
    Ms. SCHAKOWSKY. I will. I actually am trying to pare it 
down. Well, let me try and finish then in another minute, okay?
    Chairman SHAW. Quickly, if you would.
    Ms. SCHAKOWSKY. I am doing it as fast as I can----
    Chairman SHAW. You committed to 2 minutes.
    Ms. SCHAKOWSKY. I will. Okay.
    Well, then let me just say I think one of the main reasons 
that they will be skeptical is that the issue is that the 
President's Commission on Social Security has come up 
unanimously with ideas about privatization and was full of 
people who were handpicked only to support the idea of 
privatization which, in my view, would drain money from the 
trust fund, would shorten the life of the trust fund, would 
jeopardize benefits, would risk disability and survivor 
benefits, and I think that cloth certificates are not going to 
address the problem.
    Let me just finish with this. I think if we are going to 
send out certificates, there ought to be some truth in 
advertising. It should say that the Congressional Research 
Service has concluded that these certificates provide no more 
protection than already exists under the law, it is not usable 
in a court of law, and the only real promise is that the Social 
Security Administration will follow the law until it decides to 
change the law.
    And so it seems to me that we ought to be honest, even more 
honest than when we sent back the $300 and $600 rebates, no one 
knew in that letter that it was really an advance on their 
return this coming tax year, and I think we have to be honest 
with people and that, in fact, we shouldn't waste tax dollars. 
This is a ridiculous proposal.
    Chairman SHAW. I am going to stop you right there.
    [The prepared statement of Ms. Schakowsky follows:]

    STATEMENT OF THE HON. JANICE D. SCHAKOWSKY, A REPRESENTATIVE IN 
                  CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Chairman, I want to thank you for the opportunity to testify 
before you today on the issue of Social Security benefit ``guarantee 
certificates'' and the future of Social Security.
    I believe that our goal should be to protect and improve the 
financial security of retirees, survivors, dependents, and disabled 
workers. For 67 years, Social Security has been the bedrock of that 
security. Nearly 46 million people--living in 1 out of every 4 
households across this country--today receive monthly benefits from 
Social Security. Social Security provides critical insurance 
protections against the future loss of income due to retirement, death 
or disability for 96 percent of all workers, their spouses and their 
children. Social Security provides over half of the total income for 
the average elderly household. For one-third of women over age 65, 
Social Security represents 90 percent of their total income. Without 
this program, half of older women would be living in poverty.
    Mr. Chairman, it is our responsibility to ensure that the Social 
Security guarantee is here today, tomorrow and for generations to come.
    It is our job as elected officials to enact the policies needed to 
maintain that guarantee and to reject the policies that undermine 
Social Security. It is not our job to spend taxpayer dollars to send 
out paper certificates designed to provide a false sense of security to 
American seniors and their families. We should not be engaged in a 
public relations campaign but in a serious policy discussion that lets 
us debate how best to continue the Social Security commitment to 
guaranteed, life-long and inflation-proof benefits.
    From 1985 to 1990, I served as executive director for the Illinois 
Council of Senior Citizens. Given that experience, I can assure you 
that senior citizens will clearly understand these certificates for 
what they really are--an attempt to provide political cover for those 
who want to be seen as fans of Social Security while at the same time 
they are promoting privatization proposals that undermine it. They will 
wonder why we feel the need to spend $10 million to say that we will 
follow the law, unless we decide to change the law. And they will ask 
why we have $10 million to send out meaningless certificates instead of 
using that money to increase services such as meals on wheels, senior 
housing, or nursing home quality enforcement.
    They will also understand why the Republican leadership may feel 
the need to provide their ``bona fides'' when it comes to Social 
Security.
    First, there is the budget record. Despite all the rhetoric about 
putting Social Security revenues in a lockbox, the lock to that box has 
been picked by the Republican budgets. It is true that the lockbox 
resolution passed in the House provided certain exceptions, such as war 
or recession. But it is not true that one of those exceptions was 
providing tax breaks to the wealthy. The Congressional Budget Office 
has indicated that the single largest factor in the disappearing budget 
surplus is last year's tax cut. As you know, the Congressional Budget 
Office has estimated that, even without new taxes or spending, we will 
take $900 billion from the Trust Fund over the next nine years. Now, 
President Bush is proposing new tax cuts of $675 billion over 10 years 
and $343 billion to make last year's tax cuts permanent, money that 
will come out of Social Security and Medicare. The Bush budget proposes 
to take $553 billion of the Medicare surplus and $1.5 trillion of the 
Social Security surplus over the next decade. I doubt that a 
certificate will assure senior citizens that Social Security solvency 
is a priority given those figures.
    Second, there are those unfortunate statements by Treasury 
Secretary O'Neill. Last May, in an interview with the Financial Times, 
Secretary O'Neill stated that ``Able-bodied adults should save enough 
on a regular basis so that they can provide for their own retirement 
and, for that matter, health and medical needs.'' In July, Secretary 
O'Neill stated that ``the Social Security trust fund does not consist 
of real economic assets.'' Again, it is hard to argue that those are 
ringing endorsements of Social Security. If the Treasury Secretary 
believes that the assets in the Trust Fund are just worthless paper, 
why should Social Security beneficiaries have any faith in a 
certificate?
    Third, despite the outcry over Secretary O'Neill's comments last 
year, those pesky statements are restated in this year's Economic 
Report of the President. Once again, we are told that ``Americans must 
take even greater responsibility for their own retirement security by 
increasing their personal saving.'' Social Security is not lauded as 
the most successful anti-poverty program in our history and one that 
spends less than 1 percent in administrative costs to do so. It is 
described as a ``moral hazard: once a person is insured against running 
out of money in retirement, he or she has an incentive to retire 
earlier than in the absence of insurance,'' thereby raising the cost of 
the program. Or this statement: ``The importance of Social Security 
benefits in the retirement portfolios of most American households does 
not necessarily mean, however, that most U.S. households would be 
poorly prepared for retirement without it.'' Not an argument that one 
might want to use with those older women who rely on Social Security 
for 90 percent of their income or those Enron retirees who are now 
totally dependent on Social Security.
    Fourth and most important, there is the President's Commission on 
Social Security. All of those appointed to the Commission last May were 
supporters of privatization, which may explain why none of those 
appointed to the Commission last May represented recognized senior, 
disability, women's, or minority organizations. The three plans put 
forth by the Commission last December all include variations on the 
privatization theme. All of the plans would jeopardize the Social 
Security guarantee in one way or another:

         Privatization would drain between $1 trillion and 
        $1.5 trillion from the Trust Fund over the next decade alone.
         Privatization would shorten the life of the Trust 
        Fund. One plan would increase the long-term Social Security 
        deficit by 25 percent. Another tries to deal with this deficit 
        by transferring $6 trillion from the U.S. Treasury between 2021 
        and 2054 to make up the deficit. Taking general revenues might 
        help Social Security but it would also eliminate resources 
        necessary for Medicare, Medicaid, the Older Americans Act, job 
        training, education and other essential programs.
         Privatization would jeopardize benefits to current 
        and future beneficiaries. One of the Commission's proposals 
        would cut benefits for future retirees by calculating initial 
        benefits on the basis of growth in CPI rather than wages, which 
        would greatly reduce standard of living. Future retirees could 
        face cuts of 40% or more. Those benefit cuts are not voluntary. 
        They would affect all beneficiaries, not just those who opted 
        for individual accounts.
         Privatization would force workers to work longer in 
        order to maintain benefits.
         Privatization would reduce disability and survivor 
        benefits.
         Privatization proposals also raise a number of 
        serious practical problems that have to be addressed. The 
        Congressional Budget Office has identified some of those 
        questions (Social Security: A Primer, September 2001), 
        including whether people would be required to convert their 
        private account assets into an annuity and whether they would 
        have to have joint annuities to protect dependents; whether and 
        how beneficiaries would be protected against downturns in the 
        stock market or outliving their assets; how the system would 
        handle benefits for workers' families, for survivors of 
        deceased workers, and for disabled workers; and whether there 
        would be subsidies for people with low income and intermittent 
        work histories, as Social Security does now?

    Sending out glossy, slick certificates wouldn't answer those 
questions. Sending out a certificate won't provide a guarantee if that 
guarantee doesn't exist in law itself. Sending out a certificate won't 
put the money back in the Trust Fund that has been used to provide tax 
cuts for millionaires. But, if certificates are going to be provided, 
at least they should follow basic truth in advertising standards.
    The certificate should state clearly that, as the Congressional 
Research Service has concluded, it provides no more protection than 
already exists under law. It's not an ironclad guarantee. Senior 
citizens, survivors and disabled workers can't use it to obtain their 
benefits in a court of law. The only real promise is that the Social 
Security Administration will follow the law until and unless Congress 
changes that law. Certificates don't guarantee that Congress won't act 
to cut benefits for current or future beneficiaries.
    Any certificate should state clearly that Congress may pass a 
privatization initiative that will reduce Social Security benefits by 
the amounts received from individual accounts. Many of my constituents 
are just now finding out that their $300 tax rebate last year is coming 
from the tax refunds they thought they were due this year. We should be 
very clear and very precise so that there are not any similar surprises 
in the future. We should also make sure that beneficiaries understand 
that Congress reserves the right to change benefit calculations that 
would cause workers to work longer in order to stay in the same place.
    And, perhaps, instead of just sending certificates to current 
beneficiaries and beneficiaries as they enroll, we should also send a 
warning to future beneficiaries that we are not making them any 
promises. They might be interested to know that we are not guaranteeing 
their benefits and that we are making no commitment that they will not 
face substantial reductions like those envisioned in the Social 
Security Commission proposals. We should warn them that Social Security 
may not be there for them when they need it.
    Or, instead of wasting taxpayer dollars on an election year 
gimmick, we could take two steps to prove our commitment to Social 
Security.
    First, we can vote to reject privatization. Groups like the Urban 
League, the National Women's Law Center, the National Committee to 
Preserve Medicare and Social Security, the United Cerebral Palsy 
Association, the Alliance for Retired Americans and many, many others 
have raised serious objections to privatization proposals.
    Yesterday, I was visited by members of the National Silver Haired 
Congress. The Congress is a non-partisan organization, dedicated to 
representing ``the best interests of all elder Americans.'' Members 
introduce, debate and vote on resolutions and then present those 
resolutions to the President and Congress. Helen Heyrman, the ``Senior 
Senator'' from Illinois, introduced a resolution to ``retain Social 
Security as a Guaranteed Benefit,'' a resolution that passed 
overwhelmingly as a top priority of this year's Congress. The text of 
the resolution is attached to my testimony.
    I hope that we will follow the lead of the National Silver Haired 
Congress by rejecting privatization. At least, we should have a full 
and fair debate where their concerns are addressed.
    Second, we can vote to reject tax cuts for the wealthy that 
jeopardize Social Security. Peter Orzag from the Brooking Institution 
has said that the tax cuts passed last summer but not yet implemented 
will exceed the entire Social Security deficit over the next 75 years. 
I introduced the First Things First Act, H.R. 2999. My bill would delay 
changes in the top marginal tax rates and elimination of the estate tax 
(while lifting the exemption for family-owned businesses to $4 million) 
until we've protected Social Security and Medicare and met other 
critical needs, such as providing a comprehensive Medicare prescription 
drug benefit. Certainly, we should not pass the tax provisions in the 
President's budget that would drain $1.5 trillion from the Trust Fund.
    Mr. Chairman, I want to thank you again for giving me the 
opportunity to be here today. I hope that we can put these guarantee 
certificate proposals to rest and instead work together to keep the 
security in Social Security and improve the financial future for 
retirees, disabled workers, survivors, and dependents.

                               

    Chairman SHAW. Jim?

 STATEMENT OF THE HON. JAMES R. LANGEVIN, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF RHODE ISLAND

    Mr. LANGEVIN. Thank you, Mr. Chairman and Ranking Member 
Matsui, for the opportunity to speak to you today about this 
important and complex issue.
    I am deeply concerned about the impact privatization could 
have on the more than 6 million people who rely on Social 
Security Disability Insurance for survival today and the 
millions more who will count on this insurance in the future. 
The fate of the disability program should be of paramount 
concern in addressing the problems facing Social Security, yet 
it receives far too little attention.
    Ranking Member Matsui and many other esteemed Members of 
this Subcommittee have done an outstanding job spot-lighting 
these issues, and I am grateful for the opportunity to add to 
the dialog today.
    Disability insurance is essential to the economic security 
of our most vulnerable citizens. Throughout the course of their 
lives, one-fifth of adult women and one-fourth of adult men 
will receive disability benefits. Therefore, we must be 
cognizant of the impact of any privatization proposals on this 
critical program.
    Now no one advocates the privatizing of the Disability 
Insurance program. That would be an extremely dangerous 
proposition. Those who collect disability insurance are largely 
unable to work, and, therefore, unable to contribute to private 
accounts. Even those who can work will probably not be able to 
build a large enough account and meet their needs. So, if no 
one is suggesting that the government privatize disability 
insurance, why all the concern?
    Well, there are a number of reasons to worry about the 
impact that privatizing old age and survivors insurance would 
have the Disability Insurance program.
    First, it will be extremely difficult to retain the 
existing Disability Insurance program if the Old-Age and 
Survivors Insurance (OASI) program is fundamentally changed. 
The two programs share administrative costs, personnel and 
processes, and since OASI is a much larger program than 
Disability Insurance, serving 85 percent of all Social Security 
beneficiaries, the administrative costs, once shared by both 
programs, would now be solely generated and absorbed by the 
Social Security Disability Insurance.
    Furthermore, because the formulas used to determine 
disability and retirement benefits are intertwined and most 
privatization proposals call for changing the formula to reduce 
benefits, disability program beneficiaries could face sharp 
benefit reductions that would not be compensated by even the 
most robust growth in the standard & poor's 500, S&P 500.
    Chairman SHAW. Jim, may I interrupt? How long does it take 
you to get to the Floor from here?
    Mr. LANGEVIN. About 5 minutes.
    Chairman SHAW. Do you want to submit the rest of your 
statement for the record?
    Mr. LANGEVIN. I think I am almost done, if I can have just 
maybe another 50 seconds.
    Chairman SHAW. Fine, you go right ahead. I just didn't want 
you to miss the vote.
    Mr. LANGEVIN. Thank you, Chairman.
    Chairman SHAW. In fact, I don't want any of us to miss 
vote.
    Mr. LANGEVIN. Finally, most privatization proposals would 
raise the Old Age Insurance retirement age, which would 
substantially increase the number of people collecting 
disability insurance and make the program significantly 
expensive.
    Although I commend Chairman Shaw's diligent efforts to 
address this issue confronting Social Security, I am concerned 
about the impact his proposal will have on those who rely on 
disability insurance.
    I am also wary of Representative Armey's proposal to send 
guarantee certificates to selected current and future 
beneficiaries. Such proposals would divert critical funds away 
from benefits and further jeopardize the solvency of the 
Disability Insurance program. In fact, Representative Armey's 
bill would drain $10 million from the Federal Treasury, funds 
that could be used to expedite $14,000 disability insurance 
claims instead.
    I came to Congress, in part, to fight for policies that 
help people with disabilities or debilitating illnesses enjoy 
longer, healthier, and more productive lives. The Social 
Security Disability program is essential to that effort because 
it provides a guarantee from the Federal government that all 
Americans will receive a minimum income if they become 
physically unable to work.
    Before we continue down a dangerous path toward 
privatization, we must remember that Social Security was 
intended to provide security, not wealth. Disabled Americans 
who face a myriad of challenges every day of their lives need 
that security, and I, with the help of dedicated people like 
Representative Matsui, will fight in Congress to preserve it.
    Mr. Chairman, I thank you, and, Ranking Member, I thank you 
for the time to speak.
    [The prepared statement of Mr. Langevin follows:]

 STATEMENT OF THE HON. JAMES R. LANGEVIN, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF RHODE ISLAND

    I want to begin by thanking Chairman Shaw and Ranking Member Matsui 
for the opportunity to speak with you about this important and complex 
issue today. I am deeply concerned about the impact privatization could 
have on the more than 6 million people who rely on Social Security 
Disability Insurance (SSDI) for survival today and the millions more 
who will count on this insurance in the future. The fate of the 
disability program should be of paramount concern in addressing the 
problems facing Social Security, yet it receives far too little 
attention. Ranking Member Matsui and many of the other esteemed Members 
of this subcommittee have done an outstanding job of spotlighting these 
issues, and I am grateful for the opportunity to add to the dialogue 
today.
    Disability Insurance is essential to the economic security of our 
most vulnerable citizens. Throughout the course of their lives, one-
fifth of adult women and one-fourth of adult men will receive 
disability benefits. Therefore, we must be cognizant of the impact of 
any privatization proposal on this critical program.
    No one advocates privatizing the Disability Insurance program. That 
would be an extremely dangerous proposition. Those who collect 
Disability Insurance are largely unable to work and therefore unable to 
contribute to private accounts. Even those who can work would probably 
not be able to build a large enough account to meet their needs. So, if 
no one is suggesting that the government privatize Disability 
Insurance, why all the concern?
    There are a number of reasons to worry about the impact that 
privatizing Old Age and Survivors Insurance would have on the 
Disability Insurance program. First, it will be extremely difficult to 
retain the existing Disability Insurance program if the Old Age and 
Survivors program is fundamentally changed. The two programs share 
administrative costs, personnel, and processes. And since OASI is a 
much larger program than Disability Insurance, serving 85% of all 
Social Security beneficiaries, the administrative costs once shared by 
both programs would now be solely generated and absorbed by SSDI.
    Furthermore, because the formulas used to determine disability and 
retirement benefits are intertwined, and most privatization proposals 
call for changing the formula to reduce benefits, disability program 
beneficiaries could face sharp benefit reductions that would not be 
compensated by even the most robust growth in the S&P 500. Finally, 
most privatization proposals would raise the Old Age Insurance 
retirement age, which would substantially increase the number of people 
collecting Disability Insurance and make the program significantly more 
expensive.
    So although I commend Chairman Shaw's diligent efforts to address 
the issues confronting Social Security, I am concerned about the impact 
his proposal will have on those who rely on Disability Insurance. I am 
also wary of Representative Armey's proposal to send guarantee 
certificates to selected current and future beneficiaries. Such 
proposals would divert critical funds away from benefits and further 
jeopardize the solvency of the Disability Insurance program. In fact, 
Representative Armey's bill would drain $10 million from the federal 
treasury, funds that could be used to expedite 14,000 disability 
insurance claims instead.
    I came to Congress in part to fight for policies that help people 
with disabilities or debilitating illness enjoy longer, healthier, and 
more productive lives. The Social Security Disability program is 
essential to that effort because it provides a guarantee from the 
federal government that all Americans will receive a minimum income if 
they become physically unable to work. Before we continue down a 
dangerous path toward privatization, we must remember that Social 
Security was intended to provide security, not wealth. Disabled 
Americans, who face myriad challenges every day of their lives, need 
that security, and I, with the help of dedicated people like 
Representative Matsui, will fight in Congress to preserve it.

                               

    Chairman SHAW. Jim, thank you for your testimony.
    I thank all of the witnesses for their testimony. I want to 
congratulate the witnesses that we had today that did have 
plans, and I want to make a note that Ms. Clayton is not here, 
but her statement will be submitted for the record.
    [The statement of Ms. Clayton follows:]

STATEMENT OF THE HON. EVA M. CLAYTON, A REPRESENTATIVE IN CONGRESS FROM 
                      THE STATE OF NORTH CAROLINA

    Good morning Chairman Shaw. I appreciate the invitation to address 
this Subcommittee on Social Security. I'm very concerned about Social 
Security. How do we strengthen Social Security and provide guarantees 
for our future generations?
    Social Security has been one of the country's most successful 
social programs. It is largely responsible for the dramatic reduction 
in poverty among seniors, 50 % of the population aged 65 and over would 
live in poverty if it were not for Social Security. Social Security 
along lifted over 11 million seniors out of poverty in 1997, reducing 
the elderly poverty rate from 48% to 12 %. For 1 in 2 African American 
and Hispanic seniors, Social Security benefits provide 90% or more of 
their income. As of December 2001, 30% of all Social Security 
beneficiaries were receiving benefits because they or their family 
Member were severely disabled or because a family Member passed away.
    We must all remember that in 1935 President Roosevelt established 
this program to help all workers prepare for retirement, with an 
emphasis on helping retired workers who had low incomes. The inception 
of this program came as a result of the crash of the markets that led 
us to the Depression of the thirties.
    Strategies for saving Social Security for the future generations 
are among the most important issues facing us today. We want to make 
sure that the future of Social Security is secure for our children and 
grandchildren, but we also want to protect the financial security and 
promised benefits of retirees.
    According to the Social Security Administration, once the baby-boom 
generation retires, the amount of money that the government will spend 
on Social Security will increase by more than 50% over the three 
decades. That is why some of us argued that it was very important to 
keep the ``Lock Box on Social Security'', save the budget surplus and 
pay down the Federal debt.
    Some of my colleagues and the President are suggesting that we 
privatize Social Security as the way of providing for future 
generations. I'm more than a little nervous about this approach. The 
Congressional Budget Office suggests that in setting up a private 
accounts system, the following issues must be addressed: cost of 
administering private accounts, protection against the down turn in the 
markets, benefits for deceased workers' families and disabled workers 
and the needs of the low income. Additionally, how would the system be 
regulated and investors informed?
    The complexity of privatizing the Social Security system is a 
difficult task and will have a significant impact on workers' economic 
security. According to the Employee Benefit Research Institute, adding 
individual retirement accounts to Social Security could be one of the 
largest undertakings in the history of the of the U.S. financial 
market, and no system to date has the capacity to administer such a 
system.
    The President's Social Security Commission recommended cutting 
disability benefits to help defray the cost of private accounts, and 
bar access to the accounts prior to retirement. This would be a double 
blow to the disabled workers.
    Between March 2000 and April 2001, the S&P 500 fell by 424 points 
or 28%. If Social Security had been privatized, a worker who had his or 
her individual account invested in the S&P 500 and who retired in April 
2001 would have 28% less to live on the rest of his or her life. 
Perhaps we should ask the workers from Enron about their 401K accounts.
    As policy makers, we must have the answers to these questions and 
guarantees that the risk of privatization will not cause major harm to 
our Social Security System.
    I agree that we must come up with ways of reforming the Social 
Security system.
    Perhaps, we should be looking at increasing the limits on 
individual retirement accounts, encouraging and teaching our youth and 
families the value of saving, investing and financial planning for 
retirement. Perhaps, another approach is to look at other ways of 
enhancing government securities and bond programs to pay better 
dividends. As you may recall, it was not too long ago that we not only 
encouraged youth to save and invest through buying savings bonds at 
school and post offices, and passbook accounts for vacations and 
holidays. We must look at some of the initiatives that organizations 
like the American Saving Association, Jump Start Program, Children's 
Banks and others are attempting by working with children, parents and 
schools. These organizations are developing educational programs that 
teach the basics, understanding money management, and encourages saving 
and investing with its impact on individuals' future economic security.
    I am afraid that privatization is not the right solution, it is 
risky, and limits guaranteed protection for our future generations.
    It is important for Congress to remember that while Social Security 
was not designed as a retirement program, however, many Americans have 
paid into the system in good faith and feel justified in relying on 
these benefits to survive during their retirement.

                               

    Chairman SHAW. If there are no other comments, this hearing 
is adjourned.
    [Whereupon, at 2:17 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

 STATEMENT OF THE HON. JOHN E. BALDACCI, A REPRESENTATIVE IN CONGRESS 
                        FROM THE STATE OF MAINE

    I am pleased that the committee has convened these hearings to 
discuss the important topics of benefit guarantee certificates, benefit 
improvements for women, and changes to the Social Security Statement 
and Trustees Report. It is good to see serious attention paid to the 
future of the Social Security program, which is the foundation of 
America's retirement security and a crucial source of support for 
disabled Americans.
    Let me say that I deeply support the idea of strengthening Social 
Security for women. I also agree that Americans should know the facts 
about the Social Security system, so that as a society we can have an 
informed debate about the best way to provide for retirees and the 
disabled. I appreciate this committee's leadership in bringing these 
topics onto the agenda.
    However, there are many troubling aspects to the specific proposals 
discussed so far in these hearings. Some of the benefit adjustments 
meant to aid women are reasonable and involve relatively low costs on 
the system. Others however, impose high costs that further imperil 
Social Security solvency for a relatively narrow benefit. At a time 
when we are trying to preserve Social Security for future generations, 
any proposals with such significant revenue implications must be 
considered in the context of an overall plan to reform the program, or 
they will only make our challenges even greater.
    I also believe that the proposal to issue benefit guarantee 
certificates is misguided. The nonpartisan Congressional Research 
Service has found that these so-called ``guarantees'' would not confer 
any additional rights beyond those already contained in current law. 
Certificates would only serve to give Americans a false impression. The 
real question is: if the President and this Congress are truly serious 
about safeguarding Social Security, and have no intention of taking 
away benefits, why would we need to spend $10 million of taxpayer money 
to announce something that will not happen anyway?
    Unfortunately, the truth is that the specter of gutting the system 
and cutting benefits is all too real. I have been seriously troubled by 
the testimony that has occurred during these hearings in support of the 
President's Commission on Social Security's three privatization 
schemes. Several witnesses have used this forum to promote private 
accounts as the long-term solution to Social Security solvency. The 
fact is that the leading plan proposed by the President's commission 
would drain $1.5 trillion from the Trust Funds in just the next 10 
years. This is no formula for future solvency.
    Even worse, the commission's plans propose cutting benefits for 
future retirees between 30 and 46 percent, reducing disability and 
survivor benefits, raising the retirement age, and drawing on general 
revenues. All of this for an approach that would, by definition, create 
as many losers as winners in the private investment market. This is a 
terrible deal both for retirees and the disabled. In fact, this 
approach would hurt the very group that we are supposed to be trying to 
help in these hearings: women. Privatization would remove the 
guaranteed, lifetime, progressive benefits that are the lifeblood of 
retirement for women. Anyone who is serious about protecting women's 
interests in retirement would oppose the commission's plans.
    In closing, I believe that the committee is talking about the right 
subjects. We need to have a serious discussion about the future of 
Social Security, and that discussion must begin with a solemn agreement 
not to cut benefits for retirees. We should also be talking about how 
to enhance this program for women, and how to make it more fair and 
effective for everybody. I hope that we can continue to have this 
discussion throughout the remainder of this session, and that we can 
find ways to strengthen Social Security for all Americans.

                               
  STATEMENT OF THE HON. KENNETH E. BENTSEN, JR., A REPRESENTATIVE IN 
                    CONGRESS FROM THE STATE OF TEXAS

    Mr. Chairman and Members of the Committee:
    I would like to thank Chairman Shaw and Ranking Member Matsui for 
holding this hearing to address Social Security, an issue of great 
significance to our nation. With the impending retirement of the Baby 
Boom generation, projected increases in life expectancy and the 
expected depletion of the Social Security trust fund by 2038, it has 
become critically important to reform Social Security. As you look at 
ways of extending the programs solvency and making it fairer, I 
strongly urge you to address the harsh effects of the Social Security 
offsets. More specifically, the Congress must take action to rectify 
the Government Pension Offset (GPO) and Windfall Elimination Provision 
(WEP), both of which have a substantial impact on the backbone of 
America, its public servants.
    Daily, I receive letters from my constituents in which they express 
their outraged at how these provisions have unfairly stripped them of 
their benefits. These offsets affect nearly 900,000 workers nationwide, 
of which as many as 80,000 are Texas residents. They are our teachers, 
school cafeteria workers, police officers and civil servants. 
Recognizing that the imposition of GPO and WEP can make the difference 
between self-sufficiency and poverty, I have cosponsored bipartisan 
legislation to reform the offsets. If enacted H.R. 664, which has 285 
cosponsors, is expected to result in 50% of recipients now affected by 
the GPO having their benefits increased, including 29% for whom the 
offset would be removed completely. For the record, legislation is 
pending before this committee to eliminate the offsets in their 
entirety. H.R. 2638, deserves your full consideration.
    Since its inception, Social Security has provided a ``safety net'' 
for American workers and their spouses in their older age and remains 
the foundation for retirement income in America today. It is essential 
that Social Security be reformed to ensure that all workers regardless 
of whether they spent part or all of their careers in the public 
sector, receive the benefit they deserve.
    As the Congress begins to address the various components of Social 
Security reform and there are many. I believe it is imperative that we 
consider the negative effects of the GPO and WEP on public employees 
and school teachers as part of any such reform. Thank you again, 
Chairman Shaw and Ranking Member Matsui for holding this hearing and 
setting us on the path to improving Social Security.

                               
   STATEMENT OF YUNG-PING CHEN, FRANK J. MANNING SCHOLAR'S CHAIR IN 
            GERONTOLOGY, UNIVERSITY OF MASSACHUSETTS BOSTON

    Mr. Chairman: I appreciate the opportunity to submit this statement 
on improving the benefit structure of Social Security. For the record, 
my name is Yung-Ping Chen. I am the Frank J. Manning Scholar's Chair in 
Gerontology at the University of Massachusetts Boston. My academic and 
professional background in the field of Social Security and economics 
of aging includes the following: member of the technical panel of 
actuaries and economists of the 1979 Advisory Council on Social 
Security; delegate or consultant or both to the 1971, 1981, 1995 White 
House Conferences on Aging and the 1998 White House Conference on 
Social Security; and faculty appointments at several colleges and 
research organizations. I am a member of the American Economic 
Association, a founding member of the National Academy of Social 
Insurance, and a fellow in the Gerontological Society of America. I 
currently serve on the board of directors of the National Council on 
the Aging. The views I express here, however, are those of my own and 
do not necessarily represent the positions of any organization with 
which I am affiliated.
    Let me begin, Mr. Chairman, by commending you for holding this 
hearing. Although changing family structure and the changing role of 
women in the workplace will affect the scope and value of Social 
Security protection, there has been relatively little discussion of the 
issues involved. This hearing, I am certain, will spark more public 
interest and discourse on the subject. It will be very important that 
there be an extensive discussion. It is my thesis that if Congress does 
not update its eligibility rules, Social Security could become a less 
effective policy instrument of income protection for many potentially 
at-risk individuals.
    This statement calls attention to several issues brought about by 
the effects of changing family patterns on the benefits structure of 
Social Security: (1) Fewer people may be eligible for Social Security 
benefits. (2) More blacks and Hispanics may be ineligible for Social 
Security benefits. (3) Problems with some proposals for aiding older 
women. (4) Necessary caveats in policy development.
Fewer People May Be Eligible
    Social Security provides income not only to retired and disabled 
workers but also to their eligible dependents and survivors (auxiliary 
beneficiaries). Survivors of victims of the terrorist attacks of 
September 11, 2001 received their first Social Security checks only 
three weeks afterwards. By year end, the Social Security Administration 
had processed 94 percent of some 5,000 claims filed by victims' 
families, paying about $2.8 million monthly to these survivors. No deed 
speaks more eloquently for the protection Social Security offers to 
dependents and survivors of covered workers.
    However, eligibility precedes assistance. Family structure changes 
during the past 30 years or so may have already resulted, in percentage 
terms, in fewer people being eligible for auxiliary beneficiaries in 
recent years. For example, the proportion of new awards for auxiliary 
beneficiaries in the total number of new beneficiaries has declined. In 
1970, 54.3% of new awards went to dependents and survivors. That 
percentage has steadily declined--to 52.3% in 1980, 42.6% in 1990, and 
40.4% in 1997 (see Table 1).
    Future relative decline in auxiliary beneficiaries may be expected 
to be much greater because family pattern changes will affect Social 
Security benefit eligibility with a time lag of decades. The share of 
new awards for dependents and survivors in the total new awards is now 
estimated to decline--to 35.7%, continuing the trend cited in the 
previous paragraph. (see Table 1).
More Blacks and Hispanics May Be Ineligible
    Problems of ineligibility for Social Security benefits may impact 
blacks and Hispanics more severely because some of the changes in 
family patterns have been more pronounced among these minorities than 
among whites.
    Compared to whites, these blacks and Hispanics have much smaller 
percentages of married persons, much larger proportion of never-married 
persons, much higher rates of poverty, and much greater shares of their 
children living with a single mother.
    Concerning the declining percentage of married persons from 1970 to 
1999, the drop was 15% for whites, 36% for blacks and 18% for 
Hispanics. More specifically, the trends from 1970 to 1999 (U.S. Census 
Bureau, 2000) were as follows:

         15% drop among whites, from 73% to 62%
         36% drop among blacks, from 64% to 41%
         18% drop among Hispanics, from 72% to 59%.

    Regarding the rise in the proportion of never-married persons from 
1970 to 1999, the increase was 31% among whites, 86% among blacks, and 
53% among Hispanics. More specifically, the trends from 1970 to 1999 
(U.S. Census Bureau, 2000) were:

         31% increase (from 16% to 21%) for whites
         86% increase (from 21% to 39%) for blacks
         53% increase (from 19% to 29%) for Hispanics.

    These trends appeared to have resulted in relatively fewer Social 
Security beneficiaries as dependents and survivors for blacks. While 
about 62% of new awards were for dependents and survivors in 1970 and 
1980, that proportion declined to about 52% in 1990 and 44% in 2000, 
according to our calculations of the latest statistics (Social Security 
Administration, 2002). The racial/ethnicity dimension is therefore 
highly significant.1
---------------------------------------------------------------------------
    \1\ Changing family patterns may also adversely affect child 
benefits. Owing mainly to births to unmarried mothers and high divorce 
rates, nearly one in four children now lives with a mother only. In 
1998, 51 percent of black children and 27 percent of Hispanic children 
lived with their mothers only, compared to 18 percent of white children 
who did. Since women generally earn less than men, child benefits will 
be lower when they are based on mothers' earnings rather than on 
fathers'.
---------------------------------------------------------------------------
Proposals for Older Women
    How older women fare under Social Security has become a major 
issue, with widows and divorcees in poverty as the predominant concern. 
The poverty rate for women 65 and over as a group was 11.8% in 1999, 
and the differing rates by marital status were (Anzick & Weaver, 2000):

         Married 4.3%
         Widowed 15.9%
         Divorced 20.4%
         Never married 18.9%.

    Several proposals have been suggested to deal with the poverty 
problem among widowed and divorced people:

         Raise the survivor benefit and lower the spousal 
        benefit (e.g., Iams & Sandell, 1998; Smeeding, 1999)
         Lower the length-of-marriage requirement (e.g., 
        Smeeding, 1999)
         Provide minimum benefits (e.g., Advisory Council on 
        Social Security, 1996)

    Raise the survivor benefit and lower the spousal benefit. Over the 
years, there have been proposals for Social Security to offer a better 
survivor benefit by reducing the spousal benefit and raising the 
survivor benefit: for example, lowering the spousal benefit to 33% from 
the current 50% of the higher earner's benefit, and raising the benefit 
to the surviving spouses to 75% of the combined benefit of the couple 
before death occurred.
    This type of proposal raises a number of questions.2 
Would a cut in the spousal benefit drive into poverty those couples 
living not far above the poverty line? What about couples who are 
already poor when they retire?
---------------------------------------------------------------------------
    \2\ I have benefited from discussion and personal correspondence 
with Sara Rix.
---------------------------------------------------------------------------
    Moreover, what is meant by a spousal benefit? Under Social 
Security, a woman can receive benefits based, in essence, on the larger 
of the two, her own earnings record or her husband's earnings record. 
Today, more than one in four (26% of all female beneficiaries) receive 
their own retired worker benefit plus an amount that raises it to what 
they would be entitled to as spouses. In this case, to what part of her 
benefit does a spousal benefit reduction apply?
    This proposal has been suggested on the supposition that, with more 
and more married women staying in the labor force longer and earning 
higher pay, they would be receiving Social Security benefits on their 
own earnings records (Butrica & Iams, 2000). However, another study 
(Levine, Mitchell, & Phillips, 2000) has pointed out that many more 
married women would qualify for retired worker's benefits because of 
longer work histories, but many of them still would receive higher 
benefits in spousal benefits. To reduce the spousal benefit from 50% to 
33% (the most commonly suggested reduction) would therefore impose a 
financial cost that may not be easily dismissed or ignored.
    Finally, what of the divorced women who receive a spousal benefit 
based on their former husband's earnings records? They will receive 
higher benefits only when their former spouses have died.
    Lower the length-of-marriage requirement. Another suggestion to 
deal with the divorced spouse's benefit problem is to lower the number 
of years of marriage required for benefits. Now the requirement is at 
least 10 years (since the 1977 law). The requirement was at least 20 
years when the benefit was first instituted under the 1965 law.
    Lowering the required length of marriage to 7 years or 5 years has 
been proposed. However, it begs the question: For what was the spousal 
or survivor benefit intended. If it was designed to protect a marriage 
partner for the sake of the family over the long term, then it may be 
questionable to lower it further.
    At a practical level, unless the current law provision allowing 
several ex-spouses (e.g., wives) to receive benefits based on one ex-
spouse (e.g., husband) is changed, lowering the length of marriage 
would increase the likelihood of the number of multiple recipients of 
benefits as ex-spouses.
    Provide minimum benefit. One of the plans proposed in the last 
advisory body (Advisory Council on Social Security, 1996) as well as 
several bills introduced in Congress would create a new system of 
minimum Social Security benefits. For example, an individual who has 
worked for 40 years and thus is qualified for 40 years of coverage will 
be guaranteed a Social Security benefit equal to 100% of the poverty 
income level. This minimum benefit would apply to retired workers with 
at least 20 years of coverage, but the minimum benefit for them would 
equal only 60% of the poverty level of income.
    Those who have worked between 20 and 40 years of coverage would 
receive prorated minimum benefits, based on their number of quarters of 
coverage. Widows or widowers would be covered by the minimum benefit 
guarantee based on their spouse's earnings records.
    Under this proposal, the full antipoverty impact of the minimum 
benefit will be felt only by those who have worked for 40 years. What 
about those with fewer years of work? Because it begins to apply for 
people with 20 years of work, this minimum benefit provision eludes 
altogether those with less than 20 years of eligible work.
Caveats in Policy Development
    In thinking about how best to protect financially at-risk people, 
one needs to be mindful of the nature and purpose of the Social 
Security program. If Social Security is an employment-based income-
replacement system financed exclusively or largely by the payroll tax, 
then there is a limit to what types of benefit and what levels of 
benefits should be considered appropriate.
    Another consideration to keep in mind is that there are reasons for 
the low-income status of many elderly widows, widowers, and divorced 
persons that lie outside the Social Security system. Analyzing the 
causes of widow poverty, for example, one study suggests the following 
rough breakdown of several factors:

         Prewidowhood difference in economic status, 20-26%;
         Decline in Social Security benefits at widowhood, 40-
        50%;
         Declines in pension income at widowhood, 15%; and
         Declines in income from other assets at widowhood, 
        10-15% (Schoeni, 2001).

    Is Social Security an appropriate instrument for compensating for 
the prewidowhood differences in economic status or income declines from 
other assets at widowhood, or for the deficiencies in employer pension 
programs? Should we not explore improvements with other policy 
vehicles?
Concluding Remarks
    The first two proposals (raising survivor benefit and lowering 
spousal benefit; shortening the length of marriage requirement) may 
help reduce poverty among widowed and divorced people, but they would 
not help the never married. While it is directly targeted at removing 
poverty, the third proposal, as outlined, is limited in its 
effectiveness.
    While I would like to see a different formulation for Social 
Security, here is not the place for expounding it. For your possible 
interest, however, I submit in Attachment I a very short article that 
briefly explains my preference.
    Finally, let me once again express my appreciation for this 
opportunity to express my views.

 Table 1--Proportions of New Beneficiariesa as Retired Workers, Disabled Workers, and Dependents and Survivors,b
                                          in Selected Years (1970-2010)
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                              Dependents and
                Yearc                  Retired Workers    Disabled Workers      Survivors            Total
----------------------------------------------------------------------------------------------------------------
1970................................               36.2                9.5               54.3                100
1980................................               38.3                9.4               52.3                100
1990................................               44.8               12.6               42.6                100
1997................................               44.5               15.2               40.4                100
2010................................               48.8               15.5               35.7                100
----------------------------------------------------------------------------------------------------------------
Notes:
a New beneficiaries refer to those awarded benefits in each year.
b Dependents and survivors include wives/husbands, children, widow(er)s, widowed mothers/fathers, and parents.
c For 1970-97, from actual data; for 2010, based on estimates.
Sources: For 1970-97, calculations based on data in Table 6.A (OASDI Benefits Awarded: Summary), 1998 Annual
  Statistical Supplement to the Social Security Bulletin, Social Security Administration, SSA Publication No. 13-
  11700, p. 254. For 2010, calculations based on unpublished estimates supplied by the Office of the Chief
  Actuary, Social Security Administration, February 1 and February 13, 2002.

                               References

    Advisory Council on Social Security. (1996). Report of the 1994-96 
Advisory Council on Social Security. Vol. I: Findings and 
Recommendations. Washington, D.C.

    Anzick, M.A., & Weaver, D.A. (2000). The Impact of Repealing the 
Retirement Earnings Test on Rates of Poverty. Social Security Bulletin, 
63(2).

    Butrica, B.A., & Iams, H.M. (2000). Divorced Women at Retirement: 
Projections of Economic Well-Being in the Near Future. Social Security 
Bulletin, 63(3), 3.

    Iams, H.M., & Sandell, S.H. (1998). Cost Neutral Policies to 
Increase Social Security Benefits for Widows: A Simulation for 1992. 
Social Security Bulletin, 61(1), 34-43.

    Levine, P.B., Mitchell, O.S., & Phillips, J.W.R. (2000). A Benefit 
of On'e Own: Older Women's Entitlement to Social Security Retirement. 
Social Security Bulletin, 63(3), 47.

    Schoeni, B. (2001). Old Age Poverty. Economics of Aging Interest 
Group News- letter (Spring), Gerontological Society of America, 
Washington, D.C.

    Smeeding, T.M. (1999). Social Security reform: Improving benefit 
adequacy and economic security for women: Aging Studies Program Policy 
Brief No. 16, Center for Policy Research, Maxwell School of Citizenship 
and Public Affairs. Syracuse, New York.

    Social Security Administration. (2002). Annual Statistical 
Supplement to the Social Security Bulletin: SSA Publication No. 13-
11700.

    U.S. Census Bureau. (2000). Statistical Abstract of the United 
States: 2000. Washington, D.C.
                                 ______
                                 

Attachment I: ``A `30s mechanism, ripe for retooling'' by Yung-Ping 
Chen, Boston Sunday Globe, March 10, 2002.

                   Boston Sunday Globe March 10, 2002

POLICY

A '30s mechanism, ripe for retooling

    The Social Security debate targets future insolvency, but problem 
now is benefits framework from the past.

By Yung-Ping Chen

    Most of the national debate about overhauling Social Security 
focuses--sometimes seemingly endlessly--on ensuring its long-term 
solvency. But there is an important area of the governmental safety net 
that is not getting the attention it deserves: the outdated benefits 
structure.
    Since Social Security not only provides income to retired and 
disabled workers but also to their eligible dependents and survivors, 
any shifts resulting from the debate should include analyzing and 
updating benefits. If Congress restores solvency without simultaneously 
modernizing its eligibility rules, Social Security could become a less 
effective way to protect people's incomes.
    Simply put, Social Security's family benefit provisions have not 
changed in concert with evolving social trends in decades, leaving more 
and more vulnerable people--most of them women, minorities, and 
children--with less or no protection. As the federal government 
overhauls the program, it should ensure that it eventually covers more, 
not fewer, people.
    Today's benefit provisions were promulgated for family norms of the 
distant past. Enacted in 1935, Social Security began paying benefits in 
1940. At that time, the typical family consisted of a wage-earning 
father, stay-at-home mother, and children. Most people married; they 
did so at younger ages; they had more children; and most marriages 
lasted a lifetime.
    During the last 30 years or more, many social conventions have 
changed dramatically. More women work for pay. Fewer people marry; they 
marry later; they divorce more often and sooner; and some never 
remarry. Increasingly, many people are not marrying, and unmarried-
couple households have multiplied.
    Consequently, increasing numbers of people do not qualify for 
spousal or survivor benefits. Divorced people who were not married for 
at least 10 years or people not legally married are ineligible for 
benefits as spouses, ex-spouses, or survivors.
    Even for those who are legally married, the problem of lower 
benefits arises for some widows and widowers. Under current law, a 
surviving elderly spouse may receive his or her own ''retired worker'' 
benefit or a ''survivor benefit,'' based on the deceased spouse's 
earnings, whichever is higher. Suppose the husband's retired worker 
benefit is $1,000 a month. If his wife has not worked at all or if her 
earnings entitle her to a retired worker benefit of less than $500, 
then she receives a spousal benefit of $500, half her husband's. 
Together they receive $1,500. When he dies, she receives $1,000, two-
thirds their combined benefit.
    In fact, a survivor may get only half, instead of two-thirds, their 
combined benefit if husband and wife are each entitled to the same 
retired worker benefit, say $750. Between them, they receive $1,500, 
the same total as for the couple above. When he dies, her benefit stays 
at $750, only half their combined total. As two-earner families become 
more prevalent and their respective earnings approximate each other's, 
it is becoming more common that the survivor gets less than two-thirds 
of the combined benefit.
    These reduced benefits may drive some widows or widowers into 
poverty, since the official poverty threshold for one elderly person is 
nearly 80 percent of that for an elderly two-person household. Together 
with ineligibility, lowered benefits for survivors may help explain why 
the poverty rate among non-married older women (widowed, divorced, and 
never married) is about 20 percent, four times the rate for older 
married women.
    Changing family patterns may also adversely affect child benefits. 
Owing mainly to births to unmarried mothers and high divorce rates, 
nearly one in four children now lives with a mother only. Since women 
generally earn less than men, child benefits will be lower when they 
are based on mothers' earnings.
    Further, problems caused by ineligibility and lower benefits affect 
blacks and Hispanics more severely. Compared with whites, a much 
smaller proportion of blacks and Hispanics are legally married, a much 
greater percentage of them never married, a much larger share of them 
are poor, and a much larger portion of their children live with single 
mothers (respective percentages for such black, Hispanic, and white 
children were 51, 27, and 18 percent in 1998).
    The preceding demonstrates the necessity of updating family benefit 
rules. One way to solve the problem some widows, widowers, and the 
divorced face is to allow a married couple to share their earnings. 
Under earnings sharing, half the total earnings of the couple would be 
credited to each spouse's earnings records. When one spouse dies, the 
survivor would inherit all or most of the earnings credits of the 
deceased. At divorce, each spouse's separate earnings records would be 
the basis for calculating Social Security benefits, regardless of the 
length of marriage.
    But earnings sharing will not help the nevermarried. Nor will it 
help alleviate poverty generally. A good overhaul method would be to 
combine earnings sharing with a two-tier benefit structure. The first 
tier would provide a flat-rate benefit, payable to eligible people for 
age or disability, regardless of earnings. The second tier would be 
based on earnings--an individual's earnings when single, plus half the 
couple's combined earnings while married.
    The first-tier benefit should be integrated with the Supplemental 
Security Income Program. Like that program, this first-tier should be 
paid out of general revenue, not the payroll tax, because this basic 
benefit is designed to redistribute income and prevent poverty. The 
second-tier benefit should be funded by payroll taxes because it is 
earnings-related.
    Doubtless there are other methods. But any overhaul must ensure 
that Social Security will protect as many potentially at-risk 
individuals as possible.
    Yung-Ping Chen holds the Frank J. Manning Eminent Scholar's Chair 
in gerontology at the University of Massachusetts Boston.
    This story ran on page D1 of the Boston Globe on 3/10/2002. 
Copyright 2002 Globe Newspaper Company.

                               

   STATEMENT OF CHARLES G. HARDIN, PRESIDENT, COUNCIL FOR GOVERNMENT 
                      REFORM, ARLINGTON, VIRGINIA

    Mr. Chairman, My name is Charles G. Hardin and I am President of 
the Council for Government Reform (CGR). CGR is a grassroots advocacy 
organization of over 500,000 supporters seeking responsible and limited 
government. We have a long history of supporting the addition of 
personal retirement accounts as the most responsible way to reform 
Social Security, but we realize major reform cannot take place until a 
number of concerns are addressed. The measures under consideration 
today pave the way for major reform by focusing attention on the 
special needs of current retirees, women, and current workers. They 
also have the added bonus of giving today's workers information that 
will help them make better plans for retirement security.

Benefit Guarantee Proposals

    Several legislators have introduced bills that would guarantee 
Social Security retirement benefits to those currently receiving those 
benefits and to new retirees as they turn 65. Likewise, the President's 
Commission to Strengthen Social Security offered several proposals that 
could be implemented with or without legislative activity.
    Over the last several years, CGR has collected almost 2 million 
petitions from grassroots activists calling for, among other things, an 
ironclad promise that retirement benefits be backed by the full faith 
and credit of the U.S. government. While CGR and its members recognize 
the importance of fundamental Social Security reform, we also realize 
the necessity of addressing the legitimate concerns of current 
recipients who may be frightened about losing their benefits.
    We support proposals that will conclusively address these fears and 
congratulate the Social Security Subcommittee for recognizing the need 
to address seniors' concerns before proceeding to the larger tasks 
ahead.

Women and Social Security Retirement

    The role of women in society has changed since Social Security was 
enacted in 1935. At the time, it was assumed that a woman would not 
work and her benefit computations were based upon her husband's 
lifetime earnings. While the number of working women has increased 
dramatically in the last several decades, women are still 
disproportionately dependent on Social Security in retirement. Roughly 
15 percent of women retire poor. Poverty rates are even higher for 
minority women: 29 percent of black women and 28 percent of Hispanic 
women retire in poverty. Twice as many women as men retire in poverty 
and women receive only 75 cents in Social Security benefits to men's 
one dollar.
    Personal Retirement Accounts will allow women to own and control 
their own retirement, and is therefore the most pro-woman reform that 
can be enacted. I applaud the subcommittee's examination of this 
difficult issue.

``Right-to-Know'' Legislation

    For a majority of the 123 million American workers who receive it, 
the annual Your Social Security Statement (YSSS) is the sole source of 
official information they will receive regarding retirement benefits. 
Unfortunately, these statements downplay or omit important information 
about those benefits. They include an accounting of Social Security 
taxes the individual worker has paid to date, the worker's eligibility 
for benefits, and an estimate of the various types of benefits the 
worker and/or family could receive under different circumstances; but 
while workers are told that they will receive a specific dollar amount 
from Social Security, they are not told that the money may not be there 
for them. Nor are they given any idea of the rate of return on their 
taxes (which for some constitutes an absolute loss).
    CGR believes American workers should be told the truth about Social 
Security's financial future and its impact on the retirement benefits 
they expect to receive. As taxpayers, they should have a right to this 
information, which can be provided by the Social Security 
Administration at little or no cost. The additional information 
provided pursuant to H.R. 634, S. 354, and similar bills would go a 
long way toward enhancing the quality of the Social Security debate and 
enabling Americans to plan more realistically for their retirement 
years.

Conclusion

    The Subcommittee is considering three measures, each of which is 
important in its own right. The proposals also will move the larger 
debate on Social Security reform in the right direction. Mr. Chairman, 
the Council for Government Reform applauds your convening this hearing. 
We support the Subcommittee in its work and we stand ready to assist in 
whatever way possible. Thank you.

                               

STATEMENT OF THE HON. RALPH M. HALL, A REPRESENTATIVE IN CONGRESS FROM 
                           THE STATE OF TEXAS

    Mr. Chairman and Members of the Committee, I would like to extend 
my sincere thanks for holding these important hearings to allow Members 
to testify regarding improvements for Social Security. Social Security 
is so vital to the millions of Americans who depend on it as their only 
source of income, and we need to do all that we can to improve and 
secure Social Security for current and future generations of Americans. 
The President's Commission to Strengthen Social Security last year 
presented three models for modifying the current Social Security 
program and those need to be thoroughly discussed and debated. 
Obviously this is not an easy discussion, and there is not an easy 
answer.
    I would like to bring the committee's attention to several issues 
of importance to my district regarding Social Security. As an advocate 
of shoring up and protecting the Social Security Trust Fund, I have 
sponsored two bills in this Congress addressing Social Security reform. 
H.R. 96, the Social Security Preservation Act of 2001, would take 
Social Security funding out of the federal budget, so that funds could 
not be used for any other purpose, such as paying off the national 
debt. In addition, it is my proposal that the funds would be placed in 
interest-bearing accounts with the purpose of increasing the amount of 
the Trust Fund. I have also introduced H.R. 97, the Notch Fairness Act 
of 2001, which will rectify the discrepancy that those born in the 
``Notch'' years are facing.
    I am a co-sponsor of a bill that would repeal the Social Security 
earnings limit for early retirees ages 62-64. In the last Congress, the 
earnings limit was repealed for workers 65 and older, and now it is 
time to do the same for workers in the 62-65 years of age category. The 
earnings limit is a disincentive for seniors to continue working 
because they cannot afford to have their Social Security benefit 
reduced. This is a shame because seniors are loyal and experienced 
workers and an asset to any employer.
    I have always advocated that one-fourth of the federal surplus 
should be put toward the Social Security Trust Fund. As you may know, 
the annual report released by the Social Security Trust Funds, projects 
that Social Security expenditures will exceed revenues, so it is 
critical that we do more to protect Social Security.
    Other issues of extreme importance to constituents in my district 
are Government Pension Offset and the Windfall Elimination Provision. 
These affect thousands of people who have paid into Social Security and 
into state retirement plans but cannot receive the full benefits of 
both. You may even be receiving calls, letters or emails from 
constituents in your districts concerning these issues as well. Current 
law affects the many teachers, postal workers and policemen, among 
others, who may have paid into social security as well as their own 
retirement plans and are seeking to receive the benefits of both. I am 
a co-sponsor of H.R. 2638, The Social Security Fairness Act of 2001, a 
bill that would eliminate the dual entitlement laws that prevent these 
important members of our communities from benefits that are rightfully 
theirs.
    Again, I thank the Chairman for holding these important hearings on 
Social Security and I urge my colleagues to support these issues as 
part of a comprehensive Social Security Reform.

                               

      STATEMENT OF THE NATIONAL ASSOCIATION OF ORTHOPAEDIC NURSES

    The National Association of Orthopaedic Nurses (NAON) is the 
professional nursing society composed of 8,000 nurses throughout the 
United States dedicated to improving the health of patients with 
orthopaedic and musculoskeletal problems. NAON is very concerned about 
any change to the structure of Social Security because such a large 
percent of our patients are women or individuals with severe 
disabilities who rely heavily on Social Security. These individuals are 
very vulnerable to any changes in the disposable income that they have 
for medical bills or medications. Many of the patients we care for have 
medical bills not covered by Medicare. In addition, many of our 
patients require numerous medications and assistance in the home. Any 
change in the amount of money received through Social Security could 
seriously impact our patient's ability to pay for their medical needs, 
general health care and to remain in their own homes.

Vulnerable Patient Population
    The patient population that our nurses care for may have suffered 
from falls, trauma, violence or degenerative and other musculoskeletal 
diseases. Many of the patients we care for are women, due to women's 
longer life expectancy and higher incidence of chronic diseases. Nine 
in ten women age 65 and older report that they have one or more chronic 
conditions and approximately three out of four women have two or more 
chronic conditions. Many of our patients suffer from osteoporosis that 
can eventually cause fractures and falls. In 1996, 21% of women had 
osteoporosis or had broken a hip. Many of our patients have arthritis, 
including rheumatoid arthritis--a severely debilitating form of 
arthritis. In fact, arthritis is the most debilitating disease in this 
nation and in 1996, 61% of women reported having arthritis. In 
addition, a large number of our patients have degenerative and 
autoimmune diseases, such as lupus and scleroderma. Autoimmune diseases 
have a higher rate among women, and thus again are more vulnerable to 
changes in their Social Security income.

Social Security Provides Needed Disposable Income for Health Costs
    Social Security provides economic security for older women and the 
medically poor. The median personal income for women age 65 or over is 
$9,355, but for men it is $16,484. Without Social Security, over half 
of all elderly women would be living in poverty as three-quarters of 
the nation's elderly poor are women. Women represent almost 60% of all 
Social Security recipients aged 60 and over, and 72% of recipients 85 
and over. Without Social Security, the poverty rate for all older 
individuals would rise from 9% to 50%. Forty-one percent of the total 
Social Security beneficiaries are kept out of poverty because of Social 
Security.
    Women's lifetime earnings, access to pensions and ability to save 
continues to be less than that of men's. Women are far less likely than 
men to have substantial retirement savings and thus depend more on 
Social Security income than men do. In 1996, 45% of unmarried men age 
65 or older had pension coverage while 33% of unmarried women had 
pension coverage. The average pension in 1995 for women was $6,684/year 
but for men it was $11,460. Social Security provides half or more of 
the income of nearly two-thirds of all women 65 and over, and 90% or 
more of the income of nearly one-third of such women. Seven out of ten 
of the poor elderly are women, and the poverty rate for women 65 and 
over is more than 60% higher than that of men.
    These vulnerable populations that we have discussed require 
medications or assistance with their activities of daily living 
(ADL's). Because Medicare does not currently cover the cost of 
medications, hiring someone to assist with ADL's and only minimal 
coverage for home nursing assistance, women, the elderly poor and the 
disabled will be severly affected by any drop in the amount of Social 
Security income.

NAON urges Congress to consider the following:
    1. Privatization: Privatization of Social Security into annuities 
or stock could lead to loss of money and ultimate loss of benefits to 
those most in need. As recently seen by the Enron scandal, investment 
in stock (even in companies that seem to be rock steady) can lower 
overall return investments and dividends to beneficiaries. 
Beneficiaries could lose significant amounts of benefits if money is 
invested in companies with poor performance.
    2. Computation of earnings: Increasing the computation period would 
harm women and a large majority of our patients most in need of 
disposable income for health care costs. Any proposal that increases 
the computation period from 35 years to 38 years, based on increased 
life expectancy, could ultimately harm those most in need. Again, many 
women do not have the current 35 years of earnings used to calculate 
benefits because many women work part time or take time off to raise 
families or care for an aging parent. Women average 11.5 years out of 
the workforce to fulfill caregiving responsibilities. For each year 
that an individual does not pay into Social Security, a ``zero year'' 
is accumulated in the account. The zero years are included in the 
average when the benefit amount is being calculated, and women tend to 
be more affected by these ``zero years'' than men.
    3. Earnings Limit on Seniors Age 62-64: This would again hurt those 
most in need. Because women often enter retirement with lower average 
lifetime earnings, their Social Security benefits often must be 
supplemented. For those women age 62-64, the tax punishment for working 
even a minimal amount in a year is still extremely heavy. Congress 
should end all earnings limits and lift this major financial burden 
from women and men.
    4. COLA Changes: Privatizing Social Security so COLA is lost would 
harm those most in need of disposable income for health care costs. Any 
estimate of Social Security's ``rate of return'' must include the value 
of the protection against risk provided by its secure, lifetime, 
inflation-adjusted retirement. Cost of living increases are not 
typically provided for in private annuities. Social Security currently 
protects against inflation by annual adjustments to keep pace with 
inflation as measured by the Consumer Price Index. Reductions in the 
COLA would have the greatest impact on those who live longest--women. 
Women also have the most to lose by COLA reductions. Reducing the COLA 
by 1% would cut a person's lifetime benefits by 10%. An individual who 
lives to age 80 would receive monthly benefit checks that would by 16% 
less than they would have been if full inflation protection had been 
maintained.
    NAON urges the Subcommittee on Social Security, House Committee on 
Ways and Means to seriously consider any change in Social Security 
against the impact it would have on vulnerable populations. As shown 
here, any loss in the amount of disposable income available to 
vulnerable populations could increase the amount of individuals 
requiring Medicaid, thus increasing total federal expenditures in the 
long run. It would also place vulnerable populations, such as the 
disabled, infirm and women, to choose between eating and paying for 
medications or needed medical care. NAON looks forward to working with 
Congress on this important issue to assure that vulnerable populations' 
needs are met for the future.

                               

STATEMENT OF HEIDI HARTMANN, PH.D., CHAIR, NATIONAL COUNCIL OF WOMEN'S 
 ORGANIZATIONS TASK FORCE ON WOMEN AND SOCIAL SECURITY, AND PRESIDENT 
   AND CHIEF EXECUTIVE OFFICER, INSTITUTE FOR WOMEN'S POLICY RESEARCH

    On behalf of the National Council of Women's Organization's (NCWO) 
Task Force on Women and Social Security, I welcome the opportunity to 
submit written comments on the subject of ``Social Security 
Improvements for Women, Seniors, and Working Americans.''
    For nearly two decades, NCWO has convened the leadership of more 
than 150 nonpartisan, nonprofit women's organizations representing over 
six million women. In 1998, NCWO formed the Women & Social Security 
Task Force to highlight the program's importance to women and families, 
and to urge policy makers to consider women's needs as the debate 
unfolds. I am pleased to report that we have made considerable progress 
in activating the grassroots' members of the participating NCWO 
organizations to become engaged in the discussion in communities across 
the nation.
    The Task Force also highlights specific benefit improvements that 
can reduce older women's poverty and correct gender inequities in the 
current system, and educates policy makers to include these proposals 
in reform packages. In addition, we are working to build consensus 
among women's organizations and key stakeholders to preserve Social 
Security's protections for women and other disadvantaged groups.
    In addition to chairing the Task Force, I am an economist and the 
President & CEO of the Institute for Women's Policy Research (IWPR), a 
public policy research organization focused on issues of concern to 
women and their families that I founded in 1987.
Social Security is vital for women.
    Social Security is the heart of our nation's social insurance 
program, providing universal coverage for workers and their families 
through pooling of resources that guarantees benefits to all. This 
program is very important to women. Sixty percent of Social Security 
beneficiaries are women and Social Security is the major source of 
retirement income for a majority of them.

Privatization & the Unique Life Pattern of Women
    The current debate on Social Security reform is focusing on the 
creation of private Individual Accounts. Supporters of privatization 
have either inadequately or erroneously addressed the implications of 
their proposals for women. In part, this omission may stem from the 
perception that women's situations will improve over time as more women 
are employed in the paid work force for longer periods of time. 
Certainly, the past three decades have seen a dramatic increase in the 
number of women working in the paid labor force. Most women, however, 
still have very different working lives than men. Women who work full-
time, year-round earn only 75 percent as much as men. Moreover, women 
are much more likely than men to work part-time. For example, in 1996, 
only half of women aged 25-44 worked full time year round (compared 
with three quarters of men). If part-time workers are included, women 
earn only 60 percent as much as men. Women also remain much more likely 
to take time out of the labor force to care for children and elderly 
relatives. Shorter, less lucrative, careers result in lower incomes in 
retirement for women (Shaw, Hill, and Hartmann, 2000).
    Nevertheless, despite women's increased participation in the labor 
market, researchers predict that poverty among elderly women will be as 
high in the 2020s as it is today (Smeeding et. al. 1999). This is 
partly due to the fact that in the future more retired women will be 
divorced, separated, or never-married and, therefore, much more 
vulnerable to poverty. In other words, while future generations of 
women will be economically disadvantaged for different reasons, they 
are not likely to fare much better than their mothers and grandmothers. 
For the foreseeable future, women face a high likelihood of poverty and 
near-poverty in old age and have special reasons for wanting to protect 
and enhance Social Security.

Poverty among the Elderly
    Women are more likely than men to be poor in old age. In 1998, 
about 13 percent of women age 65 and over had incomes below the poverty 
level compared with 7 percent of men of the same age. Women of color 
are particularly at risk for poverty in their old age. Older African 
American and Hispanic women are much more likely than white women to be 
poor. Almost 30 percent of black women aged 65 and over were poor in 
1996, compared with 28 percent of Hispanic women and 12 percent of aged 
white women. Poverty at older ages also varies markedly by marital 
status and living arrangement. Married women are much less likely to be 
poor than non-married women, especially those who are living alone or 
with unrelated persons.
    The risk of poverty increases with age. Of women aged 75 and older, 
15 percent had incomes below the poverty line, while 11 percent of all 
women aged 65 and 74 are poor. In large part, poverty among women aged 
75 and older can be explained by the increase in the number of women 
living alone, having survived their husbands. Widows lose part of the 
couple's Social Security benefits and, in many cases, part or all of 
their husbands' private pension benefits. Income tends to decline for 
other reasons, as well. Sometimes income falls when assets are spent 
down for health care or other expenses. Sometimes income falls when 
work is no longer possible. Women who supplement their Social Security 
benefits with part time employment when they first retire, may become 
poor as they age into their seventies or eighties and can no longer 
work (Shaw, Zuckerman and Hartmann 1998).
    Poverty among the elderly, though still high for some groups of 
women (and men), has decreased markedly over the last 40 years. Much of 
the improvement in living standards of the elderly can be attributed to 
the increase in coverage and benefits made available through 
improvements in Social Security. Today, Social Security benefits 
account for slightly over half of the income of unmarried elderly women 
(compared with about 40 percent for unmarried men) and 36 percent of 
couples' incomes.
    Women depend more on Social Security because they enter retirement 
with fewer resources than men. The greatest disparity lies in 
accumulated pension wealth and savings, with Social Security credits 
partially compensating for this gap (Mitchell, Levine and Phillips 
1999). For example, of women age 65 and older in 1995, only 26 percent 
received income from an employer-provided pension plan compared with 46 
percent of the men age 65 and older. At the same time, women's pensions 
were worth 58 percent of the value of men's pensions (Employee Benefit 
Research Institute 1997). These figures not only reflect women's lower 
earnings and fewer years of work, but also that the survivor benefits 
widows receive from their husbands' pensions typically pay 50-60 
percent of the amount their husbands received.
    The percentage of women receiving income from employer-based 
pensions is likely to increase in the future. Because of their 
different work patterns, however, the gap between men and women's 
pension coverage and benefit levels is likely to remain large. While 
coverage rates for men and women who currently work full-time are 
nearly the same (about 50 percent), only 15 percent of women working 
part time were covered by pension plans (National Economic Council 
Interagency Working Group on Social Security 1998). Because of the pay 
gap, women's pensions will also continue to be smaller than men's 
pensions.

Social Security's Guaranteed Benefits
    Without Social Security, more than half of women aged 65 or older 
would be poor. For 25 percent of unmarried elderly women (widowed, 
divorced, separated, or never married), Social Security is their only 
source of income.
    The Social Security system provides protections that are likely to 
remain particularly important to women. First, Social Security replaces 
a higher proportion of the earnings of lower-earners. As women tend to 
earn less than men, this provision benefits women. Second, Social 
Security provides benefits for wives (or husbands) or widows (or 
widowers) who earned significantly less than their spouses. Spouses 
divorced after ten years of marriage can claim these benefits, even if 
their former partner remarries. Third, because women tend to live 
longer than men, the fact that Social Security provides an inflation-
adjusted lifetime income is particularly important to them. Finally, 
the life and disability insurance provided by Social Security is 
extremely important to women, especially the provision giving benefits 
to spouses caring for children under 16 if the worker retires, becomes 
disabled, or dies. Women represent 98 percent of the beneficiaries of 
this provision. Benefits to the children are also important to the 
family's economic security, whether the mother takes the caretaking 
benefit or works in the labor market.

Problems with Private Accounts
    Much has changed since President Bush appointed his Social Security 
commission last year and since Members of Congress first devised plans 
to create Individual Accounts. New priorities as a result of the 
horrible events on September 11th and the ensuing War on Terrorism have 
sidelined the public policy debate on issues like Social Security 
reform in the short-term. Perhaps most significantly, the current 
economic conditions facing the nation and the return of federal budget 
deficits put into question both the viability and wisdom of partially 
replacing Social Security's current guaranteed benefits with a 
combination of lower benefits and Individual Accounts subject to the 
uncertainties of the stock markets and requiring massive transfers of 
general revenues that are no longer available.
    Diverting revenue from Social Security to create individual 
accounts will not address the long-term fiscal health of the program. 
For example, a 2 percent carve out will double the size of the 
shortfall, require deep cuts in guaranteed benefits, and further 
increase elderly poverty.
    For this reason, NCWO opposes individual accounts carved out of 
Social Security because the trade-off of potentially higher returns 
from the stock market simply does not outweigh the benefits of current 
Social Security system: the full faith and credit of U.S. Government 
guaranteed, lifetime, inflation-adjusted, benefits for retirees, 
spouses, dependents, survivors, and the disabled (and their spouses and 
dependents) based on a progressive benefit formula.
    While supporters of private accounts are not advocating replacing 
Social Security ``wholly,'' and it appears that they would annually 
adjust the remaining benefits for inflation, the guaranteed benefits 
provided by the reformed Social Security system would be significantly 
less than those promised under current law.
    More importantly, however, are proposals to recalculate the initial 
benefit an individual receives by adjusting the benefit formula each 
year according to the growth in prices, called Price-Indexing. This 
would substantiallyreduce guaranteed benefits, by as much as 50 
percent. Under current law, the initial benefit a person receives is 
tied to the growth in wages, which usually rise more rapidly than 
prices, and, therefore, helps the Social Security recipient maintain a 
standard of living similar to when they were in the labor force. Price-
Indexing initial benefits would mean a significant cut in current law 
benefits and put future generations of Social Security recipients at 
risk for poverty.
    Other cuts in benefits also would harm women, as well as men. 
Increasing the retirement age would force women to wait to receive 
their full benefit. Moreover, changing the benefit formula by 
increasing the number of years used to calculate benefits would 
disproportionately harm women relative to men because women spend more 
time out of the workforce raising children and caring for elderly 
relatives.
    With lower guaranteed benefits, wives, widows, and divorced women 
may be further impoverished, depending on the timing of their 
retirement. For example, if the account balance is converted into an 
annuity during an economic downturn (rather than in a period of stock 
market growth), the retiree and survivor will be stuck with smaller 
monthly benefits for the remainder of their lives. Also of concern are 
provisions that would allow the worker to ``cash-out'' a portion or all 
of the account balance and the impact this would have on the spouse's, 
widow's or divorced spouse's future benefits.
    Supporters of Individual Accounts also make much of the added 
advantage to a divorced spouse of being able to receive an equal share 
of accumulated account assets and interest at the time of divorce. 
While this provision would benefit those with marriages lasting fewer 
than ten years, more data is needed to determine whether this would 
represent an actual increase in retirement income for women at the 
bottom of the economic ladder. It is also important to note that women 
have not generally fared well in divorce proceedings in gaining access 
to their husbands' pensions. It is unlikely they will do well with 
individual accounts, unless the division is completely automatic, as 
the draft report suggests.
    The claim of ``increased benefits through higher rates of return'' 
made by supporters of private accounts include optimistic assumptions 
about the stock market, the administrative costs of managing the 
accounts, and the availability of low-cost inflation-adjusted annuities 
that are gender neutral (i.e., do not cost women more because they live 
longer).
    Investment performance, individual investment decisions, and the 
timing of retirement would impact the amount of money an individual 
would receive in retirement. In contrast, under the current Social 
Security system, women do not face these risks, enabling them to count 
on a guaranteed benefit, adjusted for inflation, for the remainder of 
their lives. This is especially important for those who live longer, 
earn less, and see their retirement savings eroded by inflation.
    The value of individual accounts will be smaller for most women 
because women have less money to contribute into the accounts in the 
first place. This is the direct result of lower lifetime earnings and 
years spent out of the workforce for care giving responsibilities. 
Smaller account balances also will have to be stretched over more years 
to account for the longer life expectancies of women. In contrast, the 
current Social Security system includes a progressive benefit formula 
that helps women and other low earners by replacing a higher percentage 
of earnings for those with lower lifetime earnings.
    Private accounts will also fail to ``preserve'' benefits for the 
disabled and survivors without further benefit cuts for other workers, 
especially younger workers. It is likely that under private accounts, 
the value of disability and survivor benefits would fall.
    If current Social Security disability and survivor benefits were 
preserved in a reformed private account system, much larger cuts in 
retirement benefits would be needed to pay for these benefits. 
Individual accounts also would jeopardize the disability and survivor 
benefits women depend on because the account balances would be subject 
to the number of years the worker was able to make contributions before 
he or she died or became disabled. Smaller accounts would provide much 
less income for the spouse and children of the disabled or deceased 
worker than Social Security now provides.
    The benefits for spouses and surviving spouses would also be in 
question under individual accounts. Currently, women who have spent 
years out of the workforce or have worked in jobs paying less than 
their husband's jobs, have the opportunity to get a higher Social 
Security benefit than they would receive based on their own work record 
(and vice versa for men). Under individual accounts, it is not certain 
whether protections for spouses would be required. For instance, a 
worker's account divided at divorce would mean less money would be 
available for spouses in subsequent marriages.
    Supporters of Individual Accounts have proposed establishing a new 
higher minimum benefit, thus arguing that low-earners would benefit 
from privatization. They are not proposing an increase in current law 
benefits. Rather, they are comparing the benefits that would be higher 
than the benefits available if absolutely nothing is done to improve 
the program's long-term solvency. Moreover, under some proposals, 
eligibility for the new minimum benefit would require an individual to 
work 30 years, a criterion which most women would fail to meet. 
Meanwhile, guaranteed benefits would be cut from the levels promised 
under current law.
    It is important to assess both the efficiency and costs of 
providing proposed benefits for low earners in comparison with those 
offered by the National Council of Women's Organizations in the 1999 
report, Strengthening Social Security for Women (as well as other 
proposals). Benefits can be raised for low earners much more cost 
effectively without incurring the unnecessary cost of setting up 
individual private accounts.
Other Options to Address Solvency
    Even without any changes to the current system, the Social Security 
program will pay current law benefits in full for nearly forty more 
years. In 2038, Social Security will be able to meet 73 percent of 
current law benefits. This is not a crisis. Nevertheless, prudent 
action to address the program's long-term solvency, as well as to 
improve benefits and equity, is appropriate at this time. The current 
Social Security system's long-term financing could be improved with 
prudent minor changes enacted in the near future.
    The National Council of Women's Organizations (NCWO) is considering 
several proposals to enhance revenue for the current system, including 
adjusting the maximum wage base subject to the payroll tax and 
collectively investing a portion of the Trust Fund in equities. These 
modest changes, coupled with economic growth comparable to what the 
nation's has experienced in the past, should go a long way to extending 
the life of the Social Security program decades into the future.
Strengthening Social Security for Women
    NCWO believes that improvements to the system are necessary and can 
be achieved at a modest cost and within the framework of ensuring 
solvency.
    The NCWO Task Force recommends that the benefits payable to 
survivors of married couples be raised to 75 percent of the couple's 
combined benefits, limiting the benefit (to that received by one 
steady, maximum earner) so that it does not disproportionately benefit 
the highest income spouses. This would benefit the largest group of 
elderly women who are poor--widows. This increase should be higher than 
67 percent to help survivors of one-earner and two-earner couples, and 
the current spousal benefit of 50 percent should not be reduced to pay 
for the increase in benefits. Such a benefit increase could be enacted 
at any time, without reference to privatization. In its report, 
Strengthening Social Security for Women, NCWO explored several 
different ways of more adequately compensating women, whether married 
or not, for their unpaid care giving work.
    The NCWO Task Force also recommends raising Social Security 
benefits for the lowest earners. This would help elderly single and 
divorced women, who have a higher poverty rate than do widows. The 
numbers in this category are increasing, especially among African-
American women. The Task Force endorses the approach suggested by Dean 
Baker, of the Center for Economic Policy Research. He suggests raising 
the replacement rate for those with the lowest earnings (below the 
first bendpoint) from 90 percent to 100 percent, and phasing out the 
benefit so that increases would be limited to those with low average 
indexed monthly earnings.
    The NCWO Task Force also recommends that benefits for divorced 
spouses be raised to 75 percent of the former spouse's benefit (while 
he is still living), rather than the current 50 percent. Upon the death 
of the former spouse, the divorced spouse receives the full widow's 
benefit of 100 percent of the deceased's benefit and this should 
continue.
    The NCWO Task Force also recommends that any proposed changes to 
Social Security include amendments to Supplemental Security Income 
(SSI), to help the poorest recipients and ensure that the package 
leaves SSI recipients better, not worse, off than they are today. We 
support raising the SSI income disregards. All proposals to reform 
Social Security should also ensure that Medicaid eligibility is not 
affected by the increase in Social Security benefits.
Conclusion
    In short, Social Security privatization would weaken the safety net 
for the nation's women and families rather than strengthen the program.
    We urge you to abandon an individual account carve out approach and 
to address the modest financing gap with the prudent changes outlined 
above.
    Thank you again for this opportunity to share our concerns. Should 
you have any questions, please don't hesitate to contact me at 202/785-
5100.

                               References

    Shaw, Lois, Catherine Hill, and Heidi Hartmann, 2000. ``Trends in 
Social Security Policy: Implications for Women.'' Washington, DC: 
Institute for Women's Policy Research, February 3.
    Shaw, Lois, Diana Zuckerman, and Heidi Hartmann, 1998. Social 
Security Reform and Women. Washington, DC: Institute for Women's Policy 
Research.
    Smeeding, Timothy, Carroll Estes, and Lou Glasse, 1999. Social 
Security and Older Women: Improving the System. Washington, DC: 
Gerontological Society of America.
                                 ______
                                 

NCWO's Task Force on Women and Social Security developed a ``Social 
Security Checklist'' to evaluate Social Security reform proposals.

Does the proposal:
    Address the Long-term Solvency of the Social Security system? 
Social Security is, perhaps, the most successful government program 
ever. Millions of Americans receive monthly benefit checks. This social 
insurance safety net is critical to ensuring that the most vulnerable 
can depend on receiving a basic level of guaranteed income in times of 
need. It also provides an inflation-adjusted supplement to those with 
other retirement income.
    Continue to help those with lower lifetime earnings, who are 
disproportionately women? Social Security's benefit formula is 
currently structured so that the lowest paid workers receive benefits 
that replace a higher proportion of their pre-retirement earnings than 
higher-wage workers. Many of the lowest paid workers have no pension 
from their jobs. Any reform must retain this feature benefiting lower-
paid workers.
    Maintain full cost-of-living adjustments? Social Security's annual 
cost-of-living increase (COLA), which is indexed to inflation, is a 
crucial protection against the erosion of benefits. Because women live 
longer than men, on average, and rely more on Social Security since 
they often have no other source of retirement income, this provision is 
particularly important to women. Even when employment-based pension 
income is available, it is rarely inflation protected.
    Protect and strengthen benefits for wives, widows, and divorced 
women? Social Security's family protection provisions help women the 
most. Social Security provides guaranteed, inflation protected, life-
time benefits for the wives of retired workers, widows, and divorced 
women, many of whom did not work enough at high enough wages to earn 
adequate benefits of their own.
    Preserve disability and survivor benefits? Social Security provides 
benefits to 3 million children and the remaining care-taking parent in 
the event of the premature death or disability of a working parent. 
Spouses of disabled workers and the widows (or widowers) of workers who 
died prematurely also receive guaranteed lifetime retirement benefits. 
Two out of every five 20-year-old today faces premature death or 
disability before reaching retirement age.
    Ensure that women's guaranteed benefits are not subject to the 
uncertainties of the stock market? Proposals to divert current payments 
from the Social Security system into individually-held private 
accounts, whose returns would be dependent on volatile investment 
markets and would not be guaranteed to keep pace with inflation, would 
reduce the retirement income of many women. Without the guarantees of a 
shared insurance pool, cost-of-living increases, and lifetime benefits, 
many women could easily outlive their assets.
    Address the care giving and labor force experience of women? In the 
current Social Security system, women are ``compensated'' for their 
care giving through the existence of spousal benefits. Although 
marriage and work patterns have changed since Social Security was 
established, many women continue to benefit from these provisions. The 
benefit formula for workers, which generally helps those with low 
lifetime earnings, also favors those with 35 years of labor force 
participation years, which many women lack because of family care 
giving. Moreover, the effects of sex-based wage discrimination during 
their working years are not fully offset by the more generous treatment 
lower earners receive. Such issues as divorce, taking time out of the 
workforce for care giving, the difference in current benefits between 
one- and two-earner couples, and the inadequacies in benefits for 
surviving spouses must be considered at the same time that solutions to 
strengthening the financial soundness of Social Security are being 
sought.
    Further reduce the number of elderly women living in poverty? 
Social Security has helped reduce poverty rates for the elderly, from 
35 percent in 1959 to less than 11 percent in 1996. In 1995, the 
poverty rate for all women over the age of 65 was 13.6 percent while 
the poverty rate among older women who lived alone was 23.6 percent. 
Without Social Security, the poverty rate for women over 65 would have 
been an astonishing 52.9 percent. Nevertheless, unmarried women still 
suffer disproportionately; single, divorced, and widowed women aged 65 
or older have a poverty rate of 22 percent, compared with 15 percent 
for unmarried men and 5 percent for women and men in married couples.
                                 ______
                                 

 Member Organizations of the Task Force on Women and Social Security, 
               National Council of Women's Organizations:

American Association of University Women
Business and Professional Women, USA
Center for Advancement of Public Policy
The Feminist Majority Foundation
Institute for Women's Policy Research
MANA, A National Latina Organization
National Committee on Pay Equity
National Council of Negro Women
National Organization for Women
National Women's Law Center
Older Women's League
Wider Opportunities for Women
Women's Action for New Directions
Women's Institute for a Secure Retirement

                               

STATEMENT OF THE HON. MIKE THOMPSON, A REPRESENTATIVE IN CONGRESS FROM 
                        THE STATE OF CALIFORNIA

    I would like to begin by thanking Chairman Shaw and my good friend 
from my home state of California, Ranking Member Matsui, for the 
opportunity to speak before their subcommittee. This is a unique and 
important opportunity for me to share my views on proposals to reform 
Social Security.
    When this program was created by one of our greatest presidents, 
Franklin Delano Roosevelt, he envisioned a safety-net that would 
provide every American the opportunity to live with dignity and remain 
out of poverty following retirement.
    This program would also provide essential support for women, 
minorities, and later the disabled. He understood that once this 
commitment was made, seniors would not have to fear their retirement 
years, and regardless of the economy or state of the world's affairs, 
they would not go into poverty. Roosevelt understood that Social 
Security is a guarantee. It is a sacred bond between Americans and 
their government.
    I am proud to support Social Security and all that it accomplishes. 
We need to keep Social Security solvent and to ensure its longevity for 
our children and grandchildren and many generations to come.
    Today's hearing focuses on several ways in which Congress can play 
a role in preserving and reforming Social Security. One perspective 
would provide ``guarantee certificates'' to every Social Security 
beneficiary assuring that during their lifetime, they will receive the 
full-range of benefits promised them.
    I know these promises have been made before. This promise was 
renewed when Congress voted for a Social Security lock box five times. 
However, a sagging economy, our war against terrorism, and the 
dissolving budget surplus jeopardize the future of Social Security. I 
am committed to working with my colleagues in Congress to bring Social 
Security on the right track, but I am highly skeptical of legislation 
which would provide ``guarantee certificates'' to beneficiaries.
    The best guarantee we can provide is to make hard choices, 
realistically look at our budgetary priorities, and fix Social Security 
for good.
    The legislative proposals that are before the subcommittee today 
really lead us to reforms to privatize Social Security. I firmly oppose 
any attempt to create individual accounts, to invest all Social 
Security funds in the stock market, or any other plan that would 
jeopardize the long-term solvency of this program.
    Americans have worked too hard to see their retirement funds 
squandered on a plan that is dependent upon the whims of stock market. 
Instead we should continue to invest in treasury bonds and invest a 
small portion of the trust fund--and not individual accounts, in a 
stock fund controlled by an independent body, like the Public Employees 
Retirement System in my home state of California.
    I know from personal experience. After carefully researching the 
stock in a company called MPIX, I purchased a number of shares. I read 
how this technology packaging company had contracts around the world 
and had agreements with companies like IBM. My research and educated 
investment turned sour. The agreements were broken and MPIX is no 
longer listed on the NASDAQ. If I had counted on this investment to 
provide me with retirement security, I would need to work after I was 
already dead. I will not let this type of investing mishap keep 
millions of Americans from financial security.
    Plans to privatize Social Security would drain needed resources 
from the Trust Fund, threatening benefit payments to retirees, the 
disabled, and survivors. The leading plan proposed by the President's 
commission would drain $1.5 trillion for the Trust Funds in just the 
next 10 years.
    Privatization requires cuts in guaranteed Social Security benefits. 
The President's Social Security commission recommended a privatization 
plan that cuts benefits for future retirees by up to 46 percent.
    Women rely heavily on Social Security as a source of income during 
their elder years. 27 percent of women over age 65 count on Social 
Security for 90 percent of their income. Plans to privatize Social 
Security would risk the stability that currently exists: guaranteed, 
lifetime, recession-proof benefits, the progressive benefit structure, 
and protections to spouses and elderly widows.
    Privatization also threatens disability and survivor protections. 
Nearly one-third of beneficiaries receive income from its disability 
and survivor components. Privatization plans, like those recommended by 
the President's Social Security commission, would cut disability 
benefits to help pay for the cost of the private accounts.
    These recommendations also bar access to the accounts prior to 
retirement age. This action greatly harms the disabled and survivors by 
reducing benefits and providing no money from the accounts to cushion 
the loss.
    This is not the way Congress should approach Social Security 
reform. It violates every promise we have made to the American people, 
and would certainly not stay true to any ``guarantee certificates.'' We 
need to look very carefully at the financial future of Social Security 
and keep our promises.
    Thank you.

                                
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