[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





                     GENERATIONS WORKING TOGETHER:
                         FINANCIAL LITERACY AND
                         SOCIAL SECURITY REFORM

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-19


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 20, 2005...............................................     1
Appendix:
    April 20, 2005...............................................    71

                               WITNESSES
                       Wednesday, April 20, 2005

Garrett, Sheryl, Certified Financial Planner and Founder, The 
  Garrett Planning Network.......................................    54
Kennelly, Hon. Barbara, President, National Committee to Preserve 
  Social Security and Medicare...................................     7
Penny, Hon. Tim, Former Representative from the State of 
  Minnesota......................................................     9
Riemer, Hans, Washington Director, Rock the Vote.................    58
Salisbury, Dallas L., President and Chief Executive Officer, 
  Employee Benefit Research Institute, Chairman and Chief 
  Executive Officer, American Savings Education Council..........    56
Simpson, Hon. Alan, Former Senator from the State of Wyoming.....     5

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    72
    Gillmor, Hon. Paul E.........................................    74
    Hinojosa, Hon. Ruben.........................................    75
    Hooley, Hon. Darlene.........................................    78
    Kanjorski, Hon. Paul E.......................................    79
    Pryce, Hon. Deborah..........................................    80
    Garrett, Sheryl..............................................    82
    Kennelly, Hon. Barbara.......................................    89
    Penny, Hon. Tim..............................................    92
    Riemer, Hans.................................................    96
    Salisbury, Dallas L..........................................    99
    Simpson, Hon. Alan...........................................   113

              Additional Material Submitted for the Record

Americans for Consumer Education and Competition, prepared 
  statement......................................................   116
Credit Union National Association, Inc...........................   118
Students for Saving Social Security, prepared statement..........   123
United States Department of the Treasury, prepared statement.....   126

 
                     GENERATIONS WORKING TOGETHER:
                         FINANCIAL LITERACY AND
                         SOCIAL SECURITY REFORM

                              ----------                              


                       Wednesday, April 20, 2005

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:05 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] Presiding.
    Present: Representatives Oxley, Baker, Bachus, Castle, 
Lucas, Gillmor, Ryun, LaTourette, Jones, Biggert, Miller of 
California, Tiberi, Kennedy, Feeney, Hensarling, Garrett of New 
Jersey, Brown-Waite, Barrett of South Carolina, Harris, Renzi, 
Gerlach, Pearce, Neugebauer, Price of Georgia, Fitzpatrick, 
Davis of Kentucky, McHenry, Frank, Kanjorski, Maloney, Sherman, 
Lee, Moore of Kansas, Capuano, Clay, McCarthy, Matheson, Miller 
of North Carolnia, Scott, Green, Cleaver, Bean, Wasserman 
Schultz, and Moore of Wisconsin.
    The Chairman. The committee will come to order.
    Pursuant to the notice previously given, the Chair 
announces he will limit recognition for opening statements to 
the Chair and Ranking Member of the full committee. Prepared 
statements of all the Members will be included in the record.
    The Chair will now recognize himself for an opening 
statement.
    Our hearing today begins our committee's discussion on 
Social Security reform, initially focusing on the intersection 
with financial literacy. I want to welcome all of our witnesses 
today. We have before us a panel of distinguished former 
Members, and we look forward to their insights as we begin the 
committee's initiative in this area.
    Senator Simpson, Representative Penny and Representative 
Kennelly, welcome to the Financial Services Committee. It is 
good to see all of you again.
    And later, on Panel II, we will hear from financial 
literacy professionals who will share with us their 
perspectives on this topic.
    If we want Social Security to successfully provide for 
future generations, the program must be reformed. The program 
would continue just as it is now for current seniors and Social 
Security recipients, but their children and grandchildren 
surely will benefit if we move forward with a permanent fix. If 
changes are not made in the future, Social Security will not be 
there in its current form for today's young people. I am 
looking forward to working with the members of this committee 
on a bipartisan basis as we move ahead in this great and 
important debate.
    Social Security was created in a different America. In 
1950, there were 16 workers for every retiree. Today, there are 
just over three workers for every retiree; and when the baby 
boom generation retires, there will be only two workers for 
every retiree. It is time to face these facts, and President 
Bush has been courageous in doing just that.
    Without reform, Social Security will become social 
insecurity in the future. Waiting is not an option, and Band-
Aid reforms will not solve the structural problems. The longer 
we put off structural reform of Social Security, the more 
expensive it will be to fix. That is why we must act now. 
Waiting will cost us an additional $600 billion per year.
    As the Nation discusses Social Security reform, individual 
Americans are also thinking about their retirement security. I 
think we can all agree that we should continue to emphasize 
financial literacy. To succeed financially, to make the most of 
their money, our citizens must be prepared to manage their 
finances and attend to their savings and investment decisions. 
People need information on saving and investing. They need to 
know about the benefits of compound interests, dollar cost 
averaging, and diversifying their investments.
    Americans are successfully accomplishing financial goals, 
raising children--which everybody knows is an expensive 
proposition--financing college educations, purchasing homes and 
eventually paying off mortgages, as well as financing 
retirement, but we need to bring along those who have not made 
as much progress and encourage everyone to maximize their 
money's potential.
    This committee has been working hard to promote financial 
literacy since 2001. We worked with the Department of the 
Treasury in the creation of the Office of Financial Education, 
which promotes access to financial education tools that 
encourage personal financial management, planning and savings. 
We also worked together on title 5 of the Fact Act, 
establishing a Financial Literacy and Education Commission with 
the purpose of improving financial literacy and promoting 
financial knowledge for all Americans.
    We need to continue to build a financial literacy 
foundation and incorporate financial literacy into the lives of 
our citizens. This committee needs to work in bipartisan 
fashion to help people take control of their financial future 
and to help the Nation take control of its future.
    One of the most important principles of financial literacy 
is to review the situation, make what are sometimes hard 
choices because you know that is the best thing for the future. 
That is also what we need to do as a Nation.
    Personal accounts are an important part of the answer. It 
is not fair that people pay into the system their whole lives 
but yet have nothing to call their own. Instead of banking on 
government promises and IOUs, Americans should have the option 
of voluntarily counting on their own investment returns in 
addition to their traditional Social Security system. If they 
choose to participate, younger workers will own the money in 
their accounts. They will be able to watch it grow, and 
Congress can't spend it. People will be able to build their own 
personal nest egg within the Social Security program, and that 
will give people a better chance to enjoy a more secure 
retirement.
    Americans have always wanted to live their own lives and 
direct their own affairs. When given the choice between renting 
a home and owning, the American dream is to call something our 
own. I think the same desire is there for owning retirement 
security, and I look forward to the debate.
    I now yield the floor to the gentleman from Massachusetts, 
our Ranking Member, Mr. Frank.
    Mr. Frank. Thank you, Mr. Chairman.
    It is nice to see this panel of, as you said, distinguished 
former Members, which is better, I guess, than being a former 
distinguished Member, some of which we have from time to time 
accumulated.
    I agree that there is a crisis, but I think it is one that 
the President has brought on by his really quite disappointing 
reluctance to allow Social Security to spend the money that was 
paid into Social Security.
    As I look at this, I have really been shocked to see the 
President first denigrating the value of pledges made by the 
United States to pay back money it has borrowed. I don't think 
that is a good idea in general but particularly with regard to 
Social Security.
    It is true if you look many decades out, we will reach a 
point where Social Security will have a shortfall. But let's be 
very clear, if Social Security is credited with every dollar 
that was paid in under the rubric of Social Security and the 
interest that was legally supposed to accrue to that, it has 
enough money to get to about 2040 or 2042. Until 2018, it will 
continue to take in, in fact, more money than it pays out.
    The problem is that the President of the United States--and 
apparently his allies--don't want Social Security to be able to 
spend the money that was paid in for Social Security. That is 
the sole crisis that we have in the near term.
    Here is what the President has said, ``We don't have a 
trust in Social Security"--I think he means a trust fund. 
``what happens is we take your money, we pay money out for the 
promises for those people who have retired, and if we have got 
anything left over, we spend it on things other than Social 
Security.''
    Well, Mr. President, it wasn't left over. It was supposed 
to be set aside for Social Security. And if you would simply 
honor these promises and stop treating people's Social Security 
money as leftovers, then we wouldn't have this near-term 
crisis. That doesn't mean we shouldn't look at it longer term. 
But, again, we should be very clear, if the Social Security 
system is credited with every penny that was paid in for Social 
Security, it is not a shortfall in the near term.
    And then the President said, ``There is no trust fund in 
West Virginia, just IOUs that I saw firsthand that future 
generations will pay.''
    Well, that is true. When you borrow money from people, you 
pay it back. That has generally been regarded to be a terrible 
thing. This is money that was paid in. These were not loans 
that were made promiscuously. This was money that was paid into 
the Social Security system that the President said he 
considered to be leftovers and spent.
    And he said future generations will pay either in higher 
taxes or reduced benefits or cuts to other critical government 
programs. But, again, I want to stress we are talking here 
about money that was paid in as Social Security money. So let's 
separate out the problem.
    People have said, what is your proposal? I will tell you 
mine. Put the money back. Stop treating money that was paid 
into under the solemn promise that it would go for Social 
Security as if it was somehow something left over. Put it back 
and let them have it. Then as we pay that out over the coming 
decades, yes, some adjustments will have to be made, but let's 
not artificially manufacture a crisis because we are reluctant, 
resistant to allowing the Social Security system to be credited 
with the money that was paid in.
    I now yield the remaining time to the Ranking Member of the 
Capital Market Subcommittee.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for convening the hearings. I 
represent one of the oldest congressional districts in the 
country, so I am awfully familiar with how important Social 
Security is.
    I think that when we look at Social Security we have to 
recognize that, without that program today, instead of a 
poverty rate among elderly of only 10 percent it will be nearly 
50 percent. Unlike other benefits, pension benefits, we depend 
on the sponsoring employer to survive. Unlike private savings, 
we don't know what will happen with the rise and fall of the 
stock market or economic forces, but Social Security is the one 
guaranteed minimum benefit for elderly Americans.
    President Roosevelt talked about it as a third leg of the 
stool. I agree. I hope that the conversations that the 
President has exacted will cause people to re-examine their 
retirement planning in the future.
    We have, it seems to me, two challenges. The most important 
challenge, as I see it, is not raising the caps, adding 
additional money or doing anything else but, consistent with my 
colleague, Mr. Frank, is we have got to figure out a method to 
put--create an entity in which Social Security funds can be 
invested and not diverted, as in our current practice, to fund 
general government operations. We are lying to the American 
people and taking money out of Social Security and we are 
applying it to general government operations.
    Then the second problem is a long-term solvency problem of 
Social Security, and we can only attend to that if we develop 
the entity which will protect the funds that will be raised in 
the near term to meet the shortfall of the boom generation.
    I oppose the private accounts. I think it is a red herring. 
It would drive the national debt up over 20 years more than $5 
trillion. Actually, I think the President would be quite a 
magician if he could convince the Chinese and the Japanese to 
fund the retirement program of United States to the tune of $5 
trillion. Maybe we ought to take him up on it, because, as the 
old adage goes, if you owe a little bit to the bank, the bank 
owns you; if you owe an awful lot to the Chinese, the Chinese 
will own you--or you will own the Chinese. And maybe if we can 
scam them into giving us that $5 trillion it wouldn't be bad 
because they could be less belligerent in the future.
    Anyway, I think the entity we construct has to be something 
that the Congress has not examined--the President has not 
examined. It is the element that is absolutely necessary before 
we start our correction of Social Security and our plan for 
solvency, and we have to do it in such a way that it doesn't 
have a detrimental consequence to our national capital markets.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired, and we now 
turn to our distinguished panel of former Members.
    We will begin with the gentleman from Wyoming, Senator 
Simpson. It is good to have you here today, and we welcome your 
participation.

STATEMENT OF HON. ALAN SIMPSON, FORMER REPRESENTATIVE FROM THE 
                        STATE OF WYOMING

    Mr. Simpson. Thank you, Mr. Chairman and Ranking Member 
Barney Frank and colleagues Tim and Barbara.
    While I recall working with both of you during my Senate 
years, I miss the people, but I don't miss the work. I could 
tell it was time to move on in `96. A guy got up at a town 
meeting and he cried, two terms for you guys, one in Congress 
and one in prison. Well, that will take a lot out of a town 
meeting, I will tell you that. So I moved on. But I have been 
grappling with this issue, and you were nice to give us the 
opportunity to speak.
    When I retired from the Senate, I spent a lot of time on 
Social Security. I chaired the subcommittee in the Senate. When 
I left, there was a huge problem unresolved, and now that I am 
here today the huge problem is still unresolved. Everybody 
talks a good game, but nobody puts anything on the table so 
they won't get ripped apart.
    Well, Senator Moynihan had the guts to step up in `83, a 
great and dear friend of mine. He had the guts to do something, 
and it is time to do that.
    It is a tremendous problem. The problem remains.
    I served on the bipartisan commission that was chaired by 
Bob Kerrey and Jack Danforth. It truly was bipartisan. We put 
together a chart that was aptly entitled, Current Trends are 
Not Sustainable. It showed how, left to its own devices, the 
Federal entitlement programs--the word entitlement is killing 
us because it means all you have to do is get to a certain age 
and, regardless of your net worth or your income, you are 
entitled to bucks from the Federal government. It makes no 
sense. I always said we should begin to affluence-test the 
benefits, which of course caused seizures among certain groups 
in the city--choking, collapsing, gasping.
    So here we are. It doesn't matter who is in power. We have 
gone from a Democrat president, to Republican, Democratic 
control, to Republican control. If you use the same chart 
today, the same numbers would change, the dates would change, 
but the basic picture would remain the same.
    Serving on that commission was an interesting experience, I 
learned a lot. One thing I learned--really learned, that if you 
are going to wait for the interest groups that lobby on these 
programs and work their members into an absolute froth to 
honestly and without demagoguery step forward with constructive 
solutions, you are going to have a very long wait. We had them 
all in before the Entitlement Commission, not just the AARP or 
Barbara's group for seniors. We had them all in, silver-haired 
legislators, gray panthers, pink panthers, all of them.
    I even held a hearing on the AARP. They were not pleased at 
all. It was a wonderful thing, though. I enjoyed it thoroughly. 
Because the AARP is 38 million Americans bound together by a 
common love of airline discounts and RV discounts and selling 
mutual fund stuff. They are a huge business, huge business.
    And somebody said, but look at the help they gave on 
prescription drugs; and I said, why not, they are the biggest 
pharmacy of America. So they don't do anything that would 
injure one of their businesses. Barbara is a little better 
about all of this. But whatever you are hearing from them, just 
try to ignore it. Thirty-eight million members, 10 bucks dues.
    And go find out what is in the Andrus Foundation. You can't 
crack that huge shell. There is a huge foundation--they just 
slop money over there--in there called the Andrus Foundation. 
If you want to get into something, I recommend you try that.
    Anyway, enough of that.
    In the Committee for Preservation of Social Security and 
Medicare, under Barbara's predecessor, the issue was the notch 
baby--thank heaven when she came, or toward the end, they gave 
that up. I said, the next hearing I go to or town hearing they 
talk about a notch baby I am going to put a notch in the head 
of the person that is asking. It was the phoniest thing that 
ever came up. You had to stabilize the situation, and they 
picked a date of 1926 or 1922.
    Well, I see time is only 5 minutes here. You have got----
    Here is what Moynihan said, and this goes to my friend 
Barney. We worked together on a lot of stuff, immigration, and 
no one I regard higher. We enjoyed it.
    The Social Security--this is Moynihan speaking--there is 
nothing there. It is all a series of IOUs. And the reason it is 
there that way is because Franklin Delano Roosevelt, in the 
original plan, said--and it is in the statute--the surpluses of 
Social Security shall be used by the Federal government backed 
by the full faith and credit of the United States.
    Every time somebody this age puts something in today it 
goes out tomorrow, to me, and I get 2,000 bucks a month. And 
guess what? Everybody my age, in their most productive years, 
never put in over 874 bucks a year. Ladies and gentlemen, 
nobody my age, in my most productive years, practicing law in 
Cody, Wyoming, `60, `70, early '80s, ever put in more than 874 
bucks a year.
    Does anybody ever listen to this stuff? If you retired in 
the late `80s, you got all of yours back in the first 3 years. 
It is almost dream world. There were 16 people paying in when I 
was a freshman at the university--and 3.82 was my blood alcohol 
level at that time rather than a grade average. But now there 
are three people paying in, three, and one taking out; in just 
a few years, two paying in. Who is going to sit still to pay me 
25 grand a year while they are putting in 12.5 each? Makes no 
sense, absolutely no sense.
    So then Bob Kerrey and I got into personal investment 
accounts. We put in a bill--the Democrat from Nebraska. We 
said, let's take--instead of putting 6.2 in, put 5.2 in and 
take 1 percent and put it into a personal investment plan. That 
was a good bipartisan approach. We didn't get it done, but we 
sure got people to consider it.
    But consider this--and then I will answer any questions--
personal, private, whatever, the highest-wage earners, the very 
top of the income scale are being promised benefits under the 
current system in 2050 that are 40 percent higher than the 
highest wage earners receive today, and that is after adjusting 
for inflation. Absolutely absurd.
    And I can only tell you this--and if I hear it again, and I 
know I will, I will hear it right here today--no one over 55 is 
going to lose a nickel under any plan I have ever heard because 
they don't dare do it--their homes will be bombed. So 55 or 
over, you are off the hook. Now let's do something for those 55 
and under. And if you don't start now it won't get done.
    Thank you very much.
    The Chairman. Thank you, Senator and thank you for your 
service to the country.
    [The prepared statement of Hon. Alan Simpson can be found 
on page 113 in the appendix.]
    The Chairman. Barbara Kennelly, of course a distinguished 
member of the Ways and Means Committee, and we appreciate your 
being with us today.

    STATEMENT OF HON. BARBARA KENNELLY, PRESIDENT, NATIONAL 
       COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE

    Ms. Kennelly. Thank you, Chairman Oxley and thank you, 
Barney Frank, Congressman, and thank you other members. I am 
just delighted to be here to discuss financial literacy.
    I am the President of the National Committee to Preserve 
Social Security and Medicare. We have 4 million members and 
supporters, and we really believe that Social Security is a 
good system, and we don't want to dismantle it.
    We understand that 47 million Americans, 1.4 families in 
the United States of America, get Social Security; 12 million 
Americans are kept out of poverty because of Social Security. 
Social Security is a sound basic income, and it is adjusted for 
inflation, and it lasts as long as you live.
    Older Americans understand this. As I said, I am president 
of a 4.3 million organization, and I deal with seniors all the 
time. And they understand that life is such that you know you 
have to take care of your families, you have to buy your home, 
you have to educate your children. And, you know, life is the 
way it is, and sometimes things don't work out so well. So 
approving financial security is so important, and I thank you, 
Chairman Oxley, for having this meeting.
    The hazards and vicissitudes of life are unknown. Now I 
know that we have overemphasized Enron, and Enron happened. And 
people from Enron, when they lost everything, they either said, 
oh, my God, all I have is Social Security, or I have Social 
Security.
    I just want to tell you about one member of my association. 
Her name is Mary Vogel. Mary Vogel is 76 years old. She worked 
all her life. She worked 35 years in the airlines industry. She 
thought she had done everything well. She thought she had been 
prudent about life. But you know what? After she retired, her 
whole situation changed. Her industry went bankrupt. She lost 
her life insurance, her health insurance went up, and so, as a 
result, guess what? All she had was Social Security.
    So I sit here today and I have to say to you--and I know 
the senator well. I know him well. He and I have argued over 
the years, but, unfortunately, I have to say to you that 
privatizing Social Security would not increase retirement risk. 
It would only cut Social Security benefits, increase Federal 
borrowing, and further weaken Social Security status. No matter 
what you believe about the financial status of the current 
system, you need to bear in mind that the private accounts make 
the situation worse. The President himself has said that 
private accounts don't improve solvency one thin dime.
    What many people don't realize is that by diverting payroll 
taxes out of Social Security the accounts actually accelerate 
insolvency. This means that everything will be bigger. The cuts 
will be bigger, the borrowing will be bigger, and we will have 
a bigger problem in these United States. The costs will fall on 
every American taxpayer for generations to come.
    Some call this borrowing transition costs. Transition costs 
sounds like something small. Transition costs are something 
big. My 3-year-old granddaughters, they will be paying this 
into their midlife.
    Here is what this whole financial risk literacy comes into 
play. By design, privatization with retirement income based on 
market risk, income dependent on your financial intelligence 
and your personal luck. Remember Mary Vogel. Remember what 
happened to her.
    I look at you--and I sat up there. I sat up there like you 
sat there. And you know, I can remember I had a young woman, a 
very bright young woman, as all of you have on your staff. This 
young woman said to me, when 401(k)s were coming in, she said, 
you know what? Those 401(k)s are going to totally replace 
defined benefit plans, and she was so right.
    And I say to you, Chairman Oxley, have intelligence and 
have education about financial retirement. Have it. Tell people 
that they have to pay into their financial 401(k)s. You know, 
most people don't. A lot of people, we all say, oh, everybody 
has one, but guess what? They don't pay the whole amount they 
should pay.
    And I ask you, Chairman, make sure you have this education, 
but I tell you, you should not replace this by Social Security. 
We need Social Security in this country. It is a very moderate 
program, very moderate program compared to other countries. But 
what we have is, since 1960--since 1960, we have gone from 35 
percent of poverty to 10 percent poverty. This is not a 
generational war. What this means is older people are 
protected. Now we have to protect middle-income people. And I 
ask you and I tell you, what you are doing today is the 
absolute right thing, but please don't dismantle Social 
Security in the name of education.
    The Chairman. Thank you, Barbara; and, again, thank you for 
your service to the country.
    [The prepared statement of Hon. Barbara Kennelly can be 
found on page 89 in the appendix.]
    The Chairman. Our next witness is Tim Penny, former--a 
distinguished member of the Budget Committee from Minnesota. It 
is good to have you back on the Hill, and you may proceed.

  STATEMENT OF HON. TIM PENNY, FORMER REPRESENTATIVE FROM THE 
                       STATE OF MINNESOTA

    Mr. Penny. Thank you, Mr. Chairman and members of the 
committee.
    I want to start by sharing a quote from former New York 
senator, Daniel Patrick Moynihan, who co-chaired the 
President's Bipartisan Social Security Commission on which I 
also served. Senator Moynihan said, ``You are entitled to your 
own opinion, but you are not entitled to your own facts.'' That 
was his admonition to us at the very start of our commission's 
work. So we proceeded to focus on the facts, and that then led 
us to reach consensus on a variety of recommendations.
    The facts about Social Security are not hard to find. All 
you have to do is look to a variety of respected and reputable 
government agencies to find that they are in essential 
agreement on the basic facts. Whether it is the Government 
Accountability Office or the Congressional Budget Office or the 
Social Security Trustees, every report they issue--and we had a 
recent report from the Trustees just 2 weeks ago that 
reaffirmed these same conclusions, and they are these: By the 
year 2017 or 2018, annual payroll tax revenues will not fully 
cover the benefits, so that is when we begin a cash flow 
concern within the system. If no new revenue is injected into 
the system, recipients could see benefit cuts over time that 
might total as much as one-third of the money that they would 
otherwise expect from the system. That is because of this cash 
flow crunch.
    And even if you count the trust fund, we do reach a point 
around the year 2040 or 2042 where the revenues will be 
insufficient, and benefits could be--a third of those benefits, 
roughly 25 to 30 percent, could be at risk.
    If we resort simply to payroll tax hikes beginning in 2017, 
to begin putting more money into the system, payroll taxes 
would need to rise by somewhere in the neighborhood of 50 
percent. Now they are currently 12 and a half percent. They 
would have to rise to something closer to 18, 19 percent over 
that period of time.
    So, clearly, taking action sooner rather than later is 
important if we want to shore up Social Security for the long 
term and give younger workers a better system than the one 
projected by all of these reputable agencies.
    And essential to Social Security's future challenges is 
this simple fact: By the year 2030, when the baby boom 
generation is fully retired, there will only be two workers for 
every retiree. Faced with these circumstances, other 
industrialized nations have begun to reform their retirement 
policies and to inject some degree of prefunding or personal 
accounts into their systems; and the U.S. Would do well to 
follow that example.
    In fact, polling data shows that, for younger Americans, 
support for personal investment accounts as part of Social 
Security is overwhelming. Young Americans are fearful that the 
current system is promising more than it can deliver. They 
understand that Social Security in its present form cannot 
offer them the same security that it is providing for their 
parents and their grandparents, and they are rightly concerned 
that they will be essentially forced to pay more into the 
system while getting less back.
    Can we honor our commitment to those currently retired or 
soon to retire, while moving toward a system that helps younger 
workers establish personal accounts? Of course we can, and 
every credible plan advanced that would reform Social Security 
along these lines shows how that can be done.
    I served on the President's commission. We issued a report 
that included three alternatives, and I commend that report to 
your review.
    Certainly reforming Social Security will not be a free 
lunch. Inevitably, some benefits will need to be curtailed over 
time in order to make Social Security more affordable in the 
long term. But all of these same government agencies identify 
this basic fact: Significant benefit cuts and/or tax increases 
will need to occur simply to shore up the current system. All 
the more reason, in my view, to establish personal accounts 
designed along the lines of the Federal Thrift Savings Plan for 
Federal workers so that younger workers have the opportunity to 
create some wealth for themselves.
    In a recent analysis, the Congressional Budget Office came 
as close as any government entity to endorsing personal 
accounts as the best way to increase savings and build assets 
for the future. In a report titled, Acquiring Financial Assets 
to Fund Future Entitlements, which was released on June 16, 
2003, the CBO examined the options available to fund Social 
Security in the future.
    The current Social Security Trust Fund, which holds 
government bonds purchased with Social Security payroll 
surpluses, was one such attempt to prefund retirement, but most 
analysts now hold this as an example of what not to do. The 
government used these payroll surpluses to avoid making tough 
choices in addressing deficits in the rest of the budget. And 
in just 12 short years, when the government must begin 
redeeming this trust fund, it will either have to raise taxes 
or cut other spending. So while the trust fund looks like 
savings, it really is a paper asset that has no alleviating 
effect on Social Security's future funding challenges.
    Others have said that we should lockbox Social Security for 
the future or invest those dollars into private stocks and 
bonds on behalf of the Social Security system. The CBO looked 
at these options as well and concluded what some policymakers 
have suggested, that in a time of budget surplus the government 
could credit the Social Security funds with more government 
bonds; when money was eventually needed to pay benefits, the 
government could sell those bonds. While the strategy may 
appear to be reasonable, the eventual sale of these bonds would 
have the same effect as the government borrowing at that time.
    So the experience of the past several years shows that a 
lockbox cannot work because there are always other intervening 
events--terrorism, war, recession--that can cause political 
leaders to change their minds about protecting the lockbox.
    What about the government investing Social Security funds 
itself in the stock market? CBO noted that even if the 
government could run surpluses and devise an effective means to 
save them, the issue of having the government own private 
business would remain.
    Additionally, Alan Greenspan, anytime he is asked to 
comment on this issue, cautions us about the government 
ownership of American business and the potential harm that it 
could do. Simply put, it is hard for the government under any 
circumstance to prevent the spending of Social Security as long 
as it is in the hands of the government. Future Congresses 
aren't bound by the policies of preceding Congresses, and the 
commitment to save these dollars in any form would be 
threatened.
    So if these approaches can't work, it really does argue in 
favor, in my view, of personal accounts as part of the 
solution. CBO reported this in that same study: assets set 
aside to fund future obligations are most likely to be 
insulated by a system in which ownership and control rests with 
individuals. In these circumstances, each participant has a 
property right and a legal recourse to guard against the 
diversion of those resources for other purposes.
    So, again, there are those here who may not agree that 
personal accounts are necessarily part of the solution, but I 
would suggest that, when it comes to savings, which is crucial 
to Social Security's future as well as to the savings rate of 
the Nation as a whole, the nonpartisan Congressional Budget 
Office has found that personal accounts are the best 
alternative available to achieve those saving rates.
    Last, I want to speak to this whole question of semantics 
in this debate. There is a lot of use of the word 
``privatization'' in this debate, and it is conjured up as a 
way of suggesting that somehow if we move in the direction of 
reform that includes personal accounts we are going to 
dismantle the existing Social Security system. Nothing could be 
further from the truth.
    Frankly, most recommendations for personal accounts as part 
of Social Security are fashioned after the existing Federal 
employees Thrift Savings Plan. All of you here are enrolled in 
that plan, as are 2 or 3 million Federal workers today. It is a 
government plan. It is a pension plan that is invested on 
behalf of the Federal workers in broad-based investments, 
mutual fund investments. Workers have the option to invest in 
any one of five accounts, and these accounts over the time that 
they have been in place have produced sizeable and notable 
benefits for these Federal workers.
    So we are not talking about something that is going to cut 
people loose and send them out into the private sector to fend 
for themselves. We are talking about a supplement to a basic 
Social Security safety net that would be invested in the 
worker's name in an account that they would own and control.
    But the P word, privatization word, is a scary word, and it 
is thrown around alot in this debate. But I don't think that it 
holds up when put to scrutiny, because it is not at all what we 
are proposing. We are trying to propose, for the future of 
Social Security, a more secure system than we could have if we 
simply tried to prop up the status quo. The cost implications 
of protecting the status quo are far greater over the period of 
time than the cost implications of reforming this system while 
making room for personal accounts as part of the solution.
    Getting back to our commission co-chairman, Daniel Patrick 
Moynihan, he referred in our work to the personal accounts as 
being the logical completion of Franklin Roosevelt's original 
conception for Social Security, and I think the historical 
record demonstrates that to be the case. In President 
Roosevelt's 1935 message to Congress, he outlined a vision for 
ultimately extending the program to include voluntary 
contributory annuities by which individual initiative could 
increase the amount received in old age. I think it is a 
measure of bipartisan success that we now have a Republican 
president who is striving to make that FDR vision a reality.
    The Chairman. Could you sum up----
    Mr. Penny. And that is my summation.
    With that, I would simply close my remarks by urging folks 
to stay clear of inflammatory language on this issue. Because 
whatever side of the debate you may find yourself on today, 
there is no denying that we are moving toward a huge challenge 
in this program, and every day of delay adds to the cost, the 
unfunded obligations in the future; and so we really don't have 
time to waste.
    [The prepared statement of Hon. Tim Penny can be found on 
page 92 in the appendix.]
    The Chairman. I thank all of you for your excellent 
presentations.
    Let me begin by saying that when I bring up this issue at 
home, I get two general responses. First of all, the Thrift 
Savings Plan, when you explain it to them and say it is 
available to all Federal workers, including Members of 
Congress, the response is, well, that kind of thing ought to be 
available for the average guy out there. And obviously the 
Thrift Savings Plan has been incredibly successful by any 
account, multibillions of dollars with a solid foundation; 
again, the concept of saving for the long term.
    And the second issue that the people are interested in, the 
response is, well, if it is voluntary, then what is the 
problem? That is, nobody is forcing anybody to go into these 
individual accounts. And although I feel that once people 
realize the kind of long-term benefit they can get from 
disciplined investments, where the government can't touch it 
and the individual can't touch it and it grows for 40 or 45 
years during the working life and with what we are told the 
most conservative return would be 5 percent based on index 
funds and a mix of investments, relatively safe investments 
compared to what you are going to get with Social Security, 
which would be less than 2 percent, a lot of people kind of cut 
through the fog and are much more inclined to at least 
recognize that there is a problem.
    What about the Thrift Savings Plan? Is that a fair 
comparison to make? And is it not something that we ought to 
make available to our own constituents?
    Let me start with Representative Kennelly.
    Ms. Kennelly. Well, in all respect to the gentlemen to my 
left and to my right, they have both been on commissions. I was 
on the Ways and Means Committee in 1983; and, as you recall, in 
1983 we didn't know if the checks could go out for the next 
month and a half, and we made some very, very serious 
decisions. I don't know how I was ever reelected again. We 
raised the age. We taxed Social Security. We did all sorts of 
things. But you know what? For 20 years, 30 years, we made this 
system as good as it is today, and we can do the same thing. 
You don't have to dismantle the system. You just have to take a 
number of adjustments, and they will be very difficult for all 
of you.
    The Chairman. What will those be? Are you suggesting we 
raise the payroll tax again?
    Ms. Kennelly. No, I don't have to do that anymore. You have 
to. I did it in 1983. I raised the taxes. I raised the age. I 
taxed Social Security. I don't have to do it anymore. You have 
to do it.
    But you know what you can do, Mr. Chairman? You can do it 
under the traditional program. What we are seeing now is the 
President saying do a whole new structure, dismantle Social 
Security, have a whole new structure.
    Now, as far as the Thrift Savings Plan goes, I belong to 
the Thrift Savings Plan, as all of you belong to the Thrift 
Savings Plan. And it is a good plan, but it is a smaller plan. 
You are talking about 144 million people growing into that 
plan; and you have to understand that when you are looking at a 
plan like that you have got a whole series of adjustments to 
make.
    But most importantly, Mr. Chairman, let me tell you, with 
the Thrift Savings Plan, I don't give up one penny of my Social 
Security, not one penny. And what I understand the President 
suggesting is a Thrift Savings Plan. You don't have Social 
Security. It is totally different.
    The Chairman. Well, in fairness, let me just say how I 
perceive what we are trying to get at. That is, essentially, a 
three-legged stool of retirement for the average worker, that 
is, Social Security--traditional Social Security, albeit not at 
the promised levels that we cannot sustain but at a reasonable 
level. Second would be the return on a lifetime of work and 
investment with an individual account, maximum of a thousand 
dollars a year, by the way, in relatively safe accounts that 
would be based on a life-cycle type of account where you could 
take more risks early on and then later have more conservative 
investments. And, thirdly, it would be whether you are under a 
defined benefit plan or defined contribution plan where you 
worked. It seems to me a pretty modern way to go.
    What concerns me, frankly--and I would like to have the 
other panelists weigh in on this--it seems to me we are at a 
crossroads here whether we are going to go with the European 
model, which has basically paralyzed economies in Germany and 
France and other European countries because of the incredible 
obligations they have unfunded for people's retirement over 
there, and it is starting to have a major effect on their 
productivity.
    The unemployment rate in Germany is the highest in history; 
same thing in France. We complain about 5.2 percent 
unemployment in this country, and some of these leading 
countries in Europe, who are supposed to be driving ends of the 
European Union, can't get out of their own way because of these 
unfunded liabilities.
    Ms. Kennelly. Chairman Oxley----
    The Chairman. You go ahead and respond, and then I would 
love to have----
    Ms. Kennelly. Chairman Oxley, right now for the next, what, 
13 years we have a surplus in the Social Security savings 
program. We have a surplus. As I understand it, what the 
President is saying is that every dollar that you put into your 
private accounts will come out in guaranteed benefit. Where 
does that leave the guaranteed benefit?
    The Chairman. Well, as a supplement, as President Roosevelt 
said when he signed the Social Security Act, that there would 
be a time when we need to have an individual account to 
supplement Social Security, which was initially set up as a 
safety net and a supplement to one's retirement. And that, 
really, if you look back at Roosevelt, he was in many ways a 
visionary, and he saw that coming, and it seems to me now is 
the time.
    Ms. Kennelly. Chairman, let's leave the safety net, okay.
    The Chairman. We are leaving the safety net. That is the 
whole issue.
    Ms. Kennelly. I don't think so.
    The Chairman. Gentleman from Wyoming.
    Mr. Simpson. Well, in my day, the soaps were a lot 
different than they are today. Today, they consist of--well, it 
is a rich tapestry----
    Mr. Frank. Yeah, they were on radio and not television at 
that time.
    Mr. Simpson. That is right. And we were taught to--we 
listened to Jack Armstrong, the all-American boy, and if you 
had any inordinate desires, you took a cold shower. I would 
have ran all the water out of the system in Cody, Wyoming.
    But let me tell you, the thing about this story with 
Barbara, ``The Perils of Mary Vogel'', that could be a soap, 
the Perils of Mary Vogel. She took a hit from the airline 
industry, which is very sad. People took a hit from Enron. Mary 
Vogel is 76 years old; and not one single plan by Democrat, 
Republican, Conservative, Liberal, Libertarian or Commie has 
suggested hitting anybody over 55.
    This is the kind of--I have to be so careful--my wife said 
that, like Harry Truman, it took a long time for me to get him 
to say manure. But let me tell you, this is demagoguery. The 
reason it worked in 1983 is because they all shook hands and 
went over the cliff together. That is why she got reelected. 
That is why everybody that was in the game got reelected. 
Because the American people really appreciated that. They knew 
they had to do something. Now they have got it figured out. You 
have to do something. But the demagoguery is unbelievable.
    You know, in privatization it is not stealing--there is 
nothing to steal. I had to go through that in the Senate. I 
said, don't show me the chart again about stealing from Social 
Security. There is nothing there. It is a series of IOUs. And 
the IOUs come due in 2015 and '17, '18--figure it out--where 
they have got to go cash them in to pay the beneficiary.
    This is not dreamworld stuff. I am not making this up. 
There is nothing--there is no plan in there for Al Simpson. 
There is no fund that says this is what Al Simpson put in, and 
this is his account. It is not there. They have a number for 
me. Everything that comes in today goes out next month. And we 
can't do a thing.
    Let me tell you, if you really want to do something, 
Democrat or Republican alike, start looking at part B premiums 
on Medicare----
    The Chairman. That is not under our committee's 
jurisdiction.
    Mr. Simpson. Take a look. Because the richest people in 
America are paying only 25 percent of the premium, and the 
people in the cafeteria are paying the other 75 percent. And we 
tried to do something, Democrats and Republicans, just to 
correct that. AARP, they flew out of the--harpies off the 
cliffs. I mean, give it up.
    The Chairman. Gentleman from Minnesota.
    Mr. Penny. Thank you, Mr. Chairman.
    I came to Congress in 1983, and one of my first votes was 
on that Social Security Commission report. And we did view that 
vote with some trepidation because we had to do some ugly 
things. We had to raise taxes and cut benefits, not the kind of 
thing your average Member of Congress, especially a freshman 
Member of Congress, wants to be identified with. But we were in 
a crisis, and we had no good options because, sadly, at that 
time we waited until the crisis was upon us to do anything.
    We now have time to plan ahead, and that is my point. We 
have got 12 years before there is a cash flow crunch. Assuming 
that we redeem the trust fund or honor our obligations to the 
trust fund, we have got a little more time beyond that. But we 
shouldn't wait, as we did back in 1983, until the last minute.
    Secondly, if I could back up and do one thing differently 
in that 1983 package, it would be to take the surpluses we 
created with those higher payroll taxes and convert them to 
personal accounts. Because they have not been honestly saved, 
they have not been properly invested to the benefit of the 
individual, and we would be in much better shape today if we 
had done that with the excess money in the years since then.
    Thirdly, the Thrift Savings Plan, as you mentioned, Mr. 
Chairman, is a good model to look at. Because why did we do a 
Thrift Savings Plan? It is because we saw a defined benefit 
system for the Federal worker that was unsustainable over the 
long term. We are looking at the same problem with the Social 
Security system. No one is talking about removing a safety net 
for all Social Security recipients, especially the poorest of 
the poor, but we are talking about whether it makes sense 
beyond that safety net to continue a defined benefit program 
for the wealthier retirees as well, or whether we can convert 
at least some portion of Social Security into a defined 
contribution plan. We did that for the Federal workers. It is a 
model to follow.
    Can it work? Yes, there are only a few million Federal 
workers. This would be a sizeable program of 140 something 
million workers in our workforce. But this has worked for the 
Federal workers, from janitors to rocket scientists. They have 
all figured this program out, and they are generally happy with 
the program. That is because we have managed risk, we give them 
a governing board that determines which funds are made 
available, we give them five options, broad-based mutual funds 
that are managing the risks rather effectively, and we have 
kept administrative costs very low in this Thrift Savings Plan. 
So it is a model that we could look at if we decide to move in 
the direction of personal accounts as part of Social Security.
    The Chairman. Thank you. My time has long expired.
    The gentleman from Massachusetts.
    Mr. Frank. Thank you, Mr. Chairman.
    One thing that strikes me--I know we keep hearing that 
everybody is entitled to his or own set of facts. Apparently, 
everybody is also entitled to his or her own Pat Moynihan. That 
is part of this debate. And he is safely--sadly, but safely 
dead.
    As I listen to the references to Pat Moynihan and to 
Franklin Roosevelt and Harry Truman, I am reminded of I think 
the most prominent form of sort of political necrophelia in 
America, which is that conservatives have a great fondness for 
dead Democrats, people who were very much opposed when they 
were alive and proposing things that were demeaned as terribly 
radical now find that, when they are safely iconic, they can be 
invoked.
    I would be interested myself, if we were going to look at 
Pat Moynihan, on what his views would have been about the tax 
cuts that we recently enacted, and I would be glad to listen to 
Pat Moynihan's wisdom if it came in whole and if it wasn't 
cherry-picked for these purposes. Because that gets to my 
point--the gentleman from Minnesota mentioned the 1983 Act, 
others mentioned the 1983 Act, and we generated those 
surpluses.
    One of the questions that is really before us--and I 
appreciate his making it clear that we don't have a problem on 
the cash flow side until 2018. I should say when we talk about 
demagoguery, one form of demagoguery, which has been defeated 
in part because of the facts, is this argument that we are in 
an immediate crisis. There was an initial effort to scare 
people by suggesting that the crisis was more imminent.
    Now I understand people who would like, on philosophical 
grounds, to change the way the Social Security system works. It 
is one thing to make that argument. It is another to claim, 
quite falsely, that there is a near-term crisis, as Mr. Penny 
has acknowledged. We are in a surplus cash situation until 
2018, and we should start looking at this, but we are talking 
13 years, a longer time horizon than we usually deal with for 
the government.
    But I do want to ask particularly my former colleagues, Mr. 
Simpson and Mr. Penny, there is talk about these IOUs--we often 
talk about government bonds. I guess we should talk about the 
government IOUs, instead. But the question is this. Do you 
think, as a matter of public policy, we should credit Social 
Security with all the money that was paid in and the interest 
accrued or should we not?
    I understand you have described factually, both of you, 
that there has been this tendency to treat it, as the President 
said, as leftovers and spend it. But as we deal with the 
philosophical issues here, as a matter of public policy do you 
believe that we should consider ourselves, as Members of 
Congress, bound to credit Social Security from now until 2042 
with all of the money that was paid in and the interest that 
accrued? Is that part of the equation or not? Mr. Simpson.
    Mr. Simpson. Well, Congressman Frank, I never used the term 
leftovers----
    Mr. Frank. I know. President Bush did. But I didn't ask you 
about leftovers.
    Mr. Simpson. I have been involved in this in a bipartisan 
way for a long time. I never went home and beat up people--
except the AARP--and so all I know is that I was on the 
commission----
    Mr. Frank. I just asked you the question, should we put the 
money in----
    Mr. Simpson. That would be absolutely absurd. They would 
rip the doors off Fort Knox to get that one done----
    Mr. Frank. So we should not credit to Social Security the 
money that was paid in----
    Mr. Simpson. That was not in anybody's law. It was not in 
Roosevelt's law----
    Mr. Frank. I concede. It is not the law. We can break the 
promises if we want to.
    The question is, as a matter of public policy, should the 
Congress of the United States credit to Social Security as we 
calculate the resources that are available the money that was 
paid in under the rubric of Social Security taxes and the 
interest that we said would accrue? Should we or shouldn't we, 
as a matter of public policy?
    Mr. Simpson. Give it to Tim. My brain won't handle that. I 
think it is absurd.
    Mr. Penny. Well, I think we need to be honest about where 
that money is going to come from. That is the point. I don't 
have a problem with assuming that we are going to find that 
money somehow, but I think we need to be honest about where we 
are going to find it.
    Mr. Frank. Should we, as a matter of public policy, do it 
or not?
    Mr. Penny. Well, as a matter of public policy, I don't see 
how we won't continue to count that as part of Social 
Security's future, whether you are for the President's approach 
or for some other approach.
    Mr. Frank. Well, in that sense, by what you say, we don't 
really have that problem----
    Mr. Penny. Well, we do have a problem, because saying that 
we are going to honor it doesn't make it easy to honor it. So--
--
    Mr. Frank. But you agree that we should.
    Mr. Penny. Well, legally, we don't have to.
    Ms. Kennelly. Yes, we do.
    Mr. Penny. Legally, we don't have to, but morally we 
probably should.
    Mr. Frank. I stipulate that legally we don't have to. We 
are the government. We can do whatever we want, and nobody 
could sue us. But the question, Tim, should we, as a matter of 
public policy, do that?
    Mr. Penny. This is debt owed internally, so legally you 
all, as Members of Congress, could change.
    Mr. Frank. Should we?
    Mr. Penny. I am not recommending that. I don't believe that 
we should, and I don't believe that we will, but I think we 
have to be honest----
    Mr. Frank. I will tell you what. I will be honest about the 
consequences if you will be honest about whether you think we 
should or shouldn't. I understand the consequences, but I will 
go back to Pat Moynihan----
    Mr. Penny. Then as long as the two are linked--because if 
you deal with them separately, then we have this fantasy land 
in which we treat the trust fund as if it is somehow easy cash, 
and it is not easy cash----
    Mr. Frank. I keep my fantasies out of the office.
    Mr. Penny. You have got to find a way to put the money 
back.
    Mr. Frank. So the question is--and I understand that. And 
we will get honest. I think we are getting now into tax cuts 
and other forms of expenditures, and that is when we 
selectively quote Pat Moynihan. I don't think he was an 
advocate of all the tax cutting that happened. But it is a very 
simple question. Do you think we should do that----
    Mr. Penny. Yes, I think we should. And hand in hand with 
that, I think we need to have an honest discussion about how 
we----
    Mr. Frank. I agree with that.
    Let me ask you one further question, to all three people 
here. One of the things that has been controversial--and it was 
mentioned--that in the 1983 Act for the first time taxation was 
applied to part of the Social Security benefits that people got 
if they were above a certain income. I think it should have 
been indexed, but it was an effort to try and deal with the 
upper income issue that Senator Simpson referred to. Then, in 
the 1993 Act, we further increased the percentage of Social 
Security benefits, I think, to 85 percent that was subject to 
taxation, with some of that money being circulated into the 
Medicare fund to try to do a little--aim it literally at that 
problem. That has become controversial.
    And the Senate budget--and I can say that now, thanks to my 
colleague from Florida, Mr. Feeney, who did what I was unable 
to do and get the rules changed so we can now talk about the 
Senate in a sensible way, and I acknowledge his success there--
--
    The Senate budget resolution calls for a repeal of some of 
the taxation that goes on Social Security benefits for upper 
income people. I would ask all three panelists, do you agree 
with the Senate in that? That, frankly, would seem to me to be 
a retreat from the kind of responsibility that we should show. 
Do you support the continuation of the level of taxation of 
Social Security benefits of some of the upper income 
recipients.
    Mr. Simpson. You keep coming back to me, don't you?
    Mr. Frank. Yes, well there are only three people. I haven't 
got all the choice in the world.
    Mr. Simpson. Now, look, Barney, I am going to see you 
later! No. What they did, let's get serious. They exposed--I do 
not remember exactly--but they exposed 85 percent of the 
benefit to a tax of 15 percent. But you go out in the world, 
and it is, oh, they did an 85 percent tax. I mean, everything 
is taken to a level of babble. And that is why it is not going 
to get solved. This is the worst----
    Mr. Frank. But that is why I ask you your opinion. Should 
we repeal that, or should we leave it alone?
    Mr. Simpson. Look, I am for affluence testing. I say, a guy 
making over 60 grand a year in retirement ought to be kicking 
in a hell of a lot more money. What do you think? I sound like 
a Democrat.
    Mr. Frank. You are in the House now, not the Senate. We 
have a little bit more confinement in what we can talk about.
    Mr. Simpson. Of course, I am not going to sit here and 
babble about tax raises. Let's start talking about Medicare, 
then give this up. This is peanuts.
    Mr. Frank. Should we maintain the current level of taxation 
of a percentage of Social Security benefits?
    Mr. Simpson. Well, I--yes. What do you think of that?
    Mr. Frank. I am relieved.
    Barbara.
    Ms. Kennelly. Well, first of all, Barney, let me tell you, 
by law, we have the full faith and credit behind those bonds. I 
mean, I heard you----
    Mr. Penny. Technically.
    Ms. Kennelly. No. No. By law of full faith and credit, you 
have to pay those bonds, and you people are going to have to 
change that law if you do not want to pay those bonds.
    Mr. Penny. There we agree. We agree on that
    Mr. Simpson. I agree with that.
    Ms. Kennelly. And can I take my hat off, as the national 
president of preserve Social Security and Medicare? I do not 
think we ever should have taxed Social Security.
    Mr. Penny. I have no problem with it. You know, there needs 
to be some means testing here, and that is kind of a back door. 
It is a back door means test and, you know----
    Mr. Frank. I agree with you.
    Mr. Penny. I supported both of those, the 83 and the 93. 
And I think it ought to stay in place
    Ms. Kennelly. Because you are in a deficit right now. You 
are in a deficit right now. You have no money.
    Mr. Frank. And I do think that greater progress both as to 
how much of your income is taxed and to what the benefits are 
is going to have a part of the longer term solution, and to 
repeal the taxation now would, I think, go in exactly the wrong 
direction. Thank you, Mr. Chairman
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. I have to follow 
that?
    Ms. Kennelly, thank you, first, for your service to your 
country. I have a question. Looking in your testimony, you talk 
about I guess for lack of a better term, hazards and 
vicissitudes of life in referring to the risk associated with 
personal accounts. But aren't there a lot of risks to leaving 
our Social Security in the hands of Washington? We have been 
discussing the trust funds. Historically, the trust fund has 
already been raided 59 different times. We have had 20 
different tax increases, which means every time you are putting 
in more money and receiving the same benefits, your rate of 
return is going down. We have decreased benefits including the 
taxation of Social Security benefits, which you just alluded 
to. We currently have no ownership rights in our Social 
Security. We have had a number of Supreme Court cases attest to 
that. So maybe there are some risks associated with the 
marketplace. But aren't there a whole lot of risks involved in 
leaving our retirement security in Washington as well?
    Ms. Kennelly. Yes. The hazards and vicissitudes of life is 
a direct quote from President Roosevelt. We do have a real 
problem with savings in the United States, and that is why I am 
glad you are having this hearing. And you know, I think one of 
the best saving plans and probably the only one we have right 
now is Social Security. Every time we get a pay check, you and 
I, every 2 weeks, Social Security is taken out of that pay 
check. And that will be there when we retire. And we can count 
on that. We cannot outlive it, and it is adjusted for 
inflation. So no, I do not think we should change the system.
    Mr. Hensarling. Let me ask you this question. I guess you 
also alluded to the fact that you are not in this business 
anymore of having to come up with reforms. But as I understand 
current law, if we do not act, in 2042, we are looking at 
approximately a one-third cut in Social Security benefits. Now, 
you say that personal accounts will lead to significant benefit 
cuts. But by not choosing a reform plan, haven't you chosen the 
status quo? And the status quo, I think, by any account 
includes a huge benefit cut for, among others your 3-year-old 
granddaughters. I have a 3-year-old daughter. And aren't we 
looking at massive benefit cuts for them if we do nothing under 
your plan?
    Ms. Kennelly. No, I do not think so because I think we have 
got a surplus to 2017, and I think all of you can resolve this 
situation before then. But if you look at what the President--
he has not laid out a plan. We know that. But he has looked at 
a second commission plan, and we see the cuts in benefits. And 
the guaranteed benefits, every dollar you put in to a personal 
account is taken out of your guaranteed benefit. And so as a 
result--I have to tell you something. Some people forget it. 
The market goes up. The market goes down. And you cannot--what 
the President is saying, there is a hope, there is a hope that 
every young person will get more. Can I tell you something? 
That is only a hope. What I say is there is a risk.
    Mr. Hensarling. Well let's talk a little bit about the 
market. First, according to the Social Security trustees, 
according to GAO and just about anybody else who will opine on 
the matter, if we do nothing, today's younger workers are 
either going to receive a benefit cut of about a third or they 
are going to see their payroll taxes increased by 43 percent. 
Or we can explore the President's option of looking at personal 
retirement accounts. Now, you allude in your testimony about 
the stock market goes up, the stock market goes down. And 
indeed, it does on a day-to-day basis, on a month-to-month, and 
on a year-to-year basis. But I think, with the exception of the 
Great Depression, there has never been a 4-year consecutive 
period where the stock market has declined. And indeed, the 
Heritage Foundation has done a study and has said that a 66-
year old male worker who received $35,000 of salary who is 
presently, as he retires receives about $1,500 Social Security. 
Had he been allowed to invest half of his Social Security in a 
personal account, in half stocks, half bonds, over his working 
life, he would be making three and a half times that, over 
$5,300 had he been allowed to be in a personal retirement 
account. I mean, right now, that is a much greater rate of 
return than Social Security is promising but cannot deliver. 
Why, if there are only three choices on the table--massive 
benefit cuts, massive tax increases or giving seniors greater 
retirement security with a rate of return that over 20, 25, 30 
years of their working life will give them greater retirement 
security, why wouldn't we choose that plan?
    Ms. Kennelly. Well, first of all, Congressman, there is not 
only three things on the table. There is a number of 
adjustments on the table. Washington is full of adjustments. We 
have talked about them for years. And if you cobble those 
adjustments together--and they will be very difficult things 
for you to have to decide about--but if you cobble those things 
together, you can keep the traditional system.
    Now, your gentleman that you are talking about, maybe he 
would do better. But what I have to say to you is that Social 
Security was never meant to be an investment system. Never 
meant. It was a safety net. It was a social insurance program. 
I know none of you like to hear that word but that is what it 
was. That was so that people, as they got older, after they 
stopped working, they have income. And by the way, we have 
never heard in this room today the word disability. And I 
understand from the Commission--and Congressman Penny was on 
the Commission--I understand they said, well, they only had 6 
months; they could not adjust or they could not address 
disability. Let me tell you something. One-third of those 
people taking Social Security is not retirement. It is 
survivors and disability
    The Chairman. The gentleman's time has expired.
    Gentleman from Pennsylvania, Mr. Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman.
    Senator, I have always enjoyed your frankness and 
candidness. I appreciate it today. I do not think we can get to 
the heart of this matter unless we do away with the hypocrisy 
on both sides, and I agree with you in that regard. But I want 
to highlight one of the hypocrisies that really bothered me in 
the last 7, 8 years, if you recall, a Contract For America 
allowing people to draw Social Security regardless of their 
income at 65. When I go home to my district, I refer to that as 
the lawyers, doctors, accountants and business executive relief 
act because, in reality, that is what this Congress did. It 
gave a hundred billion dollars more away of Social Security by 
arming the right of people regardless of if they are employed 
at higher incomes than they had in the past to draw full Social 
Security. And I did not hear any outcry from the community, 
whether it is the business community or the country as a whole. 
It just went by. And as a matter of fact, it is interesting to 
note, that cost about a $100 billion to the Social Security 
system. And to fix the notch years problem would have cost $50 
billion. So when you look at the equities involved, it is 
disturbing to me.
    Two, I do not think we solve Social Security until we solve 
the budget crisis in the United States and get to a balanced 
budget. And I have seen, over my course of years, I have served 
a good part of time with Barbara and Tim, and we went through 
hell in 1993 to get this country on a course of a balanced 
budget. And then, in the 2000 election, we saw hypocrisy 
arguing that that money in Washington in the surplus is your 
money. And they went without a vengeance, and they gave not 
only the surplus away--if there was any surplus, and I am not 
sure there ever was--they gave a hell of a lot more. And now 
they represent to the American people, we only have a $412 
billion deficit, when in reality, we know we do not count the 
cost of the war, a $100 billion. We do not count the $150 
million of taxation that we are taking into Social Security and 
expending it for general operating expenses. So as we sit here 
today, we have a $680 billion deficit but nobody answers that. 
And then we have the President circulating around the country, 
making the suggestion that private accounts are a solution to 
all problems, when in reality we all know it does not do 
anything for the solvency of Social Security. All it does is 
reconstruct the program and, interestingly enough, not to 
contribute one more dollar toward the rescue but to in fact, 
just go further in debt, and I think intolerably in debt.
    I cannot understand why, particularly senior citizens like 
yourself, Senator, cannot, you know, belly up to the bar if you 
will and level--be the spokesmen of rationality to the American 
people, and tell them that their president and their Congress 
are lying to them. And what I fear is we could easily make 
adjustments that Barbara is talking about, increase the caps a 
little bit, increase the rate a little bit. And it will look 
perfect. But the reality is, so we take a $100 billion more a 
year in from Social Security payments. If we are spending it to 
make up the general shortfall of revenues in the general fund, 
what have we accomplished? We are using Social Security for 
general tax revenues, and that is the greatest sin of all.
    And then to have the President say we are not going to 
honor that commitment and pay back those funds sometime in the 
future certainly questions whether or not our lenders are going 
to continue to be there as loyally as they should be.
    So, having been with all these great minds over the last 20 
years, Senator, and having been as candid as you have always 
been, don't you really believe that to solve Social Security, 
to solve Medicare and to solve Medicaid, it is fundamentally a 
question of revenues for general expenditures of the United 
States, and that we have to get back to a balanced budget 
before any solution really applies?
    Mr. Simpson. You are finished?
    Mr. Kanjorski. Yes.
    Mr. Simpson. Mr. Congressman, with that attitude, nothing, 
nothing will be solved. If you want to go on that tack, keep 
right on going, and nothing will happen for your country. They 
can do it over here, you can do it over there. You are all good 
at it. I have been in it. But I never played it. Hypocrisy is 
the original sin around this place, saying that you are doing 
one thing and then doing another.
    You know, all the stuff I watched here, I am not--I 
certainly am not a temple of rectitude. But I will tell you, if 
that is your tack, and to bring up, you know, the old crap and 
just keep stringing it out, about the Contract For America, 
this or that; get back to the issue in front of this country 
and that is the Social Security system. And the only reason you 
are playing with this one first, if you cannot solve this one 
in a bipartisan way, Medicare is going to eat this country up. 
Forget this other stuff. Social Security and Medicare are the 
entitlement programs that will crush out all discretionary 
spending. And when you come in here from your district seeking 
a little education money or a little whatever, whatever, it 
will not be there. It will not be there.
    And who is telling us that? Everybody with a brain is 
telling us that. Every good person on the right and the left is 
telling us that. The status quo is the cruelest cut of all. If 
you want to talk about the cruelest cut, the cruelest cut is 
the status quo. Nobody over 55 is going to lose a nickel. That 
gets lost in the babble and the hysteria. Just a second. I have 
just got to finish.
    May I finish? I listened intently to you, sir.
    Social Security was set up for the little guy. It was an 
income supplement. It was 46 percent of the replacement rate 
for a ditch digger. That is what it was for. It has been 
distorted beyond belief with disability, student aid. We 
finally stopped that one. Everything that happened to it, it 
collapsed of its own weight because of generosity. Let me tell 
this little caper. In the Senate, we put in an amendment, it 
passed the House and the Senate that, and said if the cost of 
living allowance goes up less than 2 percent, there will be no 
COLA for Social Security. Oh, it was a good idea, and it 
passed. But guess what? And it was Republicans and Democrats 
that did it in. Once it reached 1.5 percent, they went to the 
Floor and said, how about the little people? How about this and 
that? And so they blew that one right out of the water. There 
is not anything you cannot blow out of the water with 
demagoguery about senior citizens
    The Chairman. The gentleman's time has expired.
    The gentleman from the first State.
    Mr. Castle. Thank you, Mr. Chairman.
    Let me just bring in a little bit of politics. And I think 
I want to ask Senator Simpson and Tim Penny this question. But 
I just read an article in the Washington Post from Monday and 
just excerpting from it, it said in different places, numerous 
studies of retirement savings programs such as 401(k) plans 
have found that choice may be the last thing that people want. 
And some expert from Wharton School said, in the society of 
specialization, people would rather trust their investment and 
savings decisions to perceived experts just as they trust their 
car repairs to mechanics and their legal problems to lawyers. 
And at the end, they went to a woman who had some economic woes 
and problems, et cetera. And they said, Bush's Social Security 
proposal would let the woman divert some of her payroll taxes, 
4 percent of her earnings, into an account with her name on it. 
She could invest and mix it with stocks and bonds or apply it 
all to the Treasury notes, just above the savings investment, 
and watch it grow. Singletary thought about it for a moment, 
then shook her head. I still like the old routine, she said, I 
like the check.
    I had a half dozen town meeting at home, and I sort of ran 
into the same thing. A lot of people just were not that 
interested in making investments. Maybe they are like me, you 
know. I wait till the market is topped out, and then I make my 
investment, and it goes down. And there is a record of people 
doing that, by the way. Most of us average investors do not do 
particularly well. I am trying to look for a method--I think 
there is a problem, and I think some of the solutions you are 
talking about make some sense, but I am trying to look at a way 
of selling this. Is one potential way of selling it, instead of 
having a basket of investments, even a Thrift Savings Plan 
which the Chairman asked about, to do something such as what 
most mutual fund families are doing now, which is have a year 
related type of plan with more equities than bonds and later on 
that kind of thing, or pure Federal investments at a later time 
and just one thing so you are basically riding with the market 
and everybody understand what it is? And if you are 40 years 
out, you may have 80 percent equities and 20 percent bonds and 
narrowing down to the time you retire when maybe you just have 
nothing but Treasury notes or something of that nature? Should 
we be considering something a lot simpler, so there will be 
more acceptance of this in terms of these so-called personal 
investments? Have we made it too complicated?
    Mr. Penny. Well, as I mentioned in my remarks, I think and 
in response to a question posed by the chairman, I think the 
Thrift Savings Plan is a good model. I do not think it is 
terribly complicated. Janitors in the Federal work force have 
figured it out.
    Now, whether we should have another fund in there, that 
would be sort of a life--a life cycle fund where it sort of 
changes over time, becomes more conservative as you reach, in 
terms of more bonds and such when you reach an age closer to 
retirement, I think that that makes some sense. But I would----
    Mr. Castle. You would keep the thrift savings but maybe add 
something.
    Mr. Penny. Yes, but maybe add this----
    Mr. Castle. I am looking for simplifications.
    Mr. Penny. Or a fail safe for those who make no choice. But 
I would not want to totally eliminate choice. I think the 
Thrift Savings Plan works well for all sorts of Federal 
workers, some of whom are not market savvy, but they have 
figured it out. So I think it can work for us.
    Mr. Castle. Thanks, Tim.
    Senator?
    Mr. Simpson. My cell phone has a symphony on it.
    Mr. Castle. Well, if you have got to take the call, we can 
go on to another question
    Mr. Simpson. No, I do not need to take it here unless you 
all want to listen.
    Yes, you asked a question, Mike. Yes, life cycle investing, 
I think, is a vital thing. That is the new title for that. So 
if you are 40 years back, you are doing a different kind of 
investing; 30, 20, and you keep changing that. I think most 
mutual funds are going to that. I think the confusion that 
comes from this plan, from the President's plan, let's call it 
that so that we know what we are talking about, about the evil 
empire, the President's plan, I have a little confusion myself 
about what is the percentage. It kind of bounces around. Is it 
a quarter of the 6.2? Or is it 4 percent of the 6.2? Or is it 4 
percent of the 15.4? And I know that that should be steadily 
related, but it is related through different mouths.
    Mr. Castle. I would like to ask another question. May I do 
that before my time is up?
    Mr. Simpson. Yes, you can. Ask her a good tough one.
    Mr. Castle. Any of you can answer this but I really--my 
time is almost up. But essentially, I mean, as I look at this 
thing and I listen to the Republicans and Democrats, basically 
Republicans are taking the position that we are not going to 
raise taxes at all. So we are not going to take the cap off, 
whatever the heck it is now, $94,000. We are not going to raise 
rates. In other words, we are not going to have any additional 
revenue coming into it. The Democrats seem to be taking the 
position--and I do not mean just here--but seem to be taking 
the position that they are not going to reduce benefits at all, 
essentially that they are not going to raise the age at which 
you would get it or change the cost of living or whatever it 
may be. It is pretty simple. If you are not going to do either 
one of those things, you are not going to solve the problem, is 
the way I look at it. To me, it is just two forces that have 
come together for political reasons, and nothing is happening, 
in addition to the earlier question I asked about the 
investments type thing, in addition to other problems that 
exist out there. How do we break through this?
    Well, I will tell you what impresses me the most, and, 
Senator, you served on some of these and so has Tim, as a 
matter of fact, served on some of these type commissions. But 
do we need something to move this away from the pure politics, 
like a 9/11 commission? And I was really impressed by Tom Kean 
and Lee Hamilton when they said they were going to do it 
together. Everything was going to be done unanimously, and they 
came up with a recommendation. Do we as elected officials need 
something like that to back us up in order to get this done?
    I do not think anyone can deny there is a problem out 
there. Maybe you can deny you do not want to go to the personal 
accounts, but nobody can deny that there is a financial problem 
out there, and in a few years, we have got to do something at 
some point or we are going to have a crisis
    The Chairman. The gentleman's time has expired.
    Mr. Castle. Can I have my question answered?
    The Chairman. Yes.
    Mr. Castle. Does that make sense to have a commission is 
the question.
    Mr. Simpson. Well, sure it does. And I have the naive view 
that because the crisis was so evident and there had been 
commissions and the Danforth-Bob Kerrey commission and this 
commission and that commission and thoughtful people and think 
tanks on both sides presenting enough evidence.
    But after the diatribe that I have heard, you need to get a 
commission to cover yourselves again because you ain't going to 
make it. You had better get a commission, and you had better 
get it together because this obviously does not have anything 
to do with Social Security or the reform of Social Security. It 
has just reached hysterical political babble. And it is 
disgusting.
    Ms. Kennelly. No, Senator.
    Mr. Simpson. Yes. Yes.
    Ms. Kennelly. No. No. To answer Representative Castle, no, 
I will answer you. Every time you say that you are not going to 
take a red dime from people 55 and older----
    Mr. Simpson. A red dime?
    Ms. Kennelly. What did you say? You are not going to take--
--
    Mr. Simpson. No. Go ahead.
    Ms. Kennelly. Red nickel.
    Mr. Simpson. Anything.
    Ms. Kennelly. Whatever. You are not going take anything 
from people 55 and older. So, you know what, I am sitting here 
looking at a mother who is 70 years old, and she has got a 
daughter 47 years old. And that daughter has a couple of kids, 
and life has not worked out too good. My members are older. My 
members are 65 and older. My members are not caring about 
whatever red or blue nickel you are taking from them. They are 
worried about their children, and they understand that Social 
Security is a traditional program that will protect their 
children when they retire because some of us are going to have 
hard luck. You talk about 55 year olds. You want to know, 
Congressman Oxley, you want to know what our line of defense is 
right now? It is older people that understand that one-half of 
them would be in poverty without Social Security. It is older 
people that understand that two-thirds of them retire for half 
their income on Social Security. What is going to change in the 
next 10 or 20 years that people--are they going to be wealthy 
all of a sudden? I do not think so. I think you people have to 
protect the Social Security system. And then, what you are 
doing today, financial education, absolutely do it. Make sure 
people put their money in a 401(k). Make sure people have an 
IRA. Make sure people save who are not saving. You are doing 
absolutely the right thing. But do not take away Social 
Security.
    Mr. Simpson. I know it is inappropriate, Mr. Chairman, to 
respond to a fellow witness rather than addressing the Chair. I 
know that. So I will address the Chair. I would say, and I 
respect Barbara, and I watched her in the Congress, and we 
worked on some things together. These people are not worried 
about their children. They have seen their children and 
grandchildren walking on their pants with their caps on 
backwards playing Snoopy Snoopy poop dog and Enema man, and 
they do not care about them like they used to care.
    But I will tell you if this is the case, if this is the 
case that the seniors are caring about only their children, 
then stop using the word cut. Stop putting in your course--I am 
a member of this group. Let me tell you. I get e-mails. I get 
FedEx packages. I get mothers milk. They send me everything. 
And in there, it says, call Enzi and Thomas and Cuban and tell 
them not to cut us, us meaning all these people over 65. If 
that is not hypocrisy, I have missed everything
    Ms. Kennelly. I have nine grandchildren, and I care
    The Chairman. The gentleman's time has expired
    Mr. Frank. Mr. Chairman, can I ask unanimous consent that 
further----
    Mr. Simpson. You left last time and left him with those 
questions.
    Mr. Frank. Further testimony from Senator Simpson be rapped 
rather than spoken.
    Mr. Simpson. You will pay dearly for that.
    The Chairman. The gentleman from Georgia, Mr. Scott.
    Mr. Scott of Georgia. I hate to interrupt this colloquy, 
but let me see if I can get to where I think the problem is. 
And first of all, let me make the record strong and clear: We 
on the Democratic side are fiercely, fiercely strong on 
protecting Social Security. Let it be known that this is a 
Democratic program by a Democratic president. And we talked 
about FDR. But when FDR made this program, FDR, in 1935 I 
believe----
    Mr. Simpson. 37.
    Mr. Scott. 37. I forget the day but there was an 
interesting program over this past week by the History Channel 
that brought FDR back to life. And when FDR signed the Social 
Security Act, he said this: He said the reason we are signing 
this act is so that the American people, our senior citizens, 
will never again have to wallow in the dust of poverty. Social 
Security is not an investment program. It is an insurance 
program.
    And I think that is where the problem is. And I would like 
for each of you three to respond to the problem that we face 
here, now is this Trojan horse called private accounts. We will 
never be able to deal with the true issue of strengthening and 
saving Social Security as long as we are batting around this 
Trojan horse called private accounts. President Bush has gone 
all over the country with campaign stops where he has his 
crowds policed and secured so that only people who would agree 
with him would come in. But wherever the American people have 
had to come in unfettered to be able to give their opinion on 
this issue, they have strongly rejected private accounts. And I 
tell you why. And I hope you will agree with this. It is almost 
like trying to fit a round peg in a square hole. The whole 
investment arena and Wall Street and the private sector and 
privatization is wonderful. It is fine. But it is an exercise 
in collective risk taking; whereas Social Security is a 
collective exercise in risk reduction, guaranteed benefits for 
life's misfortunes, for children without the father and the 
bread winner. It is not an investment program. And secondly, it 
did nothing to solve the Social Security problem of solvency.
    So what the American people, I think, are looking and 
hoping for is, yes, to get to the real solution of Social 
Security. But as long as private accounts--the only thing, mind 
you, that President Bush has even put on the table, the only 
thing there. Don't each of you agree that the American people 
are looking for us to move this Trojan horse off and not get it 
mixed up? Because Moynihan, you quoted him, and you quoted him 
almost right. But he did bring up private accounts. But he 
brought it up outside of Social Security. Private accounts, on 
the other hand, not only do not solve Social Security's 
solvency problem, but it takes money out, $2 trillion, minimum, 
just setting it up over the next 10 years, which exacerbates 
the problems for other benefits.
    So I think we need to deal with this Trojan horse. I think 
we need to understand it and put it in its proper perspective, 
get it off the table. And then if we want to solve the problems 
with Social Security, wouldn't it make sense to solve the 
problems of Social Security on the legs on which Social 
Security stands and fix that problem with the toughness it will 
need, whether it is benefit cuts, whether it is raise the 
minimum age of retirement, whether it is expanding to $90,000 
income level?
    But the American people will look, with honesty and a lack 
of hypocrisy, if we dealt with Social Security on the merits of 
the program on the intent of it and move this Trojan horse 
called private accounts out of the way.
    Mr. Penny. Mr. Chairman, if I might be the first to 
respond, and others can jump in of course, if they want. First 
of all, since I was on the commission that Senator Moynihan 
cochaired, he did sign off, along with every other commission 
member, on reform plans that included personal accounts as part 
of Social Security, not an add on, but as part of the Social 
Security revenues that are currently being raised.
    Mr. Scott. Well, that is not my understanding.
    Mr. Penny. The objective of the President's commission is 
to strengthen Social Security, and it is a 250-page report. 
Check it out. And he did sign off on that approach. Secondly, 
though, I think to your point on personal accounts being part 
of the debate, I do not know--you know, and this also gets to 
Congressman Castle's question about a commission. If you are 
going to have a commission, and I am not sure that that is 
where we are going to go on this issue, but with or without a 
commission, everything has to be on the table. And personal 
accounts need to stay on the table just so we can look at all 
possible options for the future of this program
    The Chairman. The gentleman's time has expired. The 
gentlelady from Illinois, Mrs. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman.
    Just a couple of things that--one fact is that personal 
savings as a percentage of personal income has decreased from 
7.5 percent in the early 1980s to 1.1 percent in the last two 
quarters of 2004. So we are seeing that people are not having a 
nest egg and a lot of people then are relying on Social 
Security as--completely for their retirement. What we have 
found, I have founded a financial literacy caucus, financial 
literacy and education caucus, with my colleague, 
Representative Hinojosa. And we have had just great bipartisan 
support for this and as well as private companies coming in 
with all of the education tools that they are using to educate 
the public. And in going to town hall meetings and talking to 
constituents, they were so afraid of the personal accounts 
because they said well, they did not know how to invest, and it 
is just going to put money in, and they would not know how to 
do it, and they would lose all the money, and realized the 
importance of financial literacy, that people really need to 
understand our whole financial system. They did not know what 
compound interest was. Students did not know the difference 
between a check, cash, or whatever. And so this has been a big 
boom. And I think that the financial literacy is so important 
to the understanding of the American people of Social Security. 
And I know Congresswoman Kennelly alluded to the financial 
literacy. If you could comment on how you think financial 
literacy will tie into the personal accounts and the whole 
understanding of Social Security.
    Ms. Kennelly. Congresswoman, I thank you for doing what you 
are doing. What I have found, serving, is that we have become 
so busy, you know we have got e-mail. We have got phones. We 
have got computers. I have, you know, I told you about my nine 
grandchildren. But I have three daughters that work. They are 
so busy all the time. Why I am so insistent on wanting to make 
sure that we have this financial safety net of Social Security 
is that I do not think people do have enough time to be 
thinking about what they should be doing and saving. And I 
thank you for doing that because we have to save for our 
future. There is no doubt about it.
    You just look at the way the whole financial world is right 
now. Social Security is very moderate. Compared to other 
countries, Social Security is nothing. I mean, the average 
income is like $9,100, and so we have to do what you are saying 
and educate, and I thank you for doing it.
    Mrs. Biggert. Would anyone else care to comment?
    Mr. Penny. Well, we have a lot of options for savings now, 
and part of the problem is that too many people, about 50 
percent of our work force in fact, get all the way to age 50, 
which is pretty close to retirement, and they plan--they have 
not made any plans beyond Social Security. So, frankly, I am of 
the view that one of the virtues of doing a personal account 
above a safety net within Social Security is it will educate 
people about what those investments can do, and it might incent 
them to supplement that savings with other savings because all 
of the other voluntary tax credits and other savings incentives 
in the code today are not getting the job done.
    Mrs. Biggert. I think that was the point that I was trying 
make, that once they see, like, a Thrift Savings Plan or they 
have had the education in economics, that they will realize 
that they can have an ownership through Social Security but 
also then will be able to have the knowledge to invest beyond 
that. So thank you. I would yield back
    The Chairman. The gentlelady yields back.
    The gentleman from Texas, Mr. Green.
    Mr. Al Green of Texas. Thank you, Mr. Chairman, and Mr. 
Ranking Member.
    Thank you, the members of the panel, for the service that 
you have rendered to our country. I compliment you, each of 
you. I believe in America. I believe in the greatness of 
America. And having had an opportunity to travel to other 
places, I have concluded that one of the things that makes 
America great is how we treat people in the streets of life, 
those who, for whatever reasons, do not have very much as 
opposed to those in the suites of life. How we treat people in 
the shadows of life, how we treat people in the twilight of 
life, and I think that Social Security is a means by which we 
take care of people in the shadows and the twilight of life.
    I represent a very diverse constituency. We have some 
lawyers and some doctors. But we have a lot of janitors and 
teachers and preachers and yard men and service station 
attendants, ditch diggers. All of this is honorable work. They 
all pay 6.2 percent, for the most part, of 100 percent of what 
they make because most of them make less than $90,000 a year; 
6.2 percent of 100 percent, and they do it without complaining. 
We do not hear them whining about how this 6.2 percent is going 
to place them in the poor house.
    The question becomes, why do we not? And they call this to 
my attention: Why do we not want to see others who make more 
than $90,000 a year--I hate to say they can afford it, but a 
lot of people think that they can--why don't we want them to 
pay more of their income into Social Security? If 6.2 percent 
is good enough for yard men and ditch diggers, 100 percent of 
their salaries, why is it not good enough for those who make 
far in excess of $90,000 a year? This is a real problem for 
people who work hard every day for every penny they get. And we 
rarely address this question. So I would ask that you, each of 
you, if you would, address the question of the 6.2 percent 
extending to those who make a lot more than yard men and ditch 
diggers.
    Mr. Simpson. Yes, sir. And I think it was Representative 
Davis that was the person that spoke before. Was that you, sir? 
That was an excellent relation. And Congressman Green----
    Mr. Al Green of Texas. Yes, sir.
    Mr. Simpson. Well, now, hang on tight, because I was at a 
seminar with Senator Paul Simon, who was a very dear friend of 
mine who died a couple of years ago. We had a seminar at 
Southern Illinois University with Senator Dave Pryor, Democrat 
of Arkansas, and Jack Danforth, Republican of Missouri, and 
Paul, who was a Democrat from Illinois. And our recommendation 
was to raise that. It was unanimous, to raise the $90,000. In 
fact, some of us, nameless of course, recommended taking the 
lid completely off and paying the whole thing on whatever you 
made. Anyway, it was unanimous to raise that. And so I have 
been over that cliff. And I found people who came to me, you 
talk about the ditch digger, I will talk about the rich guy, 
who came to me and said, ``Just take the lid off and I will 
quit working as hard.'' I said, ``You would not do that; that 
is nuts. You are making a wad.'' Well, I would. I said, ``Well, 
I must have missed that somewhere!'' So I have no problem with 
that whatsoever and have put myself in the public eye with 
regard----
    Mr. Al Green of Texas. Senator if I may, and I beg you to 
indulge me, because I greatly appreciate the comment that you 
just made. But I would say to that person who told you that, I 
would look him in the eye and I would say, the ditch digger 
does not stop digging.
    Mr. Simpson. Well, I did not want to get into that. I am 
just telling you I was not pleased at his remark. I did not 
clap him on the back and tell him he just told me a joyful 
thing. I said, I think you are a greedy----
    The Chairman. The gentleman's time has expired.
    Mr. Penny. Mr. Chairman, if I could quickly respond.
    Mr. Simpson. Let me just say one thing. I think, I just 
want to say this----
    The Chairman. Let me respond--if you respond, Senator 
Simpson, and then, Mr. Penny and then we have got to get on to 
the other side,
    Mr. Simpson. No.
    Mr. Penny. I just want to respond in three quick ways. 
Since I already mentioned earlier in testimony that I do not 
have a problem with a means testing approach to, you know, 
dealing with Social Security's future. This is a different way 
of going about it, where you would tax the wealthier workers 
more. So if that is part of the package, fine by me.
    But I would say two quick things. I think you can make a 
stronger case to extend this benefit to all income if you are 
focusing strictly on survivors and disability benefits, because 
those are more insurance related as opposed to retirement 
income related. Just a clarification that I think often gets 
glossed over in this debate. And then
    The second is, that alone does not fix the future financial 
problems. And factcheck.org from the Annenberg School at the 
University of Pennsylvania is doing a good job of sort of 
analyzing this Social Security debate. And you might want to go 
to a report that they issued on March 8 which looks at that 
option and some other options and tells you how much of the 
solution it adds up to because whether you do it or not, it is 
important to know how much of the problem it fixes. And it does 
not get the whole job done.
    The Chairman. The gentleman's time has expired.
    The gentleman from Alabama, Mr. Bachus.
    Mr. Bachus. Thank you. I want to make two remarks about two 
Democrats. Mr. Frank said we are always quoted, fond of quoting 
dead Democrats. But Franklin Delano Roosevelt said in a message 
to Congress in 1935 that he envisioned the Social Security 
program including voluntary contributory accounts in which 
people could supplement Social Security. So he, actually, in 
that message to Congress, he, I think, had that thought.
    Second, someone--there has been an argument over Daniel 
Moynihan, and he actually--what he said about personal savings 
accounts is they were a valid extension of Franklin 
Roosevelt's--he called it a valid extension or valid completion 
of what Franklin Delano Roosevelt initially envisioned.
    Now, I want to go back. I have handed each of you all--or I 
am handing you some pages. And the first thing I would like to 
do, just in a bipartisan way, is I think the first thing we 
need to understand is we need to understand what the program 
was when FDR founded it. I think that that is where we ought to 
always start because we are talking about--we all, today, we 
have said this program, this is what FDR started, this is what 
he wanted, it was good enough for him, it was good enough for 
our parents and our grandparents. And what he started in 1935 
was something where the average employee paid in 1 percent of 
their wages. And the employer matched that. Now, the first page 
I have handed you, it started out at 2 percent. Now, today, it 
is 12.4 percent. So it is six times the tax rate.
    I do not think Franklin Roosevelt ever envisioned that we 
would pay one out of every $8 that we made into Social Security 
when he started the system where every employee paid in 1 
percent of his wages. I do not think he ever thought we would 
get up to $1 out of $8.
    Now, the second thing that we had, in the system he 
started, there were over 42 workers for every retiree. I do not 
think Franklin Roosevelt ever envisioned--and back to that, 
talk about the 2 percent. We have talked about maybe 
supplementing. I think when you were paying 2 percent or 1 
percent of your wages into Social Security, you had some money, 
maybe discretionary. But for instance, the average teacher--on 
that second page I have got the average teacher, young teacher 
in my district--under Franklin Delano Roosevelt, she would have 
paid $340 a year into Social Security. Today, she is paying 
over $2,000 in and her employer is matching it. So she is 
paying over $4,200 in. Under Franklin Delano Roosevelt's plan, 
she would have paid $600 in. Now when she paid $600 in, she 
could have gone out, I think, and taken some of that other 
money. But she is paying--there is $4,200 going in for her.
    Now, the next chart, as I said, was--that is the one about 
there were 42 workers. Now, if we go to 45, there were still 42 
then. But at one time, there were more than that. Today, it is 
down around three according to this chart. And I am going to 
introduce all of these into the record. And we are headed, as 
you can see in this chart, when our children, before our 
children retire, we will be down to two, two workers for every 
one. I do not think Franklin Roosevelt ever envisioned that 
there would be one retiree for every worker.
    And the third thing I do not think he ever envisioned--
maybe I would not--this maybe is not true--is that, at the time 
he started Social Security, the average worker did not live to 
retirement age. The average worker did not live to retirement 
age. The average worker never drew Social Security. Today, they 
are living--and even in 1950, they did not. They still were 
dying a year before. As late as 1950, they were dying a year, 
the average worker died a year before Social Security.
    Today, the average man is living 7 or 8 years past 
retirement. The average woman is living 16 years past 
retirement. And back then, almost all the work force were men, 
over 75 percent. Today, it is closer to 50 percent. So I would 
ask any of you all to comment. First of all, can we go up on 
taxes? I notice Mr. Kanjorski said that maybe we could raise 
taxes a little bit. Do you think that is what Franklin 
Roosevelt envisioned?
    The Chairman. The gentleman's time has expired.
    The panel may respond.
    Mr. Penny. I would respond to the tax question by just 
giving you another way of looking at this. If the taxes applied 
in 1935 when the program was first enacted had been adjusted 
for inflation over the last 60, 70 years, it is an 
interesting--it tells an interesting story, because in 
inflation-adjusted dollars, the maximum tax that any worker 
would be paying today would be $900. In reality, the maximum 
tax that is being paid today is $11,400, almost 12 times more.
    Now, even if you factor out some of the additions to the 
program, survivors benefits and disability payments, which is 
about a third of total cost, that still leaves you with about 
$8,000 in maximum taxes paid into this program today as 
compared against $900 maximum on an annual basis when it was 
created. So we have done a lot with this program growing over 
time. And we have dealt with these higher promises and 
obligations of the program with a continually higher payroll 
tax. So I think you make a good point.
    But the other point you make about these three statistics 
here--the number of workers per retiree, the longevity of the 
work force today compared to then, and the taxes and what has 
happened with taxes over time--all three of these suggest to me 
that if we were to start all over again, let's pretend we did 
not have a Social Security program, and we were to sit down as 
a Congress to design one today, we would not design the program 
that we have. We would design something different than what we 
have, and we would try to do something that would actually 
inject some long-term savings on behalf of the individual into 
this program rather than leaving it all reliant on this kind of 
generational transfer.
    The Chairman. Gentleman's time has expired.
    Go ahead.
    Ms. Kennelly. Yes, Congressman.
    President Roosevelt could not have envisioned the Internet 
either. I mean, things change. Things change. And you know 
what? We are living longer. And isn't it wonderful we are 
living longer? And if you look at these figures, that would not 
have taken care of us living longer. So we are paying in 
because we are living longer. And that is why I am here today 
to say that we have a Social Security system where we pay in so 
we have a retirement system. And we have just a basic safety 
net. That is all it is there.
    What you are talking about today is IRAs and 401(k)s and 
all the rest, and that we should be doing. But these figures, 
they do not mean a thing because we are all living longer.
    And I would like to talk to Mr. Scott for a moment.
    Mr. Bachus. Well, they mean a great deal, I would think, 
because of those very things. In fact, Alan Greenspan--you said 
pay-as-you-go system. It is a pay-as-you-go system. Alan 
Greenspan said that is unsustainable. Charles Schumer, last 
month, Senator Schumer, a living Democrat, said we all agree 
that it is unsustainable.
    Ms. Kennelly. 1983----
    Mr. Bachus. His quote was----
    The Chairman. The gentleman's time has expired.
    Mr. Bachus. Nobody disputes that.
    The Chairman. We have got to move on.
    The gentleman from Kansas. 
    Mr. Simpson. How about me? Didn't I get----
    Mr. Moore of Kansas. Thank you, Mr. Chairman.
    Number one, Ms. Kennelly talked and several have talked 
since her about the fact that there are now three parts to this 
program. One is for partial retirement benefits. One is for 
survivors. And one is for people with total disabilities. And I 
do not think anybody wants to leave those latter two groups 
out. I hope that is not the case.
    Number two, I have no problem at all in concept with the 
President's proposal for partial private accounts. My concern 
to the people on this panel is borrowing a trillion to $2 
trillion over 10 years and adding it to our $7.7 trillion 
national debt deficits of over $400 billion a year, not getting 
better. I have six grand kids. I do not have nine. But I have 
six, and I am very very concerned about the future of my 
children, my grandchildren and everybody in this room, and this 
nation's children and grandchildren for the future if we do not 
change the way we are doing business here. I appreciate very 
much people like Senator Lindsey Graham, who is a former 
colleague here, coming out and saying we need to look--to start 
thinking outside the box and start examining some other 
options. And Senator Graham, to his credit, has not just 
demagogued this issue. He has talked about raising the wage cap 
from $90,000 I think to $140,000. I am not saying that is the 
solution here, but I think we should start coming together, 
Republicans and Democrats, and putting aside partisan politics 
and thinking about what is right for our people and our nation 
in the future. And I very much appreciate people like Senator 
Graham who are willing to stick their neck out a little bit and 
say, we need to look at some different options.
    You know, to me, it is almost disingenuous. We look at our 
Social Security system we used for the last several years, two 
decades, more, all of the money for some worthwhile things, 
like education and health care, and then some other things that 
people might have some dispute about, like Iraq and some 
further tax cuts. Then we say, oh, my gosh, what happened to 
all the money? It is all gone. We have a crisis. Well, we do 
not have a crisis, but I think we would need to change the way 
we are doing business. And I certainly recall that--we need to 
come together sooner rather than later and start to address it 
and find some constructive means to solve this problem.
    Maybe if we would have surpluses and Social Security, maybe 
we should stop spending those on everything else and start 
paying down debt or doing something different that will at 
least put future generations in this country in a better 
position financially to respond to, because what we are doing 
right now, what we are doing right now is using all of this 
Social Security money, again for some worthwhile things, but we 
are charging this to the future of our kids and grandkids, and 
we are going to say to them, you have to pay it back. And I say 
that is grossly, manifestly unfair, and we should not be doing 
that. We are putting an almost unsustainable burden on the 
future of our kids and grandkids. I did the bill back in 2001, 
2001, that would raise IRAs from $2,000 to $5,000. And Ben 
Cardin and Rob Portman said, could we make that part of our 
retirement bill? And I said, well, heck yes, because I knew it 
would pass that way. And it did. I think we need to start 
examining options like that, too, outside of Social Security so 
as not to increase the debt further, and encourage people 
through tax incentives to save in IRAs, 401(k)s and employer 
pension plans. I am going to--I could go on and talk about a 
lot of other things, but I guess I would like to just hear some 
reaction if I could.
    Ms. Kennelly. Well, let me answer you, Congressman. I would 
caution you, I would caution you very carefully about Senator 
Graham's proposal because there is a big difference between 
raising the cap to pay for personal accounts and raising the 
cap, you know, to do the traditional program, a huge 
difference.
    Mr. Moore of Kansas. I am not suggesting paying for 
personal accounts. I was talking about to try to extend the 
solvency of Social Security.
    Ms. Kennelly. I read every word that Senator Graham has 
said, and I think his idea is to raise the cap to pay for 
personal accounts. My idea, and not that--I do not have to do 
it anymore. You people have to do it. But if you do raise the 
cap, it should be for the traditional program.
    Mr. Moore of Kansas. I agree with you.
    Ms. Kennelly. One of the pieces.
    Mr. Moore of Kansas. I agree. Other comments or reaction?
    Mr. Moore of Kansas. Other comments or reaction?
    Mr. Penny. I don't necessarily agree with that. I mean, 
frankly, if you are going to come up with some extra money, I 
think it ought to make room for personal accounts. I don't see 
how, long term, my kids are going to be better off if we simply 
try to prop up the status quo. They will end up paying more and 
getting less, which has been the history of this. Every 
generation pays more but doesn't necessarily get more, and I 
don't think we can keep going on like that. We have to start 
prefunding some of their Social Security. So if we are looking 
at new revenue, we clearly shouldn't be looking at it only to 
prop up the status quo; we ought to be thinking in terms of 
what it can do to build a nest egg for the future.
    But, besides that, this committee's contribution to this 
issue can be this whole issue of, outside of Social Security 
and whatever we do for the long term of Social Security, is 
there a better job we can do to wrap around some retirement 
plans that really mean something to the average worker out 
there? Because, as I said earlier, 50 percent of our workforce 
gets all the way to age 50 without making any other plans or 
arrangements, and we can't go on as a society with that many 
people waiting too long to start saving.
    The Chairman. The gentleman's time has expired.
    The gentleman from New Mexico, Mr. Pearce.
    Mr. Pearce. Thank you, Mr. Speaker; and I join others in 
thanking you all for your service.
    In kind of a response to something Mr. Green asked, we have 
asked that question before we went to the District about 
raising the caps; and, frankly, the way the law is set up right 
now, you raise the cap, you also have to increase the payout. 
So it would require a change at the other end, too, to have 
much effect; and, in the end, you don't get much bang for your 
buck because there aren't enough people making a million 
dollars a year to really prop the whole system up. It is a 
piece maybe, and that is what the President, I think, says when 
he indicates everything is on the table as far as solutions.
    Ms. Kennelly, I would ask you, as CEO of the National 
Committee to Preserve Social Security, my understanding of your 
testimony is basically that we can do about the same thing that 
you did in 1983, that we can do adjustments. Have you looked at 
the trustee's report that shows, you know, if we have decades 
and decades of retirees coming in and the costs are kind of 
easing up and easing up and then when the boomers start 
retiring 4 years from now the costs just escalate tremendously 
and we didn't have to deal with that escalation in 1983, we 
were dealing with--how do you resolve that tremendous increase 
in cost that you see on that curve.
    Ms. Kennelly. Well, the reason, sir--Congressman, the 
reason you have a surplus now to 2017 is because we realized 
that the baby boom was coming. I get such a kick out of it, 
that people were surprised the baby boomers were there. They 
were in their late 20s and early 30s when we----
    Mr. Pearce. What the trustee report shows as of 2042 is 
that all those IOUs, if you cash them in, they are gone. What 
does your--what is your recommendation for 2042?
    Ms. Kennelly. You are going to have very hard decisions. 
Social Security has always been a system with equity and 
adequacy.
    Mr. Pearce. And could I ask for your recommendations for 
2042? In other words, I am assuming you are right. We will cash 
in those IOUs. I don't believe anybody up here thinks that we 
are not going to cash those in. But they run out. Even the IOUs 
are empty in 2042.
    Ms. Kennelly. Well, first of all, they don't run out 
overnight. People think they run out overnight.
    Mr. Pearce. Well, ma'am, for 2018--if I could reclaim my 
time, ma'am. Thank you.
    In 2018, we go into a deficit. Your testimony mentioned 
that, and that is adequate that we should. In 2042, we have 
simply cashed in--maybe it is 2043, 2041--we have cashed in all 
those bonds. I am asking----
    Ms. Kennelly. Congressman, you went from 2017 to 2042. It 
doesn't happen overnight. It does not happen overnight.
    Mr. Pearce. And my question is, you said we don't need to 
fix it now. What would you do in 2043?
    Ms. Kennelly. Well, what you have to do is take a series of 
adjustments--that everybody in this town knows about--and you 
take those adjustments and cobble them together so we have a 
Social Security system that we can retire with.
    Mr. Pearce. And the trustees have said that it would take a 
tax of 20 percent on everyone's earnings to make those 
adjustments.
    Ms. Kennelly. No, no, no, absolutely not.
    Mr. Pearce. These costs they show--they show that if we 
incrementally increase the cap or incrementally increase the 
tax, that we only buy 3 or 4 more years liquidity. And these 
are serious problems. I think Mr. Moore has begun the 
discussion, and we need to sit down and lay the things on the 
table. We can't sit here and talk in politicized terms. We have 
got a real financial problem----
    Ms. Kennelly. And you shouldn't. Absolutely, you shouldn't.
    Mr. Pearce. I think the one comment that you have made that 
is exactly on track, and that is when you said, what is going 
to change. I think we, as a Congress, are going to have to 
decide--because, frankly, this idea of a safety net is one that 
is way overused, that the idea----
    Ms. Kennelly. And you don't think the United States of 
America should have a safety net?
    Mr. Pearce. No, ma'am, I am saying we do. But you are the 
one who is saying it should only be a safety net, and in fact 
it is the only safety program that many Americans have because 
they view themselves completely at the trust of the United 
States.
    Mr. Penny. If I could jump in quickly----
    Ms. Kennelly. Let me show you what your colleague put in. 
This money is going into the Social Security----
    Mr. Pearce. Mr. Penny, if you would like to address----
    Mr. Penny. Well, I would just like to speak to the options 
that are out there, because my colleague, Ms. Kennelly, 
referenced that lots of people are talking about these options.
    These proposals are being analyzed by an organization that 
is outside the political realm. It is the Annenberg School at 
the University of Pennsylvania. They have a site called 
factcheck.org, and they have analyzed all the options that Ms. 
Kennelly's organization and the AARP and other groups have sort 
of implied but not officially endorsed. And they don't get the 
job done----
    Mr. Pearce. They don't get the job done.
    Mr. Penny. They add up all of these options, and they fall 
short of fixing the program for the next 75 years, and none of 
them proposes any sort of solvency beyond the 75-year window.
    Mr. Pearce. That is my point, and that is a very difficult 
discussion.
    Ms. Kennelly. Well, private accounts makes it worse. You 
take the money out of the system.
    Mr. Pearce. Actually, you said, ``What is going to 
change,'' and I think the only thing that can change is the 
mindset of America. They would have to change the way they view 
the safety net.
    Ms. Kennelly. And, Congressman, that is what we have--we 
have a totally philosophical conversation going on----
    Mr. Pearce. That is the absolute truth.
    Ms. Kennelly. Do you want to have the system that we have 
had, or do you want to have a new structure? That is the whole 
discussion that is going on.
    Mr. Pearce. I think Mr. Simpson has said it fine, that we 
are going to protect the seniors while we try to figure out 
some way to wiggle out of this problem.
    Mrs. Biggert. [Presiding.] The gentleman's time has 
expired.
    Mr. Pearce. Thank you, Mr. Chairman--thank you, Madam 
Chairman.
    Mrs. Biggert. The gentlewoman from New York, Mrs. McCarthy, 
is recognized For 5 minutes.
    Mrs. McCarthy. Thank you, Madam Chairman.
    Well, I am glad we have solved all the problems this 
morning, haven't we? Where are we? We are the same today as we 
were yesterday and will probably be the same way.
    Listen, real life. We talk about people saving. I worked 
hard all my life. My husband worked hard all his life. We 
thought we had money. Unfortunately, the company he worked for 
went bankrupt. We lost about $350,000, what we had put in 
there. He was 49. I was 48. Okay, we panicked.
    Now I am a saver. I come from a family that came from the 
Depression. I always believed in putting $10 away every week. 
Here we are. I will be dealing with a son that is probably 
going to be on permanent disability down the road. Certainly, I 
am a widow. I got here. I heard about this Thrift Savings, and 
I started maxing out as soon as I was allowed.
    We are talking about, if we go with these private savings 
account, a thousand dollars a year? Is that something along 
that way, at a certain percentage? Well, I have maxed at 
$10,000 the first couple of years. What is it--we are up to 
$14,000 because I am over 50. I am still not going to have 
enough money when I retire. I mean, that is what it comes down 
to.
    Now I live in the Northeast. What I have through savings, 
hopefully, if the market comes or stays, and I just switched 
over to all bonds because that is where I am supposed to be at 
this age, with all of that--and the pension, from what I 
understand, that we get from this place is not going to be 
terrific, and my Social Security, which I am going to be 
guaranteed to have if, hopefully, I live into my 80s, no 
guarantee on that. Even with that, it is not going to be 
enough.
    This committee and what this Congress should be doing is 
how are we going to get people to save? How are we going to 
teach people to save? Social Security will never sustain any of 
us. My parents, unfortunately, came from the workforce. They 
worked very hard. That is all they had, was Social Security. 
Now if they had lived longer than they did, believe me, the 
children would probably have to support them, but it kept them 
out of poverty.
    For someone like myself, I am single, it is going to be 
part of my whole plan. My girlfriends, who basically have 
always worked all their lives, unfortunately never in a high-
paying job, I told them, 62 start taking Social Security. It is 
going to help them a little bit because they will never make 
over what the maximum would be to affect their Social Security.
    We have a problem, but the problem is we haven't seen a 
bill. We don't even know what is out there. We haven't come up 
to any solutions, and that is a shame because there are 
millions of me out there--and there are millions of me out 
there. And I will do what I can to certainly protect the 
younger people like my son, who is only 37, like I said, who 
will most likely be on permanent disability somewhere down the 
road, maybe sooner than what we thought.
    Should the government do this? Well, I think the government 
has a responsibility to make sure that people aren't living in 
poverty. I feel very strongly on that. And the truth of the 
matter is the majority of us, as Americans, work our tails off 
all our lives, and we do. We are not asking for anything.
    All I am saying is I would like to stay in the house that I 
have been in since I was 5 years old and stay on Long Island, 
but even with working and saving and putting money away every 
single year, sacrificing even now, I am probably not going to 
be able to do it. And that is a shame, but that is the way it 
goes for us that are in middle-income families.
    What are the solutions? I can't give you the solutions 
because those smarter than me--you know, you can offer 
solutions, but unless both sides start talking and sit down and 
say how we are going to do it--I happen to think Social 
Security should be there. I don't know how we are going to save 
it, but we should. But we should be talking about how are we 
going to get these people to save so we have something, like 
myself.
    Mr. Penny. And I think you started with the common ground. 
I think both sides of the aisle want to make sure that those 
that are disabled are adequately covered, that survivors get 
some sort of a benefit through this system, and that for all 
workers, especially those that don't earn a lot, that we have 
an adequate safety net. I think that is the common ground. I 
don't think either side disagrees on that, and I think that is 
where to begin the debate.
    I can relate to this in personal terms, as you have related 
to this in personal terms. My youngest brother is multiply 
handicapped, he is on disability, so I know the importance of 
that program. My mother, because my father died young, is now 
retired on a Social Security check and nothing else. I don't 
know how she makes ends meet. So I understand the importance of 
the safety net.
    But I think that is where you begin the common ground. 
There is a lot of room to disagree about what we ought to do 
above and beyond those basic elements, but I think that is a 
common ground that both Republicans and Democrats ought to be 
able to join hands together and work on.
    The other, though, is your point about saving and how much 
you have to set aside now to get ready for retirement. I was 
somewhat at the same point. I didn't start saving seriously 
until I was in my late 30s; and, because of that, the amount I 
have to set aside every year is a lot more because I have only 
got a couple decades for this money to grow and earn for me. 
But had I started when I was 18, a much smaller amount on an 
annual basis would have put me in a much better financial 
position today, and I think that is the virtue of thinking of 
reform in a way that gets people saving earlier. And right now 
we are not doing that.
    Mr. Simpson. May I just say a word----
    Mrs. Biggert. The gentlelady's time has expired.
    Mr. Simpson. If I can just say a word? I have been very 
quiet. I have been leaping forward. I crouched.
    Congresswoman McCarthy, you are so correct. All of us have 
that amazing thing in our background. Our wives or our 
spouses--and my dad was a United Mine Worker. He was a union 
guy and then went to law school, and after he didn't think 
working in the mines would be what he wanted to do.
    But, anyway, the real issue is this. We all agree that the 
system is unsustainable. That is the word. But to get rid of 
the babble I would go to the trustees of Social Security. I 
always went back to them because I respected them. Bob Reich, 
Robert Rubin, these are not Republican nuts, these were people 
who were telling us this. All you have to do through the years 
is go back and see what the trustees of the system were saying, 
a really wonderful group of people. And you can scoff at these 
numbers, but these are real numbers, whether you like them or 
not. The Congressman has--he has presented them. They are not 
babble. They are real.
    The life expectancy was set--the retirement was set for 65 
for one solid reason, because the life expectancy was 57. It 
was a Ponzi game in that sense. They knew there would be 
reserves because the life expectancy was 57, and the retirement 
was 65, and they thought it would never change.
    Well, things have changed. And I have no desire to go back 
and take out the things that were never supposed to be in 
Social Security. Disability payments, payments to children 
under 22, that was never intended in the original package. It 
was for the wage earner. And all the stuff came later.
    Only 7 percent of the American people make over 75,000 
bucks a year. So you are not going to get what I was hoping to 
get when I tried to lift that lid over $90,000. They said, 
well, let me show you the figures, and they don't get you 
there. Even if you took it completely off, the revenue lasts 
about 2 weeks.
    But, anyway, doing nothing is unsustainable. Pay attention 
to the trustees and trust them. And I will remain forever 
puzzled how groups like the AARP and the committee that Barbara 
represents, 4 million members, presenting no alternatives 
whatsoever except cobbling. Cobbling is out of the picture. 
Don't point your finger and say, you do it. The groups that are 
playing in this game know that in the year 2017 something will 
happen. They know that the IOUs will be called. They know in 
2042 that it will pay out only three-fourths instead of--and 
they are going to do nothing except say, we have time.
    Let me tell you, I was here from 1979 to 1996, and we never 
did a thing except in 1983. And we tried in 1993 with a 
bipartisan commission and failed completely because of the 
shrieking and howling that went up. They have no alternative, 
nothing to present, just keep the membership up, get them 
alarmed, spook them up and keep the dues paid.
    Mrs. Biggert. Unfortunately, time has expired----
    Ms. Kennelly. May I respond?
    Mrs. Biggert. We have another panel to go.
    Mr. Simpson. She certainly should respond.
    Mrs. Biggert. Very briefly.
    Ms. Kennelly. Can I tell you something? I sit here as a 
woman who absolutely thinks--I thank the President of the 
United States, I thank President Bush for bringing the 
attention on this whole problem. I thank him for letting us all 
know that by 2017 more money will be going out than coming in. 
I think right now all of you should solve this problem. I do 
not think you should do personal accounts. That is a whole new 
structure. What I do think you should do is correct the 
situation, and you can do it.
    And, sir, my dear friend, Senator, we are not saying do 
nothing. We know how difficult these people are going to have 
to make these decisions. I made them in 1983, and they can make 
them now. But don't say I say do nothing.
    Mr. Simpson. What alternative----
    Mrs. Biggert. The gentlewoman's time has retired.
    The Gentlelady from Florida, Ms. Brown-Waite, is recognized 
for 5 minutes.
    Ms. Brown-Waite. Thank you very much.
    You know, I have the highest number of Social Security 
recipients of any Member of Congress. I have got a quarter 
million of them. And as I talk to my seniors and have town hall 
meetings, I tell them what I want to accomplish. I have a 
mother-in-law who only has Social Security. I want to make sure 
that my grandson isn't taxed so much that all he will have is 
Social Security, whether it is a Social Security of today or 
whether it is a revised amount. I want to make sure that he has 
the ability to invest. And if all we do is the same old, same 
old, then he will be taxed so high that he won't be able to 
invest in anything.
    Ms. Kennelly, if you don't support personal retirement 
accounts, the trustees have said there are only three ways to 
maintain solvency: the payroll tax would have to be increased, 
benefits would have to be reduced, or $4 trillion will have to 
be transferred from general revenue to the trust fund, which 
really means that there will probably have to be a tax 
increase. Which does the national committee prefer?
    Ms. Kennelly. Well, Congresswoman, I love meeting you. I 
haven't met you before, and I know that you have the highest 
number of older people over 65, and I know what you are going 
through. But what I want to say to you is personal accounts 
makes the situation worse. Solvency--the President has agreed 
that solvency is not being addressed. If you in fact do 
personal accounts, you make the solvency problem worse. It 
brings it closer. And benefits have to be higher. You have to 
borrow more money. So personal accounts is not the answer for 
your people, I am telling you.
    Ms. Brown-Waite. Well, first of all, the majority of my 
people, the 250,000, are already on Social Security, and their 
Social Security benefits would be intact. There is no proposal 
at all to reduce Social Security benefits for those receiving 
or those near--55 being, quote, near. And I think that is a 
safeguard that Americans need.
    I also put in a bill that would say you cannot have any 
budget action that would reduce Social Security benefits for 
people already receiving it----
    Ms. Kennelly. You are absolutely right, Congresswoman.
    Ms. Brown-Waite. And when you say that you thank the 
President, I want to make sure that you are not thanking the 
President because it gives you great opportunity to go out and 
frighten seniors out there. Because, quite honestly, I have 
read some of the material, and it does frighten seniors.
    Ms. Kennelly. Congresswoman, you don't have to frighten 
seniors. You don't have to. They are frightened already.
    Ms. Brown-Waite. They are frightened by the literature that 
is sent out by certain groups, including yours. You cannot tell 
seniors that their Social Security is going to be taken away 
from them. It is not, plain and simple. Do we agree on that?
    Ms. Kennelly. We agree on that, Congresswoman.
    Ms. Brown-Waite. Would you put that in your next 
publication?
    Ms. Kennelly. I agree on that. But what I am trying to tell 
you, that my front line of support against personal accounts 
are people--I am a grandmother--I don't know, maybe you are a 
grandmother----
    Ms. Brown-Waite. I am a grandmother. I explained my 
benchmark.
    Ms. Kennelly. The point is, by the President saying that he 
won't cut anybody's benefits 55 and over--and the senator 
mentions that--that is all fine and good. But most grandparents 
understand the accidents and vicissitudes of life, and they 
understand that maybe their children and their grandchildren 
are going to have to need the traditional protection of social 
insurance. That is all I am saying.
    And I am not scaring anybody. Can I tell you? You don't 
have to scare anybody these days. They are scared enough.
    Ms. Brown-Waite. Well, certainly some comments and 
proposals that are mentioned in your mailouts certainly don't 
help matters any at all, and seniors do become frightened.
    But I still haven't heard which you prefer. I mentioned 
what the Social Security Trust Fund has said that would be 
options. Which do you prefer, the tax increase, as you had 
previously voted for, or reducing benefits, or transferring 
money from general revenue to the trust fund, which is going to 
mean a tax increase?
    Ms. Kennelly. Congresswoman, as I started out my testimony 
today, I don't have to say that anymore. I did it in 1983. I 
took those tough votes, and you are going to have to take those 
tough votes. You are going to have to take those tough votes. I 
only say I think the traditional program is better than the new 
structure that the President is presenting, personal accounts. 
We disagree. It is okay.
    Ms. Brown-Waite. When I talk to non-seniors in my district, 
they tell me--my own children tell me they don't believe Social 
Security is going to be there for them. So the comment often is 
I will take reduced benefits if I can do some investing on my 
own, something similar to what you, mom, and you, Ms. Kennelly, 
were able to do through the Thrift Savings Plan.
    Most people do not--most people--our children and 
grandchildren do not believe Social Security will be there for 
them. As a matter of fact, your own Web site says that, even 
after 2041, without any changes, the trust funds will continue 
to pay seventy percent of the benefits. That is a benefit cut. 
Seventy percent of the benefits is a benefit cut.
    Ms. Kennelly. That is a fact. The trustees tell you that.
    Ms. Brown-Waite. Well, I think you are selecting facts that 
support your argument.
    Ms. Kennelly. That is what you are arguing. I never said 
that.
    Ms. Brown-Waite. That absolutely is what the----
    Mrs. Biggert. The gentlelady's time has expired.
    The gentlewoman from New York is recognized for 5 minutes.
    Mrs. Maloney. I welcome the panelists and thank them for 
their public service.
    Social Security is very special to New Yorkers. It was 
created by President Roosevelt and Robert Wagner and Secretary 
of Labor, Francis Perkins, but the only one quoted today and is 
repeatedly quoted is the great senator, former senator, from 
New York, Senator Moynihan. I remember him saying, thou shall 
not purloin pension funds, and talking about preserving Social 
Security. So I called up his daughter Maura and asked her to 
get to his papers and get them to me. She sent me an article 
that she published entitled, Don't Take Senator Moynihan's Name 
in Vain; and I ask permission to place this article in the 
record.
    Mrs. Biggert. So ordered.
    [The following information can be found on page 123 in the 
appendix.]
    Mrs. Maloney. And in it--I just want to quote one line. She 
says, President Bush and others quote my father, but they fail 
to clarify that Moynihan proposed individual accounts as add-
ons that would supplement Social Security, not as carve-outs 
that would replace the funds.
    Now I, for one, would follow his lead on that. I would 
support an add-on. But the debate that I see is the one 
between--and the big difference between the two parties is 
really the problem of solvency. If they would take the private 
accounts off the table or treat them as add-ons, as one of the 
economists for the Republican party, Hubbard, said they might 
over the weekend--but as Greenspan testified, as the President 
has testified, the present plan with the private accounts 
doesn't do anything to address the solvency of the Social 
Security plan, which is the Democrats' main concern. We want it 
solvent. In fact, it makes it worse. It would make the trust 
fund insolvent 11 years sooner, in 2030, not 2041; and that is 
the effect of the private accounts.
    Again, I would support Senator Moynihan's support for 
private accounts as add-ons for the fundamental structure of 
Social Security.
    Now I would like to ask Barbara Kennelly, since she used to 
advise me on Social Security--and actually, I believe she is 
the first Democrat woman to serve on the Ways and Means 
Committee and her specialty was Social Security. I would like 
her to comment on the fact that the Ways and Means staff has 
put out about the seventy percent tax on private accounts when 
they have to pay back the loan with 3 percent, using the 
President's numbers that the private accounts would make, what 
is it, 4.6 percent? That is a seventy percent tax on the 
private accounts. And, also, they report from the Ways and 
Means staff that the shifting of the President's proposal and 
the Republican-dominated proposal of shifting from wage indexes 
to price indexing, which they state--and other economists and 
CRS states--will reduce benefits by 40 percent in the next 20 
years on top of whatever happens with this fight.
    But I would like all of the panelists to respond to this 
report; and, again, I ask permission to place it in the record.
    Mrs. Biggert. Without objection, so ordered.
    Mrs. Maloney. It was a study released by the Yale finance 
economist, Robert Schiller. He is best known for predicting the 
stock market bubble and burst in the 1990s. He released a study 
on the likelihood of an individual's winning or losing if they 
opened the kind of private accounts President Bush has proposed 
to replace Social Security's guaranteed benefit over time. His 
study focuses on the rate of return for the private accounts 
and the likelihood that investors would make enough in their 
accounts to pay the privatization tax and still have money left 
over.
    Professor Schiller found that 71 percent of the time 
account holders would lose money. That is, their accounts would 
not even earn enough to pay the privatization tax and have 
money left over. And more money would be deducted from their 
monthly Social Security checks to pay the privatization tax 
than they had in their accounts when they retired. And given 
that workers would have little left in their accounts after 
paying the privatization tax, it is extremely unlikely that the 
accounts would be able to make up for the additional mandatory 
benefit cuts that accompany privatization, which would reduce 
benefits by more than 40 percent for future workers.
    I would like comments, starting with Barbara Kennelly, who 
served on the Ways and Means staff.
    There are many, many problems with these private accounts. 
If you want to have them, do it as an add-on. But when you have 
leading economists saying that you are not going to be able to 
pay the privatization account tax, it is making matters worse, 
then why in the world are we doing this unless someone wants to 
destroy Social Security as we know it?
    But, Mrs. Kennelly, if you would respond; and other members 
of the panel, if they would like to respond.
    Ms. Kennelly. Thank you, Congresswoman.
    Yes. You know, I hear private accounts are voluntary. They 
are about as voluntary as a shotgun wedding, to be very frank 
about it.
    You have two series of cuts. And we don't have the 
President's plan. I admit that. I know that. But what we do 
know, as the President told us, that we can look at a blueprint 
of the second commissioner's plan--commission's plan, and in 
that plan everybody gets the cuts and their beneficiary. But 
then, having had the cuts--and that is where the money is, by 
the way. When you go from wage to price, that is where the 
money is, and that is where you get the big money, and that is 
why everybody gets the cuts, not only those that choose but 
also the disabled and others.
    But then what we have been able to foresee or look at is 
that when you go into the personal account every dollar you put 
into a personal account gets deducted from the guaranteed 
benefit. So, once again, there is a second round of cuts.
    Then what they say is you are going to have to pay 3 
percent on top of what comes out, inflation, because you are 
taking a loan from the government is exactly what you are 
doing. So, I mean, I don't understand this. I really don't 
understand why we are doing these personal accounts, because it 
is a situation where you are dismantling Social Security, but, 
more than that, the American people aren't going to get a very 
good deal.
    Mr. Penny. Madam Chairman, if I can respond quickly.
    First of all, in reaction to your reference to Senator 
Moynihan, he was the co-chair of the President's commission. It 
is a 250-page report. His name is on it. It was a unanimous 
report. And it does include recommendations that include Social 
Security as part of, not simply as--or as personal accounts as 
a part of, not simply as an add-on to the traditional program.
    Secondly, your reference to the----
    Mrs. Maloney. Did the report include it as an add-on also?
    Mr. Penny. One of the recommendations did; two did not. So 
check the report and look at the totality of the report which 
sort of lays out the arguments that undergirded our work and 
led us to some of the conclusions we made.
    Secondly, just to get the solvency, which is this longer-
term problem beginning beyond the trust fund, let's assume the 
trust fund is there and we redeem it somehow. You have got a 
program that can only provide about 72 percent of the promised 
benefits beyond 2040. And so, yes, there are some 
recommendations in the President's commission report that deal 
with how we keep the program financed for the longer term.
    What I want to clarify is that you can reject all of these 
recommendations, but you have got to replace it with something 
else. So you can either do it on the benefit side or the tax 
side or a little of each. All we are laying out is one or two 
or three different ways that you can get there. And if you want 
to attack all of those ways, at least admit that your 
alternative is going to have to raise the same amount of money 
over time.
    Thirdly--and here is where the personal accounts really do 
come into play--with these changes, which would be agreed to 
ahead of time as workers in the workforce would agree that in 
exchange for their personal account they would take some 
reduction in their basic benefit, that is a front-end decision. 
But every calculation that the Social Security actuaries made 
for us demonstrates that for low- and middle-income workers 
they end up doing better in total benefits at the end of the 
day than they would under the traditional system. So you have 
to look at this as a total benefit package.
    The other thing is this keeps the system solvent for the 
long term, whereas all these other cut-and-paste approaches 
still leave us with long-term insolvency in the system. If you 
are going to do this, do it once and get it done with. Don't 
just tinker with it every 20 years, as we have done in the 
past.
    Mrs. Maloney. A fact check. The CRS study of March 31, 
2005----
    Mrs. Biggert. The gentlelady's time has expired.
    Mrs. Maloney.--show that the fallback can effectively 
reduce total benefits 33 to 54 percent----
    Mrs. Biggert. If you would like the senator----
    Mrs. Maloney. The purpose is--Congresswoman Biggert, we 
work very well together--is to get information and to study and 
to understand what is going on. If you hear something that you 
think is inaccurate and you have a CRS study that says the 
opposite, I think it serves the benefit of all of us to have 
the study put in the record so that we can all study it. I am 
not trying to be partisan in any way, one shape or the other, 
but this says that these benefits would be cut 35 to 54 
percent, which is contrary to what he says.
    I know Mr. Penny. He will read it. He will read Schiller's 
report because he is thorough. I served with him, and I have 
great respect for him. But if we are going to share 
information, we should have the opportunity to get it in the 
record and share it. Because we need to come together and solve 
this. And I for one would come together at any table if you 
take privatization off the table because of the reasons that we 
put forward and do it as an add-on, as the senator did in his 
private writings.
    I yield back, and I request permission to put these three 
studies in the record.
    Mrs. Biggert. Without objection, so ordered.
    Mr. Simpson. May I?
    Mrs. Biggert. Senator.
    Mr. Simpson. I don't want to get into this, but I have to.
    I served with Pat Moynihan for 18 years. He was my mentor 
on the Environment and Public Works Committee. He was my mentor 
on the Clean Air Act, and on Social Security. I chaired the 
subcommittee. He would come--and I can assure you as honestly 
as I can that he did talk about personal accounts. Because 
where were all of these groups when Bob Kerrey and I--a 
Democrat--put together a package with personal investment--we 
called it PIP, personal investment plan. I never heard 
anything. Where was the hue and cry then?
    Let me tell you, I cannot believe what I am seeing in 
America with this. Doing nothing is the path to insolvency. If 
personal accounts will cost you $3 trillion, $5 trillion, do 
you know what the cost is out there if you do nothing? It is 
horrendous. And what is being proposed by everybody? Nothing. 
Except the only two that really work, raise the payroll tax or 
cut the benefits. Quit crapping around. That is how you get 
there. If you really want to get there, that is how you get 
there. Any other stuff is babble into the vapors.
    But I can tell you, after this and listening as I have in 
America, I believe if you took personal accounts completely off 
the table that that would solve nothing in this atmosphere 
because it has become so politicized. Nothing.
    Mrs. Biggert. The gentleman from Georgia is recognized for 
5 minutes, Mr. Price.
    Mr. Price of Georgia. Thank you, Madam Chair.
    I want to welcome each of you--I guess I should say to 
congratulate you for your patience and your tolerance of your 
backside for sitting there for this period of time. There is 
great advantage for asking late, there is also great 
disadvantage because you want to respond to everything that you 
have heard. But let me just make a few comments, and then I 
have a question about process, not policy.
    Just by way of potential clarification and to respond, I 
guess, Republicans fiercely, fiercely are dedicated to 
preserving Social Security. We are fiercely dedicated to 
preserving Social Security.
    Where did we come up with this ridiculous idea of personal 
accounts? I would draw your attention to Mr. Penny's statement 
where he said in President Roosevelt's 1935 message to Congress 
on Social Security he outlined a vision for ultimately 
extending the program to include, quote, voluntary contributory 
annuities by which individual initiative can increase the 
amounts received in old age, unquote. So it is not a new 
fabrication or something that we came up with out of thin air.
    There was a comment early on about what do we call it? Is 
it a crisis? The President calling it a crisis. The first time 
I heard crisis in this was in 1997 or 1998 from President 
Clinton who said, quote, it was a looming crisis, unquote. So I 
think that it is important that we quote individuals 
appropriately and attribute appropriately.
    Ms. Kennelly, you mentioned that personal accounts are not 
a good deal. Well, Social Security right now is not a good 
deal. The return is less than 2 percent. So Social Security 
currently is not a good deal.
    I have had all sorts of meetings in my district. I had a 
huge summit this past week where I had a hundred of the 
brightest high school kids in my district come together and 
talk just about Social Security for an entire morning. Every 
one of them favored personal accounts because they understand. 
I asked how many folks thought they were going to get Social 
Security. Not a single hand was raised. They understand.
    Now I want to put policy aside, because facts are tough 
things. You all have had great experience on the Hill here and 
great experience with difficult issues. I would like to ask 
each of you, how would you recommend that we proceed from a 
process standpoint? How do we get through the poison that is 
obviously here to move toward what I believe must be a 
bipartisan agreement as we move forward? And I would like to 
hear from each of you.
    Ms. Kennelly. Well, I will start, Congressman.
    When you say Social Security is not a good deal----
    Mr. Price of Georgia. I would like to talk about process.
    Ms. Kennelly. But one-half of people over 65 would be in 
poverty level----
    Mr. Price of Georgia. I am interested in process.
    Ms. Kennelly. What I have been saying all morning--and I 
have been here for two and a half hours or something like that. 
What I am saying is we are having a debate about what to do 
about Social Security. Should we take the traditional program 
and do what we have done--and I differ with Congressman Penny 
that we should finish it now. We have always had to adjust 
Social Security. We have adjusted it many, many----
    Mr. Price of Georgia. Do you have any thoughts about the 
process, about how we get to a solution?
    Ms. Kennelly. Yes. You take the process, and you look at 
what you have to do. There is numerous ways that you can adjust 
the system. You don't take big clumps. You take little 
adjustments. And you can do it. You absolutely can do it.
    Mr. Price of Georgia. Thank you.
    Ms. Kennelly. And don't forget by the way, sir, that we 
have right now--and the senator gets upset about this, but you 
have time to do this. We should do it this year. But we should 
adjust the system so that we get ready for 2017 when more money 
is going out than coming in, and we can do it.
    Mr. Price of Georgia. Thank you.
    Mr. Penny. Well, I think the first thing, in terms of 
process, is to perhaps, without taking personal accounts and a 
long-term fix off the table, perhaps just talk about at the 
appropriate committees what it would take to prop up the status 
quo over the long term. Because what you will find is that it 
is a bunch of ugly stuff. Some groups will be more inclined to 
just raise the payroll tax a little here and a little there, a 
little more later. Others will actually talk about some benefit 
reductions that might be appropriate. Some might be means 
tested. Some might be more generalized.
    But there are no easy options.That is my point. And I think 
if you talk about what it takes to fix the current system, what 
it will convey to people is that, first of all, even that isn't 
easy; but, secondly, almost all of those options are a worse 
deal for younger workers.
    So I think at that point it then leads into a discussion, 
what can we do at the end of the day that at least gives these 
younger workers the opportunity for something better than 
simply benefit cuts and tax increases? And I think it leads you 
back to personal accounts as part of the mix.
    The second thing I would say is never take anything off the 
table because I don't think you are going to get a bipartisan 
consensus unless both sides are willing to look at everything 
the other side has to bring to the table. So it is a matter of 
process. I think that is important as well.
    Mr. Simpson. Madam chairman, let me just say when we had 
the commission with Danforth and Kerrey, we had an Internet 
computer game that said, okay, what do you want to do to make 
Social Security work? Send in your recommendation, and we will 
give you an idea how that feels. Not one thing came out that 
didn't raise the hackles of one or two or 20 groups. It is all 
sheer pain, sheer pain.
    I can say to you--you asked the question--your only hope is 
a bipartisan commission in this atmosphere. That is your only 
hope. Nothing else. Nothing else. But if you are going to see 
people reject one thing, their favorite thing--that is how we 
never did a Clean Air Act--members would say: I won't give up 
this under any circumstances; I won't do this--you have to get 
in a room and finally say, okay, put it all out there, let's 
quit this stuff.
    But I tell you, I am going to be very disappointed in a 
group of 38 million Americans who won't present a proposal of 
the AARP, and a member of that--I am deeply disappointed in 
Congresswoman Kennelly's group of 4 million people who won't 
present an alternative and they never will because they won't 
ever, ever take the heat and lose members, period.
    Mr. Price of Georgia. Thank you.
    Mrs. Biggert. The gentleman's time has expired.
    The gentlelady from Wisconsin, Ms. Moore.
    Ms. Moore of Wisconsin. Well, thank you, madam chairman; 
and it certainly is a privilege to be here before such a 
distinguished panel.
    I will get right to the point. I think the gentlelady from 
New York really raised some of the questions that I had, and I 
can start right away with Congressman Tim Penny.
    You stated on page 4 of your testimony that the Social 
Security actuarial data that you were looking at says that 
folk, even low-income people, would be better off with the 
personal accounts than in the current existing system. I am 
asking you, first of all, did this actuarial model include the 
switch from the wage indexing to the price indexing and did it 
consider the 3 percent privatization tax? Is that part of the 
assumptions which indicate that the lower-income people would 
be better off?
    Because indeed, as Mrs. Maloney pointed out, the CRS 
analysis says that, literally, the Social Security benefit 
would disappear with those two changes combined, which is what 
we perceive to be the President's proposal.
    You know--and without going into a long-drawn-out 
discussion of my own personal background, you are actually 
looking at the face of a person who would be most hard-pressed 
by major--by the loss of a Social Security system. I am 
extremely guilty of not saving every dime I can rake and 
scrape. I spent it on feeding and housing my three kids. And of 
course nobody told me to have any kids, but being a woman I had 
them anyway. So our parents and so on--and, as a Member of 
Congress, of course I have joined the Thrift Savings Plan.
    I do agree that we need to save more. I do agree that 
Medicare, Medicaid are the real looming crises, which if, 
Senator Simpson, we are going to look at European models, we 
ought to look at having some universal healthcare to try to get 
some cost efficiencies in those programs versus destroying 
Social Security.
    But my question is really for you, and the others may add. 
Thank you.
    Mr. Penny. The short answer to that is, yes, the benefit 
adjustments or the benefit reductions that were part of the 
commission's report were taken into account when these 
estimates or projections were prepared for us. And they do 
demonstrate that, for the lowest-income workers, they end up 
being better off under the new system than they would under the 
traditional system, with all of that taken into account.
    Ms. Moore of Wisconsin. With the price index.
    Mr. Penny. With all of that taken into account, yes.
    And the other point is that we relied on the Social 
Security Administration actuaries to run the numbers on 
everything we did in the commission. So we weren't sitting 
there with our own little set of economists coming up with our 
own numbers. We relied on the government bureaucrats who have 
worked their entire careers in this area to come up with the 
numbers and put a number on our proposals.
    The other thing----
    Ms. Moore of Wisconsin. Entirely different conclusion, so 
I----
    Mr. Penny. And I understand that, because even experts can 
come up with different assumptions about how they run their 
numbers. But we relied on the Social Security actuaries to run 
these numbers.
    The other thing, which is little known of our report, is 
that we did increase the basic benefit for the lowest-income 
workers, those that stay at low wage all of their lives, and 
that is a little-known fact in our plan. But we lifted that 
benefit to a level that would assure that no one, if they live 
on Social Security and nothing else, would be receiving an 
income level that was below the poverty rate.
    So you have got to look at this as a package deal, and I 
would recommend it. In addition to reading other reports about 
what the commission recommended, you should go to the 
commission documents and what the Social Security actuaries 
said about our report.
    Ms. Kennelly. Congresswoman, I would hope it was a package 
deal, because the assumption was there would be a 4.6 percent 
adjustment in inflation, and I am not so sure we can count on 
4.6.
    Also, don't apologize if you didn't save. None of us saved. 
Absolutely. But you talk about young people. We have heard 
about young people. None of us when we were young thought we 
would get old, let alone that we weren't going to be lucky. And 
millions of dollars have been spent on young people to see that 
they would not need Social Security. But I tell you, 4.6 
percent inflation, Congressman Penny, I think that is very 
high.
    Mrs. Biggert. The gentlelady's time has expired.
    The gentleman from Minnesota is recognized for 5 minutes.
    Ms. Moore of Wisconsin. Madam Chair----
    Mr. Simpson. I would respond. She asked a question. It will 
just take a moment for me.
    I do hear you clearly, Congresswoman. Let me tell you how 
bad I am. There was a Social Security commissioner under the 
Republican administration who decided not to go tell the 
American people what was going to happen to Social Security. 
Moynihan and I went after her. I was in the majority. She said, 
well, I have a packet I am taking all over America to show how 
great Social Security is for young people. We looked at it and 
said, this is babble, absolute babble. And she would never 
answer our questions. She was dispatched, unRepublican--she was 
a Republican.
    That is where I am coming from. This is phony bologna. And 
I don't care what party you are in. If you are going to go to 
young people and tell them they have nothing to worry about, 
that is bizarre, it is grotesque, it is sick.
    Ms. Kennelly. That is not what I said.
    Mrs. Biggert. The gentleman from Minnesota is recognized 
for 5 minutes.
    Mr. Kennedy. Well, let me, first of all, thank all of you 
for being here for this extended period of time. We know it is 
a long period of time, and we appreciate you devoting the 
effort to be here as well as devoting the attention to really 
study the issues, because we need to have a firm debate.
    I want to especially welcome my fellow Minnesotan, 
Congressman Penny, who has been a strong, independent voice on 
this issue and many other issues. We appreciate his dedicated 
service and being with us here today as well.
    I think we need a debate. I think there is a lot of 
confusion out there. But part of where I am getting a little 
confusion--and if I may ask you, Congresswoman Kennelly, you 
said that everybody over 55 was not going to be touched, but 
then you also just said everybody gets cut. Now I am--which is 
it?
    Ms. Kennelly. No, I absolutely agree with the President. 
Anybody 55 and older does not get cut.
    Mr. Kennedy. So everybody doesn't get cut----
    Ms. Kennelly. No, anybody 55 and older does not get cut. 
What I am saying is those 55 and older are worried about those 
younger.
    Mr. Kennedy. Now one of the issues we haven't really had a 
chance to dialog, and I will just mention the commission didn't 
get a chance to really wrestle around, was the disabled, and 
you just made the statement that the disabled got cut. I 
don't--I haven't seen anybody's proposal that cuts the 
disabled, and clearly I have no intent of allowing any of the 
disabled to be cut. What are the options? How do we make sure 
that in the end we get to that resolution in whatever is 
proposed here?
    And I just maybe put that out to each of you. What thoughts 
do we have to make sure----
    Ms. Kennelly. Well, what I said was that the Congressman's 
commission didn't address that. They said they only met 6 
months, and they couldn't address it.
    What I am saying is when you are talking about personal 
accounts, you are putting money into personal accounts, you 
have to grow those accounts. Now, the President says they will 
continue to grow up, and you will make more money. I just 
wonder how if you are 35 years old, you are riding home, get in 
an accident and you can't earn any more money, how do you grow 
that account? I haven't heard any answer to that. I do know 
that with disability, Social Security pays. When you are 
disabled, they pay you for the rest of your life.
    Mr. Penny. I will speak to this, but not on behalf of the 
commission. I tried to be clear today when I am responding to 
something that grows out of my commission work and when I am 
not, and on this one the commission didn't come to any 
recommendations in that regard.
    My own personal view is that you really have Social 
Security that is in two different pieces. We call it all 
insurance, and technically under law it is an all insurance 
program where one generation of workers pays money in with the 
intent to draw these benefits later. But most people think of 
the Social Security retirement piece as a retirement program, 
not as an insurance program. But we all understand the 
disability and the survivor's benefits to be an insurance 
program.
    Frankly, when you think about insurance, it is to protect 
against something you hope will never happen. There but for the 
grace of God go I. I might need disability. I might be in a 
survivor's circumstance.
    So I think really it is defensible to say that as we 
address Social Security's future we separate that part of the 
debate out. You might have a totally different approach to 
dealing with that piece of the Social Security system, and then 
we can isolate and have a different discussion about what we 
ought to do with the retirement piece.
    Mr. Simpson. I would ascribe to that totally. The confusion 
comes from people not understanding what it was to be when it 
started. It was an income supplement. That is what it was, 
nothing more, nothing less. And from that we added to it 
because we are compassionate people.
    To hear Democrats and Republicans saying that one side or 
the other is not going to protect the insolvency, I agree with 
the Congressman here, this is absurd. To get up and say that 
Democrats are the only ones that fiercely want to protect the 
solvency, hell, there are millions of us as Republicans that 
want to protect the solvency too, and you can't do it with the 
status quo. Everything that you are going to lose if you did 
this hideous thing of, quote, privatization is peanuts compared 
to what is going to happen on the outyears to young people.
    Mr. Kennedy. Well, I would just conclude by saying I think 
you are right, we all are committed to making sure Social 
Security is there for seniors. When my parents rely on it, we 
are going to make sure it is there.
    And, Congressman Penny, you are right, there is added 
confusion with having two separate sort of objectives, the one 
of disability and survivors, which nobody wants to allow that 
to really change because we do want it to be there for us or 
our family or anybody we know if that comes, but we sometimes 
have some confusion. So I just thank you for being here. I 
would encourage everyone to try to approach this in a factual 
way so we can enlighten the public, as opposed to confuse the 
public.
    Mrs. Biggert. The gentleman's time is expired.
    The gentleman from Missouri, Mr. Cleaver, is recognized for 
5 minutes.
    Mr. Cleaver. Thank you, Madam Chair.
    Those that are kind enough to be here are probably 
interested in having lunch. I am assuming that you are normal 
humans, so you want to go probably----
    Mr. Simpson. We do want to go----
    Mr. Cleaver. Senator, I agree with you. I think the only 
way we are going to come up with an acceptable plan for the 
solvency of Social Security is through some kind of bipartisan 
work. That is why I have wondered why the President has not 
invited into the White House the leadership of both parties and 
say to them and then say to the Nation, I am asking for a 
bipartisan plan to come out of Congress, and I would like for 
you to start on it immediately. I mean, I have been waiting on 
that to happen. Can you help me understand why it hasn't?
    Mr. Simpson. I would say there are a lot of things that I 
am disappointed in with presidents I have worked with, and I 
have known 11 and worked with four--three--and I never agreed 
with all of them. I enjoyed President Reagan and President 
Clinton. I enjoyed the first President Bush, a close friend. I 
knew President Jimmy Carter. So I can only say I don't know why 
they don't do that.
    I am disappointed when I see things happen where people 
aren't invited to the White House. I was disappointed when I 
watched this House for 40 years, where they just ate 
Republicans alive; and now I am disappointed when they eat 
Democrats alive. So that is me. I am a rather independent soul.
    But I can tell you, you are going to have to do it. You are 
going to have to do it with a piece of legislation that says 
this Congress will appoint--will form a bipartisan commission 
consisting of--you will have your appointees, the President has 
his appointees. Just say it won't get done, and then just go 
ahead and do it.
    Mr. Penny. I would concur with the senator's comments.
    But in coming to the table, whether it is the leadership 
being called to a discussion, which then grows into some sort 
of a negotiation, or whether it is a commission, it has to be 
done with the respect that both sides deserve, which is to say 
both sides are allowed in this process to bring anything and 
everything to the table. It can't be preconditioned that your 
ideas--I will only talk to you if your idea is off the table, 
or vice versa.
    Mr. Cleaver. But I think one of the things that Democrats 
are saying is that--I know one of the things we are saying is 
that we don't want to make the American public believe that 
privatization is a part of the fix. So as long as we are saying 
that we are in need of preserving Social Security by having 
privatization, we are not being quite honest with the public 
because that is not a part of it, of any plan that would solve 
our problem.
    And of course someone--my colleague from Georgia said that 
President Clinton said there was a looming crisis, President 
Bush said there was a crisis, and that is not synonymous. 
Looming crisis and crisis are not synonymous.
    But the point I want to make is I agree with you probably 
more than I disagree in terms of the need for us to sit down 
and come up with a bipartisan solution. But I think one of the 
problems we are going to have is that if the public is told 
that privatization is a part of the solution then I think that 
runs away at one-half of the team needing to deal with the 
problem.
    Ms. Kennelly. Congressman, one of the most interesting 
statistics--and I don't know if the Chairwoman knows this--but 
in 1983 there were more Democratic votes in the House that 
voted for the solution and more Republican members in the 
Senate that voted. That is truly bipartisan, and I think that 
is where we have to go.
    Mr. Penny. If I might respond to your comment about whether 
everything ought to be on the table. It seems to me that there 
is some comparability between one side saying they will talk 
about a solution but we can't bring up taxes and the other side 
saying we will talk about solution but we can't bring up 
personal accounts. I think that there is no harm in having it 
in the mix. In fact, there may be a lot of reason in the final 
analysis to have it in the mix. Because a solution without 
personal accounts somewhere in the equation is essentially a 
solution that will rely on tax increases and/or benefit cuts, 
which to the next generation of workers essentially means pay 
more, get less. And I think personal accounts have a place in 
this debate.
    I also would suggest that if you look at the various 
analyses that has been done about long-term solvency in the 
program there is something to be said for personal accounts as 
a way of replacing what you might have to give up anyway just 
to shore up the current system. So in some respects it gives 
the younger workers an opportunity to earn back what they 
otherwise might be losing in a basic benefit cut or losing 
through higher taxes that don't buy them any added benefits.
    So, again, I just think there is no reason to leave that 
out of the discussion if you are going to come to the table and 
look at all options.
    The last point is, you are right, Clinton said it was a 
looming crisis, Bush should have said it was a pending crisis. 
Because that change in terminology does acknowledge that we are 
that much closer to the crunch point and we need to think a lot 
more seriously about this issue or we will soon be in the 
crisis.
    Mrs. Biggert. The gentleman's time has expired.
    Mr. Cleaver. Thank you.
    Mrs. Biggert. Seeing no further questioners, the Chair 
would like to thank all the honorables for being here--Alan 
Simpson, Barbara Kennelly and Tim Penny--for just a spirited 
hearing and also one that gave us a lot of insight and a sense 
of history into this issue. We really appreciate you being 
here. Thank you very much.
    Now I would like to welcome the second panel, if you would 
come forward and take your seats.
    This is panel number two: We have Sheryl Garrett, who is 
the founding principal of Garrett Financial Planning, now 
Financial Planning Firm, headquarters in Overland Park, Kansas. 
Ms. Garrett is a certified financial planner, and for the past 
3 years she has been named one of the top 25 most influential 
people in financial planning by Investor Advisor Magazine.
    Next is Dallas Salisbury, President and CEO of the Employee 
Benefit Research Institute, a nonprofit bipartisan organization 
founded in 1978 and focusing on policy, research and education 
on economic security and employee benefits.
    Third is Hans Riemer, who is the Washington director of 
Rock the Vote, a not-for-profit organization founded in 1990 to 
engage young people in the political process. He is also the 
founder of the 20-30 Center of Public Policy Organization for 
Young Adults based in Washington, D.C.
    We thank you for your patience. I know it has been a long 
morning. So let's proceed as quickly as possible.
    Mrs. Biggert. We will start with Ms. Garrett, and you are 
recognized for 5 minutes.

 STATEMENT OF SHERYL GARRETT, CERTIFIED FINANCIAL PLANNER AND 
             FOUNDER, THE GARRETT PLANNING NETWORK

    Ms. Garrett. Thank you, Madam Chairman.
    It is my extreme honor to be here and be part of this 
process. It is quite enlightening, to say the least.
    As you mentioned, I am a certified financial planner. 
However, I have recently retired from working with individual 
clients.
    I have received a lot of attention during my career for 
working with normal people, everyday rank and file. Some of the 
folks in this room earlier were mentioning ditch diggers and 
teachers and all those types. I work with all of those types. 
Very, very connected with individuals from all walks of life, 
and that is my claim to fame in the financial planning area.
    Everyone has questions about their money at some time or 
another; and everybody deserves access to competent, objective 
financial advice on their terms. The popularity of this service 
model has been so great that in the year 2000 I launched the 
Garrett Planning Network to train and support other financial 
advisors in working with clients as I do. We now have over 250 
members across the country, and growing rapidly, to help serve 
the needs of everyday people to answer those questions, to help 
them with what they need to do about financial planning. It is 
the mission of our organization to make competent, objective 
financial advice accessible to all people.
    The role of the financial planner or the financial advisor 
is one of the most important and rewarding roles or jobs that I 
could ever imagine. We have the responsibility to consider all 
the potentialities and help clients consider all pertinent 
issues, the risks they might face, and what strategies they 
might have available to them. However, the majority of 
financial planning and smart money management decisions really 
aren't all that complicated.
    There is only so many variables involved. One of the most 
important variables, we can spend less and save more now. 
Unfortunately, too many people don't believe that they have any 
control over the amount of money that they spend now or in the 
future. For most persons this is simply not true. We have much 
more control than we are willing to take on and enforce on our 
families or ourselves.
    Former generations have had to do this. They could only 
spend what they had. There was no such thing as EZ credit. Most 
Americans spend at least 100 percent of their net paycheck. One 
of the solutions to that is don't let it come home. Get it 
invested in that thrift savings account or that 401(k) or the 
Roth IRA before it comes out in the paycheck. That is one of 
the things that we have to do.
    Spending less in retirement is another variable. 
Unfortunately, that is what most of us will be facing is 
spending less in retirement than what we are living on now. We 
are going to only have what we have saved, hopefully some 
Social Security, and possibly some kind of a company pension. 
We must make adjustments, just like everyone before us did. 
There are no other options.
    Getting better returns on our investments is another 
variable that we all strive for. However, unfortunately, too 
many retirement plan participants take what they deem as an 
ultra conservative view and invest their money in 
hypersensitive, low interest rate money market type fixed 
income investments in an attempt at being conservative. And 
unfortunately, that is exactly the opposite thing that is 
happening.
    Fortunately, there are excellent resources available on the 
Internet. One of my favorite is at TIAA-CREF.org where an 
individual can go in and determine what an appropriate asset 
allocation should be for them. There are wonderful tools out 
there at our disposal. However, everyone needs to have money 
invested for growth to offset the effect of inflation, and the 
younger we are the more important it is that we have money 
invested for growth.
    Inflation is the biggest or one of the biggest risks that 
we individually face in our long-term financial security. We 
can not afford to allocate too much of our money to short-term 
fixed income investments. We cannot afford to remain ignorant 
or complacent regarding our financial futures. If citizens are 
truly aware of the lack of security in our current Social 
Security retirement program we will make adjustments to take 
care of ourselves in retirement.
    In my planning work, clients under age 40, we count zero of 
Social Security in their retirement projections. For those 
individuals between 40 and 65 I discount that benefit by at 
least 50 percent and assume only a 1 percent cost of living 
adjustment.
    I am 43 years old. By the time there is going to be some 
hard hit adjustments in this program, I am just entering into 
retirement. It is affecting me, not just my kids and grandkids.
    The most important thing that we really have control over, 
one of those variables I mentioned, is working longer. It is 
the most significant and controllable variable that most 
Americans have at our disposal is how long we remain in the 
work force.
    In 1950 almost half of men over age 65 were still in the 
work force. Today that number is less than 20 percent. We are 
saving less, living longer and retiring earlier. Why are we 
surprised that we cannot afford to maintain our standard of 
living in retirement when we spend as much time in retirement 
as we do in the work force?
    Fortunately, one of the healthiest things that I am seeing 
is people are talking about working longer and talking about 
staged retirements. We have to be realistic about Social 
Security. Dramatic measures must be taken to ensure long-term 
solvency. Our citizens must recognize that living in the land 
of the free comes with responsibilities, responsibilities to 
care for ourselves now and in the future. We are free to screw 
up and we are free to succeed. But we must be held accountable 
for our own financial futures.
    Thank you.
    [The prepared statement of Sheryl Garrett can be found on 
page 82 in the appendix.]
    Mrs. Biggert. Thank you very much. Mr. Salisbury, you are 
recognized for 5 minutes.

STATEMENT OF DALLAS L. SALISBURY, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, EMPLOYEE BENEFIT RESEARCH INSTITUTE, CHAIRMAN AND 
  CHIEF EXECUTIVE OFFICER, AMERICAN SAVINGS EDUCATION COUNCIL

    Mr. Salisbury. Mr. Chairman, thank you. It is a pleasure to 
be here.
    I just note that one issue that was mentioned earlier is 
the issue of longevity. And my 91-year old father and 88-year 
old mother--the words must take care of themselves, they did 
things right. They saved, they annuitized. They sold their home 
on a reverse annuity mortgage for 20 years. They sold an 
apartment house on a 25-year mortgage. Regrettably, in quotes, 
they are still alive. And Social Security is what they now live 
on. And so the longevity aspect of this, along with working 
longer, should not be overlooked.
    I was asked first to talk about the connection between 
financial literacy retirement security and Social Security 
reform. And I would simply note that last point. Risk is 
something that people need to deal with. The risk of outliving 
one's assets, the risk of living too long, the risk of poor 
health, of not saving, of excessive debt, of excessive interest 
expense.
    Financial literacy for those that are lucky, like those 
that were here today, who have Social Security plus a Federal 
pension, plus the Federal thrift plan, frankly, they don't need 
to know much. Those who don't have those special benefits, who 
are low income, who don't have the capacity to save much at 
all, they need intense financial literacy and training. It is 
required for the present Social Security program and the 
knowledge of when I will be eligible for benefits, only 18 
percent of Americans know that. How much the benefit will be, 
only 21 percent of Americans know that. And how to constrain 
spending to income to meet program needs.
    Reform that includes individual accounts requires far 
greater knowledge than the American public has today. And 
learning from experience, from programs like the Federal thrift 
plan can help. Research has documented a number of approaches 
mentioned earlier today that would improve outcomes. Automatic 
enrollment, automatic contribution increases, pre-diversified 
investment options like life cycle funds, matching the 
contribution the individual is asked to make and someone to 
talk to when they need help.
    Second, I was asked to address EBRI's involvement in 
another government initiatives on financial literacy. We joined 
with other organizations in 1995 in the public and private 
sector to form the American Savings Education Council. Those 
groups then joined together in that same year to create the 
Jump Start Coalition for Youth Functional Literacy. We worked 
with Congress in 1997 to draft the SAVER Act. Working with the 
Department of Labor, we launched Choose to Save national public 
service campaign in 1997.
    For nearly 10 years we have worked with the ASEC government 
interagency group that comes together several times each year 
to coordinate efforts on financial education and financial 
literacy. National summits on retirement savings were held in 
1998 and 2002 and presenting new financial literacy opportunity 
when another one is held by statute in 2005. The FCC, OPM, DOD, 
the Federal Reserve, the Social Security Administration, the 
Extension Service and many more continue to hold investor 
education forums around the Nation and have done so for the 
last 10 years.
    Now, as was mentioned earlier, the Financial Literacy 
Education Commission is completing its analysis and the 
formulation of a national strategy for financial literacy. FLEC 
has established a consumer resource web site, mymoney.gov and 
1-800-mymoney number that allows individuals to request a tool 
kit of publication. Every Congress Member should urge their 
constituents to call that number. A new Choose to Save public 
service announcement will soon begin airing that urges 
Americans to visit mymoney.gov.
    Third, you ask about the status of financial literacy 
programs and their relevance to retirement security and Social 
Security reform. Hundreds of public and private groups across 
the Nation are now working on financial education and financial 
literacy. School curriculums have been developed and are being 
delivered. Teach the teachers programs are taking place around 
the Nation.
    The FLEC strategy should reinforce these efforts and 
provide a framework for increased coordination. No Child Left 
Behind will be adding financial literacy questions to exams and 
many school districts are already expanding what they teach our 
Nation's children. There is much more to be accomplished but 
much is already being done.
    Financial literacy is a key to retirement security as it 
can move individuals to plan and budget, to save while managing 
credit and it can assure that they do not choose to retire 
before they have sufficient resources to allow security. 
Financial literacy is important to Social Security reform in 
the same way as knowledge of the program, its age provisions, 
its benefit levels and its options will be essential for 
decision making.
    With financial literacy comes the knowledge that if you 
choose to save for your future, you gain freedom of 
independence. Out of that, we have often had the message if you 
don't want to work forever, you do need to choose to save.
    I would conclude with three factual notes. In terms of 
prior discussion, the data does show that simply taxing all 
earnings in the economy would in fact provide 75-year financial 
solvency for Social Security. The Social Security actuaries say 
that that would provide 98 percent of financial solvency.
    Secondly, that the Senator previously stressed, the issue 
of TSP and of change. I would simply underline in terms of 
financial literacy the issues of health care expenses and long-
term care expenses, huge financial needs that there is a need 
for financial literacy education on.
    Thank you.
    [The prepared statement of Dallas L. Salisbury can be found 
on page 99 in the appendix.]
    Mrs. Biggert. Thank you so much. And I would like to 
personally thank you for all you do. It is a subject that is 
very important to me and I think to the Nation.
    Mr. Riemer, you are recognized for 5 minutes.

  STATEMENT OF HANS RIEMER, WASHINGTON DIRECTOR, ROCK THE VOTE

    Mr. Riemer. Thank you for the opportunity to present our 
views today. My name is Hans Riemer. I am the Washington 
Director for Rock the Vote. As an advocate for our one million 
members and supporters, Rock the Vote believes that all 
Americans can learn how to invest for their future.
    At the same time we also believe that everyone should have 
a basic safeguard to protect them if they are unsuccessful with 
their personal investments. That safeguard, which is Social 
Security, should be sufficient to protect a middle class 
standard of living while at the same time lifting low income 
workers out of poverty. We make it a point to emphasize with 
young people that if you want a decent quality of life when you 
are older, then you must invest on your own by fully 
participating in pension, 401(k) and IRA type plans. Social 
Security will be a floor or a basic protection, but it is not 
intended to provide your entire retirement income.
    You must save for your working life beginning at the 
youngest possible age. There is a world of difference, however, 
between the message, don't count on Social Security to be your 
only income, and don't count on Social Security at all. Many 
young people have come to believe that they should not count on 
Social Security for anything.
    It is no mystery why they would think that considering the 
constant media reports about Social Security's impending 
bankruptcy which strongly implies there will be no money for 
future benefits and that Social Security Administration will 
have to close its doors.
    Many advocates of privatization have also fostered this 
impression. Consider the remarks of President Bush who recently 
said without changes this young generation of workers will see 
a UFO before they see a Social Security check.
    In fact, Social Security is not going anywhere. Since 
current workers pay the benefits for current recipients, the 
only way that the program would disappear is if there were no 
workers paying into it. Clearly that is never going to happen. 
While there is indeed a decline in the number of workers paying 
into the fund relative to beneficiaries, there are still more 
than enough workers to make ends meet.
    If the goal of promoting financial literacy is to empower 
people to understand their personal financial situation and 
take action to improve it, a good starting point would be 
clearing up this unfortunate misunderstanding about whether 
Social Security is going to disappear.
    According to the Center for Economic and Policy Research, 
an average income 21-year-old is promised nearly $24,000 per 
year in retirement benefits from Social Security. After 20 
years, that is $480,000 in today's dollars. Now the shocking 
news is that even without changes for the entire lifetime of a 
typical young adult, Social Security has enough money to pay 70 
to 80 percent of his or her benefits. That is not perfect but 
it is not bankrupt. In fact, our so-called bankrupt Social 
Security program can provide with no changes at all benefits to 
future generations that are larger than people are receiving 
today. I wish my 401(k) could be bankrupt like that.
    So why are we hearing that dramatic changes are needed to 
avert bankruptcy? In our view, these statements are designed to 
stampede young people into supporting proposals that they would 
reject if presented a full accounting of the facts.
    A February 2000 survey that we conducted shed some light on 
this question. Our conclusion from the research was that the 
more young people learn about private accounts the less they 
like them.
    Here are two examples from the survey. sixty three percent 
of young people would oppose private accounts if it meant, 
quote, massive new Federal debt in order to pay current 
benefits. Well, according to the Center on Budget and Policy 
Priorities, the administration's Social Security plan is likely 
to require nearly 5 trillion in new borrowing over the next 20 
years.
    seventy percent would oppose private accounts if it meant, 
quote, cuts to your guaranteed benefits would be so severe that 
you could not make up the difference with money from your 
private account. I ask you to consider the plan introduced by 
Senator Graham, and I quote from the Center on Budget and 
Policy Priorities.
    ``Under the plan, the retirement benefits for typical wage 
earners who are 25 to 35 today, including the monthly income 
from their private accounts, would be twenty seven percent or 
$4,900 lower than what they receive under the current benefit 
structure....this benefit cut is larger than the cut that would 
be needed if no action were taken to shore up Social Security's 
finances.''
    Other polls have also demonstrated a rapid erosion of 
support among young people for private accounts. The Pew 
Research Center survey released in late March, for example, 
finds that, quote, people under age 30 who have heard a lot 
about the proposal are more than twice as likely as their less 
engaged peers to oppose the idea.
    Fortunately, there are many changes for Social Security 
that young people would likely support. For example, raising 
the amount of income subject to Social Security taxation. Most 
young people have no idea that you stop paying Social Security 
taxes today once you hit $90,000 approximately, since they 
never earn anywhere near that amount. It is a loophole so big 
that Bill Gates' entire income can pass through. Making the tax 
fairer would be a big step in the right direction. Most 
important, that is the kind of change that can preserve the 
essential guarantee.
    As the pension system has changed around us, today's 
younger workers, more than any generation to come before, are 
responsible for investing on their own for most, if not all of 
their income above Social Security. Perhaps that is why so many 
young people are telling us we want that guarantee to be there 
today and tomorrow.
    To address their concerns and to promote financial literacy 
among today's youth I ask you to join us in saying don't be 
fooled, Social Security is not going bankrupt.
    Thank you for your time. And on behalf of our members, 
thank you for inviting Rock the Vote to be present today.
    [The prepared statement of Hans Riemer can be found on page 
96 in the appendix.]
    Mr. Bachus. [presiding.] Thank you. Without objection, the 
testimony submitted by the National Association of Investors 
Corporation and the statement of Susan Molinari, Americans for 
Consumer Education and Competition will be placed into the 
record.
    [The following information can be found on page 116 in the 
appendix.]
    Mr. Bachus. At this time I guess I will recognize myself 
for a question. Mr. Riemer, let me ask you this. You are 
talking about most young people in you all's survey oppose 
personal savings accounts or personal investment accounts.
    Mr. Riemer. Yes. We conducted a survey where we asked 
people if they favored them and we worded it quite neutrally. 
Do you favor private accounts? And then for the group that did, 
we followed up and said would you favor it if it meant this, X, 
Y, or Z?
    Mr. Bachus. What about the--you were sitting back there 
during the first panel--the thrift savings accounts. Do you 
know the worst you would have done under those accounts?
    Mr. Riemer. I am sure you could tell me.
    Mr. Bachus. The worst you would have done if you had made 
all the wrong decisions would have been 4.3 percent annually. 
Now, that includes what we had as a stock market meltdown a few 
years ago of historic proportions. But the worst you would have 
done is 4.3. The best you would have done is 11 percent. So 
most Federal employees have earned on their money in these 
accounts between 4.3 and 11 percent. You know, the worst--if 
you made all the worst decisions, you still had 4.3 percent.
    Do you know what the return on Social Security is in the 
rate of return?
    Mr. Riemer. Well, I actually don't believe that is really a 
valid calculation.
    Mr. Bachus. Well, now that is what people would get back. 
You think there is something wrong with the calculation?
    Mr. Riemer. I think it is a misleading calculation.
    Mr. Bachus. How is it misleading?
    Mr. Riemer. Well, because Social Security provides--can you 
imagine a 401(k) that could provide disability insurance, life 
insurance?
    Mr. Bachus. Oh, no. I am talking about on the survivor's 
insurance part.
    Mr. Riemer. But that is part of the cost side of the 
program.
    Mr. Bachus. I am not talking about on the disability. I am 
talking about on the----
    Mr. Riemer. Well, it is my contention that you can't 
separate them out as cleanly as some would suggest, and a 
401(k) that could----
    Mr. Bachus. Well, actually the way you separate them you 
take the contribution for the disability part and you back that 
out and then you are left with the 5.2, I think it is, that 
goes in, of the wages that goes in for the survivors insurance 
fund. And then you calculate what people have gotten back over 
the several years. And then you get what is the rate of return. 
But I wonder, do you know what that rate of return is?
    Mr. Riemer. I suspect it is exactly the same rate of return 
that a 401(k) would get if it could do everything that Social 
Security does.
    Mr. Bachus. But they don't. They----
    Mr. Riemer. Exactly.
    Mr. Bachus. Because it is loaned to the government. The 
rate of return now is about 1.6 percent, between 1.6 and 1.8 
percent. And I just--I guess my question would be, if young 
people had a choice on investing in a fund that yielded 1.6 or 
1.8 return and one that yielded somewhere between 4.3 and 11 
percent, you know, I think they would all choose that second 
account.
    Mr. Riemer. Well, I believe that the thrift savings plan is 
a good plan, and the thing that I like particularly about it is 
that it comes on top of Social Security, and I wish that 
everyone had that kind of option.
    Mr. Bachus. What if we took--you know, President 
Roosevelt's original--his original proposal and his Social 
Security for the first, I guess, 15 years functioned with a 2 
percent tax. You know, employees put in one, employers put in 
one. What if we set the rate at 8 percent, which is where it 
was about 12 years ago, and then we allowed folks to either 
choose--they could put the other 2 percent into a personal 
savings account or they could put it into Social Security. 
Would you be opposed to giving them that choice?
    Mr. Riemer. So that would be a mandatory increase?
    Mr. Bachus. No, it would be a voluntary thing. They could 
either put it into--they could continue to have it in Social 
Security, or they could elect to put it in to a thrift savings.
    Mr. Riemer. I am not sure that I really understand. Are you 
asking if people were allowed to save money in addition to the 
Social Security tax that they currently pay?
    Mr. Bachus. No. What you would have to do, you would have 
to--because one out of every $8 is going into Social Security 
now. So, you would have to reduce that somewhat, because I 
don't know that--I am not sure, do you think the American 
workers are capable of putting more than one out of $8 into 
Social Security? I guess----
    Mr. Riemer. You mean taking money out of the Federal 
budget?
    Mr. Bachus. Well, let me maybe just ask you this. The rate 
of inflation and the interest rate are both above what the rate 
of return is on Social Security. And that seems to me like we 
are not getting a very--a good rate of return for Social 
Security. Do you agree with that?
    Mr. Riemer.  No. I think Social Security provides a good 
rate of return.
    Mr. Bachus. Okay.
    Mr. Riemer. It lifts Americans out of poverty. That is the 
rate of return that the program provides.
    Mr. Bachus. But don't you think a bigger rate of return 
would move them that far away from poverty, I mean even further 
away?
    Mr. Riemer. Naturally it is a balancing act between the 
maximal rate of return and the maximal reduction of poverty.
    Mr. Bachus. My time has not expired because there is nobody 
else seeking time right now. I don't see anybody. Everybody 
else is listening intently. So I will ask----
    Ms. Garrett. Sir, could I add to that question?
    Mr. Bachus. Would you like to respond?
    Ms. Garrett. I would. Being a younger financial planner, 
and I am always going to hold to that position, regardless of 
my age, I tend to attract a lot of younger clientele. So I am 
working with people in their 20s, 30s, 40s, 50 years old. These 
individuals are having absolutely no problem with me not 
counting Social Security in their long-term retirement 
projections. However, we say that hopefully there will be some 
sort of benefit there. We just don't know what it is going to 
look like. It will change. It has to change.
    I mean, we know that something magical is going to happen. 
Well not in a magical positive sense, but something definitely 
is going to happen between now and 2040 or whatever year we 
happen to come up with, because every time you recalculate it 
is a different number. But some time in my early retirement 
years there is going to be a major change needed or a change in 
benefits.
    When I talk to younger clients about these issues, they 
would not like to rely on their financial solvency, their 
personal financial planning, they don't want to count on Social 
Security as even one of the three legs of the stool. That is a 
very rickety leg that we are talking about. It needs to be 
firmed up. It is an important part of it and, yes, it does need 
to be firmed up. I do not want to eliminate it.
    However, the most important component are--the folks that I 
have been working with over the years are recognizing is that 
there are two other legs of this stool from the original plan. 
It wasn't always just Social Security. We need to be 
responsible for the other two-thirds. And the folks that I am 
coaching, we are talking about let's deal with the whole 
retirement need, how much capital do you need to be able to 
sustain your retirement. Let's accumulate it all based on these 
assumptions, and if we happen to get some Social Security, 
wonderful.
    However, there may be some unexpected health care costs 
that we haven't factored in that is going to wipe those out. So 
I think from a financial planner's perspective the only prudent 
thing that we can do, given what we know today and what is on 
the horizon, regardless of how changes occur, is to not count 
full benefits for those between age 40 and 65, and not count 
any benefits for those under 40.
    Mr. Riemer. May I?
    Mr. Bachus. Yes.
    Mr. Riemer. It is an interesting observation. I am actually 
going through the process now of--I just recently bought a 
house. And I can tell you that if I thought I had to save 
enough for my future, discounting Social Security, I wouldn't 
have been able to afford a house. I couldn't pay my mortgage. 
So I think the observation that you have made certainly works 
for people in a position of financial privilege. But 
particularly for the lower income and middle income part of 
America, that is not a decision they can really afford to make.
    Ms. Garrett. Actually the folks I am speaking of are middle 
income, are very much middle income. And one of the things that 
we do have going on that is outside of the discussion, but the 
housing market. I mean, I did a presentation in southern 
California recently, talking to a group of near retirees, and 
an individual said, I have got $400,000 of equity in my home 
and $100,000 in my retirement account and I want to retire in 3 
years. What should I do? And I said, move to Kansas.
    How else are we going to be able to make ends meet if we 
don't make those adjustments? Sometimes it may mean that we 
have to sell our home in a more expensive part of the country 
and relocate. You know, we have heard the term ``menu of 
pain.'' there are a lot of things that we are going to have to 
do as a country and we will have to do as citizens to be able 
to make ends meet. It is not going to be pleasurable, but it is 
all critical.
    Mr. Bachus. Okay. Thank you. Mr. Salisbury, do you have any 
comment?
    Mr. Salisbury. I just add a comment vis-a-vis the base, 
which is in the modeling we have done that is presented in the 
testimony, if one looks at somebody born in 1975 who is 30 
today, the current law maintenance of Social Security would 
produce an annual benefit of $11,200. Simply saying we are not 
going to raise taxes and doing a purposeful gradual reduction 
in the benefit formula would cause that person to get still 
$9,600, and that is essentially into perpetuity. That is not 
just 75 years.
    So I think per the discussion, one of the important 
messages that the Congress should be giving people and 
youngsters particularly is there will in fact be a program 
there, even if, in quotes, taxes are held at their current 
level. If you move to somebody born in 2015, their benefit 
under the current program would be $36,500 because of the 
current indexing formulas. Even with gradual reductions so that 
you did not increase taxes, that individual would end up with a 
benefit of $24,500 per year in today's dollars. And so----
    Mr. Bachus. Well, how much--they would pay in--there would 
be 12.6 percent of their wages would be paid in either by them 
or their employer, right?
    Mr. Salisbury. Absolutely. That would be. But I am just--I 
will go the next step, which is, I guess a family values issue, 
is I look at Social Security probably as the most effective, 
should we say, avoider of a divorce in America that could have 
ever been imagined. I view every dollar I pay in payroll taxes 
at this point because it is in supporting my mother, my father, 
my mother-in-law and my father-in-law. And as a practical 
matter, I would not want to have to sit down at the kitchen 
table with my wife of 31 years and negotiate those monthly 
transfers to my parents. So my rate of return, I will view my 
rate of return as 100 percent, and per your question of how one 
calculates.
    And as a matter of communication with young people, when I 
talk with their now both grandchildren and great grandchildren 
about this and you explain this to them in the context of what 
family transfer means and what the payroll taxes mean, as 
opposed to thinking of it, in quote, as an investment account.
    Your points are well taken. If one adds some type of a 
defined contribution account on top of whatever the Social 
Security benefit is, the individual is clearly--because that 
benefit as designed by most individuals talking about it would 
go to the individual. That is an individual account. It is not 
an insurance pooled arrangement, and it will definitively 
create a higher rate of return.
    Somebody who lives to 91 today gets a--or I--my genetics 
are such, I have an aunt at 105. I will probably live to a 
hundred. I will in fact get a far greater rate of return out of 
Social Security than the percentage that you cited.
    On the other hand, my grandfather on my mother's side died 
3 months after he began receiving Social Security. His rate of 
return was nowhere near what you just described, even though he 
died in 1954.
    So that is my only comment on the rate of return analysis, 
is averages can be very misleading. And that is an average 
return which is accurate in the way it is calculated, but it 
also, in comparison to an investment account, somebody with 
long longevity versus short longevity, it depends on how you do 
the calculation.
    Mr. Bachus. What about--you know, I am just looking at 
myself. I pay, you know, if you talk about it as an insurance, 
as strictly insurance as opposed to investment, I am paying for 
a million dollars worth of insurance. I am also, you know, 
paying into Social Security. What I pay in for that insurance 
costs much less--I mean, even an annuity. I will use that as an 
example. My father had Social Security. He had an annuity. He 
lived to be 87. But his annuity paid him within--well, I think 
the Social Security was $12,000 a month. His annuity was a 
thousand a month. But his annuity, he paid much less into his 
annuity and he only paid in for 15 years. And yet he got back 
almost the same thing.
    Mr. Salisbury. It would depend on what period. If you take 
the individual's 25 percent of today's retiree, his only 
benefit is Social Security, the annuity value for average life 
expectancy for that individual is about $250,000. You multiply 
that to the 24,000, roughly, 23 to 24, that is the maximum 
benefit, that annuity value at today's dollars is about 
$750,000. And you then have the disability issues, but you 
also, per my family point and others, if somebody lives to 91 
or 105, that throws off the calculation.
    So I think your point is the combination of thinking and 
dividing really what portion of Social Security does the 
Congress feel it is justified to maintain as a base benefit 
program in which rate of return really is not, in quotes, a 
relevant factor, versus what portion of the program would you 
want to move to, in quotes, an investment type of portion. And 
obviously, those can go from zero to 100 and in either 
direction as a matter of policy. And that is the challenge you 
and the Congress face.
    Mr. Bachus. Do you think that FDR, when he first proposed 
it, you know, as he proposed it, it was workers could take one 
out of every $100 they earned. Do you think he envisioned that 
as a system that would get up to 6 or $700 out of every dollar?
    Mr. Salisbury. I doubt that he envisioned any direction on 
it. As you know, the program was created because of the 
circumstances of the Great Depression. And essentially it was 
the only way to allow some people to move out of the labor 
force and retire. It was--in today's parlance, it was 
contemplated far more as, in quotes, a welfare benefit than it 
was the base retirement program.
    I would note, and just in the word context and some 
comments made earlier in the hearing, is essentially there is 
only one Social Security system in the world that is less 
generous than the United States and that is the United Kingdom. 
Every other system in the world is substantially more generous 
than the United States system. And the UK curve is about here. 
We are about here and everybody else is way up here. So it is--
and I only say that because of a statement earlier where 
somebody said that it was bankrupting many governments 
elsewhere in the world. They didn't mention Italy. They could 
have. They did not mention France. They could have. They didn't 
mention Germany. They could have. Those are all countries whose 
programs, judged against ours, are about three times as 
generous, therefore about three times as expensive.
    Mr. Bachus. Okay, let me ask you this. And I am just--you 
know Alan Greenspan said that in my judgment that the existing 
pay-as-you-go system is not working and we have to change it. 
Now, would you agree with that?
    Mr. Salisbury. I would agree that either benefits have to 
be cut or taxes have to be raised in the long term to make the 
program solvent. Absolutely.
    Mr. Bachus. Okay. Now, those are two options. I mean, raise 
taxes or cut benefits.
    Mr. Salisbury. Or raise retirement age. I mean it is a long 
relationship.
    Mr. Bachus. And actually, you know, President Clinton made 
a speech at Georgetown in 1998 and he actually said there are 
four things we can do. I don't know if you are aware of that. 
But one of them was he proposed getting a better rate of 
return.
    Mr. Salisbury. Well, he proposed moving the trust fund, in 
quotes, the trust fund assets and transferring them into a 
pooled investment fund that would be a diversified portfolio, 
frankly, not dissimilar to what President Bush is in fact 
proposing. The only difference is that the President currently 
is proposing what I will describe as a software overlay on that 
pooled investment account. And President Clinton did not 
propose that, in quotes, administrative overlay.
    But you are absolutely correct. What in essence they both 
are proposing to get a higher rate of return is essentially the 
same. The difference between the two proposals or the two 
Presidents and that speech and more recent speeches really goes 
to the issue of what you do vis-a-vis the benefit reductions. 
And as you point out, President Clinton did feel that all four 
of those approaches should appropriately be on the table.
    Mr. Bachus. All right. You mentioned raising the retirement 
age. The AARP is--you know, they have come out against raising 
the retirement age. They have come out against cutting 
benefits, as I understand it. And they have--I don't know what 
they have said about raising taxes. But what do you feel like, 
of those four options, what do you feel like----
    Mr. Salisbury. Well, I have actually--in the speech that 
the head of the AARP recently gave at the AARP, he actually 
mentioned all of those as possibilities and said they did not 
have a firm position on anything except not wanting an 
individual account as a carve-out. And they have said that they 
would be willing to have--they would support an individual 
account as an add-on, but the benefit reductions, in quotes, 
don't seem to have been put on that list.
    Mr. Bachus. What about----
    Mr. Salisbury. As a matter of many of the points raised 
earlier, the fundamental problem, vis-a-vis the 83 reforms or 
frankly earlier reforms is we are pretty bad at projecting 
anything for 75 years, let alone 50, versus 150. We have not 
accurately projected longevity. We have not accurately 
projected inflation. We have not accurately projected earnings 
rates. None of the above.
    So I think part of the dilemma, frankly, for the Congress 
is that the last panel said do it and do it forever. As a 
practical matter, I don't believe there is anything you can do 
that guarantees that it will be, in quotes, forever. And one of 
all of those assumptions that frankly there is the greatest 
probability that we are wrong about in current actuarial 
assumptions is longevity. The amount of money that this 
Congress, quite appropriately, in my personal view, is putting 
into biotechnology research, the National Institutes of Health 
and the drug research, we are spending huge amounts of the 
Nation's resources to assure that the actuaries are wrong. And 
in essence, the one factor that one might look back at what 
Franklin Roosevelt designed and say what might he have done 
differently.
    Well, the one thing I in hindsight would say he probably 
would have done would have been to index the retirement age to 
longevity if what was said earlier is true, that the reason for 
picking 65 was because half the people didn't live that long, 
or more than half. And if that is the case, then indexation to 
longevity would meet the primary objectives of the program. And 
then if you went the other step that was discussed in the last 
panel by members here, which was quite explicitly separating 
the disability and survivor benefit programs, so to speak, and 
figuring out what the appropriate benefit levels were for 
survivors and disability, having, in quotes, a separate 
retirement insurance program for a floor of income, and then 
per what you are describing, a tier equivalent to TSP, and you 
were then to index the life expectancy for purposes of that 
Social Security retirement tier.
    As many of those that have argued over the years against 
raising the retirement age, essentially, what that argument has 
most frequently been is because people become disabled, because 
people can't continue to work. You can't raise the basic 
retirement age. Essentially, you would manage that separation. 
The institute luckily just does numbers on all of these things. 
We have never been in a lobbying business and we aren't. So 
what I just said is my personal opinion as one who with genes 
that suggest I may be here till a hundred would have to say 
that it would be totally fair in my view for Congress to say 
that I should not receive Social Security benefits for 35 
years, and that maybe I should work a little bit longer, which 
is why I had no personal objection in 1993 to raising the 
retirement ages.
    I just couldn't quite figure out why such a modest increase 
was legislated. But that is a personal opinion.
    Mr. Bachus. Well, I can tell you that I have personally 
said that I believe raising the retirement age has got to be 
part of the solution because----
    Ms. Garrett. May I tack on, please? I wholeheartedly agree 
with what Mr. Salisbury just shared as far as longevity is our 
major risk. When the plan was instituted we died for the most 
part when the benefits began and that is why it worked. With 
demographics shifting as they are, with longevity increasing 
and medical science making that happen, we could be living in 
retirement 40 years or more. That is just what I am looking at 
personally. Imagine future generations.
    Mr. Bachus. You also had like 85 percent of the work force 
were men.
    Ms. Garrett. Exactly.
    Mr. Bachus. Now it is closer to 50 percent. And so they 
were not living as long as the work force is now because women 
are now living 16--the average woman lives 16 years pass 
retirement age.
    Ms. Garrett. As I mentioned earlier, I think it is critical 
that we fix this leg of the stool. I do not want to eliminate 
it in any way, shape or form. But some drastic measures are 
going to be necessary. And I believe from the younger people 
that I have spoken with, there is a lot more flexibility than 
may have been revealed as far as what we are willing to accept. 
You know, many of us are saying I don't expect anything out of 
Social Security other than to support my parents or my 
grandparents, and I proudly pay my Social Security taxes 
knowing that I am helping to take care of my parents because 
they took care of me.
    Well, if I knew for a fact that come age 75, 85, whatever, 
I was going to get a certain guaranteed amount of income for 
the rest of my days, I would very much be pleased with that 
result. That may mean that I am paying additional taxes. It may 
mean I am paying 100 percent taxes on any benefits that I 
receive. But it also will instill the fact that we all need to 
work longer, and I don't mean work in a horrible sense. But I 
believe that work, where it is being a vital, active, 
productive component of our society and our communities is part 
of human nature.
    It was only up until three generations ago that we even got 
this notion that it is healthy to retire in our 60s, that that 
was the objective. That was the definition of financial 
success, to retire before your parents.
    Well, our parents might have retired at 65, died at 75. 
They only spent 10 years in retirement if they lived that long. 
We are talking about, 20, 30, 40, who knows how many years in 
retirement? We need to raise that retirement age. I believe 
young people will support that, knowing that we would have that 
Social Security retirement benefit available when the time 
came.
    Mr. Bachus. Mr. Riemer.
    Mr. Riemer. The only thing I would say is that young people 
should also be offered a chance, I am not sure how you would do 
this, but some kind of dialogue about the retirement age. Offer 
them a chance on the alternative to pay into the system more 
and I think you might find that a lot of people would rather 
pay more and retire at the current age than retire at a later 
age. But again I think this is all a very reasonable discussion 
so----
    Mr. Bachus. Well, I would say that I think all of you have 
said and I think you are all right in saying that, you know, it 
will take several different things if we are to at least 
maintain the system with the benefits that they are promised 
today. I mean, would you all agree on that?
    Ms. Garrett. Absolutely.
    Mr. Bachus. And the solution is probably, I think, all 
those things ought to be on the table. But none of those things 
would solve the problem alone. I do believe the clearest thing 
you see as a difference between FDR's proposal, which was that 
people--the retirement age was a year shorter than--I mean that 
the life expectancy was a year shorter than retirement age and 
now it is a decade past retirement age. And if Mr. Salisbury is 
correct, in the one thing we may have underestimated is the 
number of retirees and how long they live, then our--with the 
present figures, we are saying that we are going to go from 3.3 
workers for every retiree, down to about 2.1, I think it is, 
even if we--with what is predicted now. So it could actually be 
worse than that.
    They are telling me that we need to clear the room for 
another hearing. And so does anyone have a--well, let me ask 
you this.
    Mr. Salisbury, I do think what President Clinton proposed, 
he proposed getting to the same place as President Bush as far 
as getting the rate of return up. Do you think that that is a 
sellable proposition, what President Clinton proposed as part 
of the solution?
    Mr. Salisbury. We have surveyed on both approaches, and for 
reasons that I have no ability to understand, and also 
Rasmussen Research very recently polled on the question, and it 
was a very neutral form of the question, and the public across 
all age groups is amazingly opposed to, in quotes, the 
government investing in the private sector, whereas when the 
other question asked, well, are you opposed to the government 
setting up individual accounts which will be invested in the 
private sector, the numbers go up markedly across every age 
group.
    As we say, for practical purposes it really is no different 
under the current proposals. But the public perception is that 
it is quite different. If all of you sat down, meaning both 
political parties, sat down at the table and the conclusion on 
a bipartisan basis was that that is what should be done, so 
that both political parties determined that that is what they 
were going to go sell the public as part of an overall package, 
then based on our surveys I have no doubt that that, as part of 
a total solvency package, could be sold in the same way, 
frankly, that any bipartisan package, as a practical matter, 
will be able to be sold if it is what both political parties 
and the President are out there saying.
    I believed the same thing when President Clinton was 
seeking to move Congress and the administration towards a 
consensus view. The important thing, frankly, far more than the 
pieces of the package, is the consensus that leads everybody 
arm in arm to say to the American public, this is what we have 
done and we have done it together and it is what is in the best 
interest of the program.
    I would just add a concluding comment back to the financial 
literacy subject, is that the tremendous strides that this 
committee, through the creation of the Assistant Secretary of 
the Treasury for this area, the creation of the Financial 
Literacy and Education Commission, its support of so many 
government programs in this area and the private sector 
developments is something you and the committee really should 
be heavily commended for because that is in the long term the 
primary tool that will make some of what has been discussed in 
this room today possible.
    In the absence of basic financial education, in the absence 
of higher literacy on such crucial issues as life expectancy, 
then all of these problems will be far, far greater for the 
Congress in the future. So if that is achieved it can make the 
amount of lifting and the frequency that you have to do the 
lifting a far more pleasant exercise.
    Mr. Bachus. I agree. And that was actually in the flat tax 
which I was the principal sponsor of that. And Mr. Riemer.
    Mr. Riemer. I just wanted to say that I strongly agree with 
what Mr. Salisbury said and we would support that as well.
    Mr. Bachus. Thank you. I very much appreciate all of your 
testimony and I think things that all of you have proposed 
probably should be on the table.
    Mr. Riemer. Thank you for your time.
    Mr. Bachus. Thank you.
    [Whereupon, at 1:55 p.m., the committee was adjourned.]


                            A P P E N D I X



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