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



 
               THIRD IN A SERIES OF SUBCOMMITTEE HEARINGS
                    ON PROTECTING AND STRENGTHENING
                            SOCIAL SECURITY

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 26, 2005

                               __________

                           Serial No. 109-19

                               __________

         Printed for the use of the Committee on Ways and Means









                                 _____

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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
PAUL RYAN, Wisconsin                 JOHN B. LARSON, Connecticut
ERIC CANTOR, Virginia                RAHM EMANUEL, Illinois
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                                 ______

                    SUBCOMMITTEE ON SOCIAL SECURITY

                    JIM MCCRERY, Louisiana, Chairman

E. CLAY SHAW, JR., Florida           SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   EARL POMEROY, North Dakota
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  RICHARD E. NEAL, Massachusetts
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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






















                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 19, 2005 announcing the hearing..................     2

                               WITNESSES

Rangel, Hon. Charles B., a Representative in Congress from the 
  State of New York..............................................     5
Shaw, Hon. E. Clay, Jr., a Representative in Congress from the 
  State of Florida...............................................     8
Cardin, Hon. Benjamin L., a Representative in Congress from the 
  State of Maryland..............................................    21
Johnson, Hon. Sam, a Representative in Congress from the State of 
  Texas..........................................................    22
Lewis, Hon. Ron, a Representative in Congress from the State of 
  Kentucky.......................................................    33
Weller, Hon. Jerry, a Representative in Congress from the State 
  of Illinois....................................................    35
Brady, Hon. Kevin, a Representative in Congress from the State of 
  Texas..........................................................    38
Ryan, Hon. Paul, a Representative in Congress from the State of 
  Wisconsin......................................................    40
Kolbe, Hon. Jim, a Representative in Congress from the State of 
  Arizona........................................................    46
Boyd, Hon. Allen, a Representative in Congress from the State of 
  Florida........................................................    47
Solis, Hon. Hilda L., a Representative in Congress from the State 
  of California..................................................    50
Thompson, Hon. Bennie G., a Representative in Congress from the 
  State of Mississippi...........................................    52
Conaway, Hon. K. Michael, a Representative in Congress from the 
  State of Texas.................................................    65
Spratt, Hon. John M., Jr., a Representative in Congress from the 
  State of South Carolina........................................    58
Gonzalez, Hon. Charles A., a Representative in Congress from the 
  State of Texas.................................................    63
Wasserman Schultz, Hon. Debbie, a Representative in Congress from 
  the State of Florida...........................................    65
Cleaver, Hon. Emanuel a Representative in Congress from the State 
  of Missiouri...................................................    68
Matsui, Hon. Doris O., a Representative in Congress from the 
  State of California............................................    71
Jackson-Lee, Hon. Sheila, a Representative in Congress from the 
  State of Texas.................................................    74
Fossella, Hon. Vito a Representative in Congress from the State 
  of New York....................................................    76

                       SUBMISSIONS FOR THE RECORD

Anderson, Donald, Harpswell, ME, statement.......................    78
Cluley, David S., Grand Rapids, MI, statement....................    79
Elia, Joyce R., Mission Viejo, CA, statement.....................    80
Krolick, Victor T., Orange, CA, statement........................    83
Pluta, Steve, Walnut Creek, CA, statement........................    83
Smith, Larrabee M., Holmdel, NJ, statement.......................    83
Swarthout, Matthew, Livonia, MI, statement.......................    87



















                   THIRD IN A SERIES OF SUBCOMMITTEE
                       HEARINGS ON PROTECTING AND
                     STRENGTHENING SOCIAL SECURITY

                              ----------                              


                         THURSDAY, MAY 26, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room B-318, Rayburn House Office Building, Hon. Jim McCrery 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                                CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
May 19, 2005
No. SS-3

                 McCrery Announces Third in a Series of

                Subcommittee Hearings on Protecting and

                     Strengthening Social Security

    Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Social 
Security of the Committee on Ways and Means, today announced that the 
Subcommittee will hold the third in a series of Subcommittee hearings 
on protecting and strengthening Social Security to hear the views of 
Members of the House. The hearing will take place on Thursday, May 26, 
2005, in room B-318 Rayburn House Office Building, beginning at 2:00 
p.m. or immediately following the conclusion of the full Committee 
hearing.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from Members of the House only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Subcommittee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    This hearing provides Members of the House the opportunity to 
testify on Social Security issues of importance to their constituents, 
including views on how to protect and strengthen this vital program.
      
    In announcing the hearing, Chairman McCrery stated, ``Social 
Security affects the lives of nearly every American, and the 
deliberation regarding its future is far too important for partisan 
politics. I look forward to working with all my House colleagues on 
this historic opportunity to thoughtfully and carefully consider all 
options to strengthen and update this essential program.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the views of Members of the House 
regarding how to protect and strengthen Social Security.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
June 9, 2005. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. For questions, or if you encounter 
technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman MCCRERY. The meeting will come to order. Good 
afternoon. Welcome to the third in our series of Subcommittee 
hearings on protecting and strengthening Social Security. 
Nearly 70 years ago, when President Franklin D. Roosevelt (FDR) 
signed the Social Security Act (P.L. 74-273) into law, he said 
this law, too, represents a cornerstone in the structure which 
is being built, but is by no means complete.
    Indeed, Social Security has become a cornerstone of 
protection against poverty for millions of Americans. Yet, 
without change, we can see that the security of Social Security 
is at risk due to our country's aging population. Americans are 
living longer, families are having fewer children. As a result, 
the number of people receiving Social Security is growing 
faster than the number of workers supporting the program, 
causing serious financial challenges in the years ahead.
    President Bush, like President Clinton before him, has 
traveled across the Nation to inform Americans about the fiscal 
challenges facing Social Security and the opportunities 
available to strengthen this vital program. I commend President 
Bush for his commitment and his leadership, and I commend every 
Member of Congress who has introduced a plan to save Social 
Security, or who has thoughts, willingly given at the hearing 
today, for their courage and foresight. President FDR had the 
foresight to view Social Security as a program that would 
change to meet the evolving needs of Americans. As Members of 
Congress, it is our duty to thoroughly and carefully examine 
all ideas to strengthen and update Social Security. We welcome 
all our colleagues' suggestions on how best to achieve that 
goal.
    We have a distinguished list of witnesses with us today. 
Mr. Shaw, if you want to go ahead and take your seat at the 
witness stand, we will get started as soon as I allow my 
esteemed Ranking Member, Mr. Levin, the opportunity to make 
opening remarks.
    Mr. LEVIN. Thank you, Mr. Chairman. I join you in saying 
this hearing is a good idea, and appreciating our colleagues 
joining us for this hearing. The more citizens have heard about 
the President's privatization proposals, the less they have 
liked them, and that has cut across all lines, including age. 
It is interesting in that regard, the Columbia Broadcasting 
System poll of today, I think, underlines that. This is what 
one of the releases says:
    ``It is a troubling sign for the President, those who have 
heard a lot about his Social Security plan, are the most likely 
to say it is a bad idea. Furthermore--and everyone should 
understand this--the more we Democrats have heard real-life 
experiences from our constituents, the more we have been 
determined to preserve Social Security, a guaranteed benefit 
for retirement, for disability, and for survivors. Now, some of 
the proposals, and we are going to hear some of them today from 
our colleagues, have been straightforward. Some of them would 
preserve Social Security and handle the issues in different 
ways. I will not comment on that now. Others have not been 
nearly as straightforward. Some have said they want to 
strengthen Social Security, when really the clear import and 
clear line of those proposals has been to replace Social 
Security.''
    My feeling is this: that it doesn't matter what kind of 
sheep's clothing you try to put on a wolf, it is still a wolf. 
Privatization is basically a wolf that, over time, would eat up 
Social Security's guarantee. The President's continued 
insistence--and he has repeated it in recent days--on 
privatization really stands in the way of a bipartisan effort 
to address the shortfall in Social Security. He made 
privatization in the State of the Union his first order of 
business. So, we Democrats have very much focused on it, with 
all of the benefit cuts and the borrowing, and we are going to 
hear from our Democratic colleagues underlining those very 
points. So, we welcome our colleagues here, and welcome the 
opportunity to hear further about their plans. Thank you, Mr. 
Chairman.
    Chairman MCCRERY. Thank you, Mr. Levin. First, the Ranking 
Member of the full Committee on Ways and Means, the Honorable 
Charles Rangel, who undoubtedly has much to offer in this 
debate and this effort to save Social Security, as our first 
witness. We welcome you, Mr. Rangel, and you may proceed as you 
prefer.

STATEMENT OF THE HONORABLE CHARLES B. RANGEL, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF NEW YORK

    Mr. RANGEL. Thank you, Mr. Chairman. I do hope I would have 
an opportunity at some point to be a part of the solution and 
not of the problem that we face with Social Security. I hope, 
further, that today, Thursday, May 26, a couple of minutes 
after 3:00 p.m., that maybe this Subcommittee can make some 
history. You said it was a serious problem that we face. There 
is no question that it is a problem. It is certainly not a 
problem that House Members and the Senate cannot fix.
    Recently the other body had a problem with judges and the 
filibuster. They won. They won because they decided to talk 
with each other. They did not make good judges bad or bad 
judges good, they did not take away the filibuster, they did 
not take away the problem, but they decided that the 
institution was so important that they were willing to talk and 
to compromise their positions to see whether or not they could 
work their way out of a bad situation that was moving toward 
the polarization that now exists in this House.
    In my 35 years as a Federal legislator, it never entered my 
mind that any party would ever think about touching Social 
Security unless it was in a bipartisan way. Why? It is a 
complex piece of legislation; whenever you pay more out than 
you take in, fixing it means somebody is going to lose. The 
loser should have at least the sense of confidence that it was 
not a partisan issue. The Republicans and Democrats tried to 
work it out the best they could. They wish we would have done 
better, but they knew we did our best. I do not think the 
American people can ask for more than that. I cannot think of 
anything that has been done since the President has made this a 
priority that would allow anyone to believe that he or the 
majority party intends to do anything in a bipartisan way, 
except we are prepared to accept Democratic ideas. You were 
present in the White House, Mr. Chairman, when the President 
said, or asked, that none of us be critical of his plan until 
he gets a bill together. Keep your powder dry.
    Now that has changed because clearly he is not going to 
give us a bill. The President had decided to go to 60 cities in 
60 days to sell private accounts and to be critical of those 
people that oppose private accounts. This is no way to create 
the atmosphere for bipartisanship. I do not run away from it, 
because being partisan does not annoy me; it is just that you 
cannot get the job done in that fashion, and that is the reason 
why we have this problem with the Central American Free Trade 
Agreement today.
    Having said that, what is the issue that encourages even 
more polarization and the failure for us to sit down and try to 
work this thing out? One would be the hearing today. There 
wasn't a lot of talk about what we intended to accomplish 
today, so that I could try to meet the Chair half way, knowing 
that there is a plan.
    Because, after 34 years, I do not want to be a part of 435 
people throwing plans around, when I belong to the awesome and 
powerful Committee on Ways and Means, where we do not just ask 
people for plans, we make things happen. We come from 
districts. We are appointed to this Committee because we have 
the--not the political courage, but we have the type of 
districts that allow us to make the hard decisions. That is why 
we are on the Committee, in part. So, I would have thought for 
the initial launching of exploring where we go from here, that 
bipartisanship would at least have been some part of it, 
something to hang your hat on, to say it was not enough, but at 
least they tried. So, that is behind us.
    So, from a very political point of view--since I don't have 
a lot of options left--what appears to be the major obstacle in 
us sitting down, not as Republicans and Democrats, and saying 
what can we do? It appears to me that it is private accounts. 
Now, the President has made it abundantly clear to me that as 
long as he is President he is going to be supporting private 
accounts. The President, as well as all of the witnesses that 
testified in front of the Full Committee, know that private 
accounts have nothing to do with solvency. But everyone 
recognizes that solvency is the issue that frightens the 
American people. Will they be able to continue to get their 
checks, and will those who follow be able to have their 
disability benefits, their survivor's benefits, and their 
retirement benefits?
    What a great coup you could have, Mr. Chairman, or the 
President, or the Chairman of the Full Committee, or the leader 
of the Majority party, in saying: We take this off the table. 
We are concerned with solvency. Now, let us get together and 
see what we can agree about, agree upon. But, if you decide 
that it is in the Nation's interest, the Congress' interest, 
the Majority party's interest, to proceed in the way that you 
have--in saying that private accounts will not dismantle Social 
Security, private accounts will not cost $2 trillion, private 
accounts are the same as thrift accounts, and the same thing 
you have everyone else should have--if we are going to go down 
this, we are just debating an issue that has nothing to do with 
solvency, then let us do it.
    If, on the other hand, there is an option where we can say 
we are going to work together, we are going to deal with 
solvency, and at some other time, if we want to have incentives 
for savings that are unrelated to Social Security, I think that 
makes a lot of sense. But since my time has run out, I thank 
you for the courtesy of the additional minutes. I thank you for 
this opportunity.
    [The prepared statement of Mr. Rangel follows:]
   Statement of The Honorable Charles B. Rangel, a Representative in 
                  Congress from the State of New York
    Mr. Chairman, thank you for holding this hearing. I think it is 
important that the Committee hear from members of the full House before 
we undertake the process of drafting and marking up a Social Security 
reform bill.
    I believe that the most important element of Social Security reform 
needs to be that we engage in a true bipartisan effort.
    Social Security is--or will be--central to the lives of nearly 
every American. If we don't do the job right, we'll hear from them. 
Indeed, we'll probably hear from them even if we do the job right. 
There is no pain free solution.
    We'll be able to make the tough choices required here only if we 
have the kind of atmosphere of trust and confidence in each other that 
a true bipartisan process can bring us.
    The major thing standing in the way of such an atmosphere--and thus 
standing in the way of progress on Social Security--is privatization.
    Privatization has its origins among conservative intellectuals 
looking for a way to replace Social Security. It requires deep benefit 
cuts. It requires us to borrow trillions of dollars for decades--on the 
promise that if we just leave the new system in place and untouched, 
we'll make up the losses fifty, seventy-five, or a hundred years from 
now. And it replaces guaranteed benefits with a guaranteed gamble.
    As important as it is to strengthen Social Security, our first 
priority must be to do no harm. And privatization would do grave harm, 
to Social Security and to our budgetary and economic future.
    Social Security does not face an imminent crisis. We have time to 
do the job right. We don't have to act for action's sake.
    If privatization remains the real goal for the President--and he 
personally has made it clear to me that it is--we have time to wait 
until he and the majority are willing to make saving Social Security 
the real goal.
    I urge my colleagues to drop privatization. And join with us in a 
bipartisan effort to save Social Security, instead of a partisan effort 
to replace it.
    However the majority chooses to proceed on the substance, I would 
ask that the Chairman continue with the process he has followed so far, 
and which this hearing is a part of.
    In 1983, the Committee on Ways and Means held 11 hearings on the 
recommendations of the Greenspan Commission. There were three full 
Committee hearings and eight days of hearings in various Subcommittees. 
These 11 hearings were in addition to general hearings on the problem 
that had been held earlier--the kind of hearings we are now having.
    These 11 hearings were followed by four days of Subcommittee mark-
up sessions on a draft bill, and then two days of full Committee mark-
up of the Subcommittee recommendations.
    We should follow that example and have hearings on various 
components of the Chairman's mark before we act on it. This issue is 
too important for the Committee to act without a full understanding of 
the legislation and its implications.
    If we do act without that understanding, we may not recognize the 
full nature of what we are voting upon. If we don't learn of problems 
until after the bill is law and the public begins to scrutinize it.
    Those of us who have served on the Committee for a while remember 
our experience with catastrophic health care. If we repeat that 
experience with Social Security, those who support the legislation may 
pay a heavy price.
    The need for such hearings is all the more important given the 
Chairman's intent to broaden the legislation beyond Social Security to 
address other critical retirement issues such as pensions, savings, and 
long-term care.
    I would suggest that we hold at least as many hearings after we 
unveil the legislation as we hold beforehand.
    I applaud the Subcommittee and full Committee Chairmen for the 
series of hearings they are holding. They are giving this subject the 
attention it deserves. I hope that the unveiling of legislation is only 
a stage of this process and not its endpoint.
    I would close by asking the Chairman if he and Mr. Thomas intend to 
hold hearings on the legislation they develop, or if they intend to 
push a package through without determining if it can withstand careful 
scrutiny.
    Thank you.

                                 

    Chairman MCCRERY. Thank you, Mr. Rangel. The Ranking Member 
of the Subcommittee and I talked before the hearing began, and 
it is our view that we should try to get as many Members 
through without questioning as possible, since there are votes 
which will occur fairly soon, and then some people probably 
want to go home. So, if it is okay with the Members of the 
Subcommittee, we will continue to hear from Members who are 
present who have asked to testify today. If you have just a 
burning question, I suggest you get my attention and we will 
certainly allow that. Otherwise, we will proceed and go to Mr. 
Shaw.
    Mr. HULSHOF. Mr. Chairman, would it be okay for Members 
then to insert statements, perhaps to respond to some of the 
questions or hypotheticals being proposed, so that we could at 
least go on record to explain, for instance what the Ranking 
Member just had to say; if I had a comment to that, could I 
insert that in the record?
    Chairman MCCRERY. Without objection. Any Member wishing to 
insert a statement in the record may do so.

STATEMENT OF THE HONORABLE E. CLAY SHAW, JR., A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF FLORIDA

    Mr. SHAW. Thank you, Mr. Chairman. I very much appreciate 
you and Mr. Levin having this hearing. I think it is going to 
shed a lot of light on the direction this Congress should go, 
as well as a light on some of the problems we have at this 
point in trying to work together as Republicans and Democrats. 
I do come to this table with a great deal of history behind me, 
having chaired this Subcommittee for 6 years. Going back a 
number of years, my good friend, Charlie Rangel, will certainly 
recall that he and I sat with Mr. Archer a number of years ago, 
following the White House conference, to solve the problem of 
Social Security, which I might say, that President Clinton not 
only attended, but he sat with us the whole day and we worked 
very hard to work together in a bipartisan way.
    None of us on the Republican side give any preconditions to 
sitting down with the President. We recognized that we were 
facing a huge problem, and we were ready to work with President 
Clinton, as President Clinton was certainly willing to work 
with us. I have long held the opinion that if it were not for 
the impeachment process that this House went through, that we 
would have accomplished this during the Clinton Administration, 
as President Clinton himself advised me on two occasions that 
he was ready to go forward. We never could, as Republicans, 
bring the Democrats aboard in order to accomplish this.
    Fact: in 2017, we are not going to have enough Federal 
Insurance Contributions Act (FICA) taxes coming in to pay 
benefits. Period. That is the end of the story as far as what 
the problem is. Fact: Social Security was created back when 
there were 40-some workers per retiree. Now we are down a 
little over three. Soon it is going to be two. Fact: two 
workers cannot produce enough FICA tax in order to take care of 
one retiree.
    So, what are we going do? To do nothing is simply to say, 
well, we are either going to have cut benefits or raise taxes, 
we are going to have to cut other Federal benefits or borrow a 
lot of money. Fine. If we go decide we are going to borrow a 
lot of money, we are going to have a $26 trillion shortfall 
over the next 75 years. That cannot sustain our economy. This 
country, with the great size of our economy, cannot sustain a 
$26 trillion shortfall.
    So, what do we do? We forget our kids? Do we forget the 
fact that they are going to be old, too? I talk to college 
students very often. The first thing I say is, you know 
something? You do not realize this, but someday you are going 
to be old. You are going to have to, all of your working years, 
pay into a pension system, a Federal pension system which is 
not going to be there for you unless your Congress acts in 
order to add something to Social Security. Now, the individual 
accounts, can they solve the problem with Social Security? Yes, 
if they are an integrated account. Integrated simply means that 
those accounts will be available down the road when the worker 
reaches retirement age. That is exactly what these accounts, 
all of those programs do that I know about.
    Do you have to dismantle Social Security or do you have to 
change it in any way in order to reach solvency? No, you do 
not. We heard in this room, 2 days ago, the Social Security 
actuary, Mr. Goss, testify that the plan that is before this--
the plan that I have before this Committee did reach solvency. 
In fact, over 75 years, it would even create a surplus. Create 
a surplus. Are you going to have to borrow in order to get 
there? Yes. Do you have to divert the FICA tax? No. I do not do 
that. I leave it totally alone. I can tell you, we can even 
improve the benefits that we have today in order to improve the 
benefits.
    I am feeling like a commercial. Wait, there is more. We 
increase the widow or widower's benefit of low-and average-wage 
couples by as much as 50 percent in my plan. For widows with 
disabilities, we help those with insufficient wages to qualify 
for the disability benefits. Divorced spouses, divorced women, 
no longer have to wait 2 years to receive spousal benefits of 
their ex-spouse if their ex-spouse marries somebody else. For 
working women it provides a child care credit equaling 25 
percent of the homeowner's previous wages up to 5 years. If the 
worker is carrying for a child aged six or under, this helps 
improve the benefits of persons who take time out of the work 
force in order to raise their kids.
    We hear an awful lot about this. For Federal workers, State 
and local workers, including the teachers, which we have heard 
a lot about, it reduces the Government Pension Offset of 
spousal benefits from two-thirds to one-third. This is 
something that our friends and the schoolteachers who have 
separate pension plans have been fighting for. It is in this 
bill, and this bill goes to solvency. We simply take an amount 
equal to 4 percent of the wages, up to a cap of 4 percent, and 
give a refundable tax credit which goes into to a pre-approved 
personal savings account, and the money is then invested. The 
savings account is chosen by the worker himself from a pre-
approved list. The money goes in there. Now, if the worker 
should die before retirement, it is inheritable wealth. What is 
wrong with that? Who can say that is wrong? We know right now 
that you, except for survivor benefits, lose anything that you 
paid into Social Security.
    Does this in any way affect the Social Security as it is 
today? No. When the worker retires, the worker retires; they 
are entitled to the higher of either existing benefits, which 
are guaranteed, or the amount that annuitizing their individual 
account would add to their retirement benefits. It is good. It 
solves Social Security for all time. But, I can tell you, 
though, to tell the President that he has got to drop his plan 
before the Democrats would sit down with him--that is 
ludicrous. Nobody is going to say I will abandon my plan if you 
come and talk to me. That is ridiculous. The Democratic Party, 
the great Democratic Party that was responsible--not for 
inventing, because other countries had Social Security before 
we did--but for bringing Social Security to this country in the 
mid-thirties, is now becoming part of no. That is too bad, 
because there are some great ideas on your side of the aisle, 
great ideas that should be brought forward.
    If we can stop the leadership of the Democrat Party from 
stonewalling us from coming up with a solution, then we are 
making progress. Groups that have opposed individual accounts 
have come out and said, well, if there are add-ons, we could 
agree we could possibly work with that. We have organized labor 
now that is beginning to look at it, with the Teamsters 
beginning to look at it. We are making progress; I can tell 
you, and I will say this to my Democrat friends, you are not 
going to be with us on the landing unless you are with us on 
the take-off. That is what you have got to do. Come aboard. 
Give us your ideas. Work with us and let us get this thing 
done. This is not about the next election. This is about the 
next generation. That is who we are working for, and that is 
who I am working my heart out to be able to say that I helped 
save Social Security for you kids now, that can you enjoy it in 
your old age just as I will enjoy it in mine
    [The prepared statement of Mr. Shaw follows:]
   Statement of The Honorable E. Clay Shaw, Jr., a Representative in 
                   Congress from the State of Florida
The Social Security Guarantee Plus Act of 2005, H.R. 750
    1.  Prepared Remarks of Chairman Clay Shaw on the Social Security 
Guarantee Plus Act of 2005
    2.  Why Social Security Must be Strengthened
    3.  Keeping Social Security's Promise
    4.  How the Guarantee Plus Plan Works
    5.  Increasing Protections for Today's Women
    6.  Enhancing Income Security for Minority Workers
    7.  Promoting Fiscal Responsibility
    8.  Questions and Answers

    Chairman McCrery, Ranking Member Levin, and members of the 
Subcommittee, thank you for the opportunity to talk with you today 
about the protecting and strengthening our Social Security system.
    Whether we live in prosperous or uncertain times, American families 
need economic security-- the kind of economic security that Social 
Security provides. For 70 years, Social Security has protected workers 
and their families from falling into poverty if a breadwinner retires, 
suffers disability, or dies. Social Security has endured, unlike many 
other government programs, because its architects designed it to be an 
earned right and to treat all workers fairly.
    Social Security has evolved over the decades, strengthening its 
protections and finances along the way. However, our nation's 
demographics and economics are fundamentally changing, and Social 
Security's ability to continue meeting its promises is threatened.
    President Bush has made it clear that time has come for an honest, 
straightforward, and realistic discussion about the future of the 
Social Security system. As the immediate-past Chairman of the House 
Subcommittee on Social Security, I have spent an enormous amount of 
time crafting a plan that would save Social Security for future 
generations. For the last six years, I have proposed the Social 
Security Guarantee Plus Plan (HR. 750), a measure that I originally 
created with then-Ways and Mean Chairman, Bill Archer.
    The Social Security Guarantee Plus Plan I reintroduced in February 
will enable Social Security to continue fulfilling its vital role in 
the lives of all Americans without touching the current Social Security 
system. In other words, my plan saves Social Security for the next 75 
years and beyond, without raising taxes, lowering benefits or changing 
the retirement age. And it creates a $3.1 trillion surplus for the 
government.
    First, the Guarantee Plus Plan keeps intact the Social Security 
safety net. Promised benefits, including cost of living increases, are 
guaranteed for people receiving benefits today, tomorrow and for all 
future generations.
    Second, the plan treats all workers fairly. Workers have paid into 
the system, it's their money, and we must protect and enhance their 
investment. It's not fair to workers to raise their payroll taxes or 
lower their benefits. Nor is it fair for the government to tell workers 
to work longer. That's why my plan does not raise taxes, does not lower 
benefits, and does not change the retirement age.
    Third, Social Security payroll taxes belong to the workers who paid 
them. My plan gives workers a real ownership stake in Social Security 
by allowing them to choose to receive a tax cut to invest directly in 
prudent, individually-selected, market investments. For the first time, 
a nation of savers, not the government, will own and control the assets 
backing Social Security. Should an individual die before becoming 
eligible, the balance of their money will be passed along to their 
heirs.
    Fourth, under my plan, Social Security can be counted on for the 
next 75 years, and beyond. Real assets guarantee current and future 
benefits, establishing a sound and sustainable financial footing. No 
longer will there be a need to periodically increase taxes or lower 
benefits to keep the program working.
    Beyond keeping these promises to all Americans, we must also do 
more to improve Social Security for the women of our nation. Because of 
their longer life expectancies and lower earnings, women are more 
likely to suffer poverty in old age. Social Security is a vital safety 
net for these women. In addition, because benefits are based on 
earnings, women are disadvantaged when they choose to stay home to 
raise their children. The Guarantee Plus Plan protects our daughters, 
our mothers, our aunts and our grandmothers, not only by securing the 
future of Social Security and guaranteeing full benefits, but also by 
enhancing benefits for widows, divorced spouses, and working mothers. 
These benefits become available immediately in my bill.
    Here's how the Social Security Guarantee Plus Plan works. The plan 
guarantees full, promised, current law benefits for all workers, 
whether you are 6 or 65. Just as companies must back your pension plan 
with real assets, the Guarantee Plus Plan saves Social Security by 
setting aside real assets, not IOUs, to pre-fund benefits. These assets 
are saved in each worker's own account, thereby providing workers the 
opportunity to create real wealth for themselves and their families.
    My plan is voluntary. Workers who choose to participate will 
receive a refundable credit of up to 4% of their earnings to establish 
their own Social Security Guarantee Account. Workers would have several 
prudent, approved options for investing their personal account funds. 
The money in these accounts would grow tax-free. No withdrawals would 
be permitted until a worker starts receiving benefits to ensure that 
the money is preserved for retirement.
    At retirement or when the worker becomes disabled, the worker will 
receive 5% of the Guarantee Account paid directly to the worker and the 
rest is used to help pay full, guaranteed Social Security benefits. But 
that's not all.
    In addition to the much needed improvements in benefits for women I 
mentioned, my plan eliminates the retirement earnings penalty for all 
workers age 62 and older and reduces the so-called Government Pension 
Offset affecting spouse and survivor benefits to certain government 
workers.
    Other plans may cost less, but that's because they cut benefits or 
raise taxes. If our goal is to pay full promised benefits, boost 
women's benefits, and return Social Security to financial independence, 
the Guarantee Plus Plan is the lowest-cost proposal to date. The 
Guarantee Plus Plan does all this and pays for itself over the seventy 
five-year actuarial period and creates a $3.1 trillion dollar surplus, 
and that's confirmed by the Social Security Administration's Office of 
the Actuary in the 109th Congress. Even under the most conservative 
estimates, the Guarantee Plus Plan allows the new Social Security 
system to generate surplus cash in the latter part of the century, 
actually adding black ink to the government's bottom line.
    My plan uses general revenues to fund the transition to a solvent 
Social Security program. Even assuming this money is borrowed, my plan 
pays back every borrowed dollar plus interest within the seventy five-
year evaluation period. My plan also requires that Social Security 
surpluses created by the plan be dedicated to reducing publicly-held 
debt. Not only would we pay off the mortgage on Social Security, we 
would leave workers with substantial account balances and the federal 
government with excess cash.
    The Guarantee Plus Plan also meets or exceeds all of the 
President's principles for reform-- pays promised benefits to retirees, 
near-retirees, and all workers; no tax increases; no government 
investing; fully preserves disability and survivor benefits; offers 
individually controlled, voluntary personal retirement accounts that 
will augment and ultimately save Social Security. In addition, my plan 
is consistent with the first option to establish personal accounts 
recommended by the President's Commission to Strengthen Social 
Security.
    President Bush has made the strengthening of Social Security now 
and for generations to come a top priority. Americans are showing their 
willingness to explore new ideas to strengthen this vital program, 
since the old ways must be improved upon for future generations. Now is 
the time for a straight-forward, honest and realistic discussion about 
the future of Social Security. The longer we wait to address the coming 
crisis, the more difficult and expensive the job will be down the line.
    From the time of Social Security's enactment until today, the 
history of the program's evolution has demonstrated that while 
everybody has his or her own ideas on how to strengthen the program, 
progress toward that goal is only achieved through bipartisan 
cooperation. It's long past time for us to lay all our best thoughts on 
the table and work together to build on our success to make a stronger 
Social Security system that is an asset to all and not a liability to 
our children and grandchildren.

                The Social Security Guarantee Plus Plan

                Why Social Security Must Be Strengthened

    Social Security can't cope with the upcoming demographic changes 
facing our country.
    People are living longer and families are having fewer children. 
That means the number of workers supporting each retiree will continue 
to fall. In 1945 there were over 40 workers for every retiree; in 1960 
there were 5 workers, and within a generation there will be only about 
2 workers for each retiree. Without changes to the system, Social 
Security will be unable to bear the burden of the demographic 
challenges as fewer and fewer workers pay into the system to finance 
the benefits of retirees.
    The President's Commission and Social Security Trustees from both 
Republican and Democrat Administrations agree--cash flow deficits start 
in approximately the next fifteen years.
    The 2005 annual report of the Social Security and Medicare Board of 
Trustees, and the 2000 Trustees report (whose trustees included the 
Clinton Administration's Treasury and Labor Secretaries plus the 
Commissioner of Social Security) concluded precisely the same thing as 
the President's Commission--that in approximately twelve years (2017 
according to the 2005 Trustees report) the system will face growing 
cash shortfalls.
    In 2041 the trust funds are projected to be completely exhausted, 
and the system will only be able to pay 74% of promised Social Security 
benefits, with even less of promised benefits payable in subsequent 
years.
    Without reform, we would need benefit cuts, tax hikes, increased 
borrowing, or cuts to other government programs.
    Between 2017 and 2041, government bonds credited to the trust funds 
will keep the system going. These bonds will be honored, but only by 
increasing federal debt, cutting other spending, or raising taxes, in 
the absence of budget surpluses. In 2017 the cash shortfall is 
projected to be about $9 billion, and by 2041 is projected to be about 
$358 billion (in today's dollars).
    The Social Security system is unfair to today's workers who already 
can expect only a low rate of return on their contributions. This rate 
of return is only expected to fall further in the future if we do 
nothing and there are no changes to the current system.
    Inaction is Social Security's greatest enemy.
    The longer action is delayed, the more the cost and the risk to 
Social Security increases.

                The Social Security Guarantee Plus Plan

                   Keeping Social Security's Promise

1. Preserves and Guarantees the Social Security Safety Net

      Fully preserves and guarantees Social Security benefits 
for life.
      Fully preserves and guarantees cost-of-living 
adjustments.
      Fully preserves and guarantees survivor and disability 
benefits.
      No exposure to individual investment risk.
2. Treats All Workers Fairly

      No tax increases.
      No increase in retirement age.
      No unfair burden on young and future workers.
      Eliminates the senior work penalty, helping seniors who 
want or need to work.
3. Worker Ownership

      Workers voluntarily elect an annual refundable income tax 
credit equal to 4% of wages up to $1,000, to be deposited in their own 
Guarantee Account.
      Workers--not the government--choose where to invest their 
retirement savings.
      Accounts may pass tax-free to the heirs of workers who 
die before retirement--creating real wealth for many for the first 
time.
4. Saves Social Security for 75 years and Beyond

      In the 109th Congress, the Actuaries of the Social 
Security Administration confirm the plan saves Social Security beyond 
current law (2041) and beyond 75 years.
      Updates Depression-era pay-as-you-go financing structure 
to reflect today's aging population, thereby placing Social Security on 
a sustainable path so there are no more threats of future tax hikes or 
benefit cuts every few years.
      Creates a saving plan within Social Security to pay 
future benefits.
      Real assets back benefits, not IOUs.
      Pays for itself and improves the government's bottom line 
in the long run.
5. Enhances Benefits for Women

      Increases widows' benefits.
      Expands eligibility for widows with disabilities and for 
divorced spouses.
      Helps eliminate the homemaker penalty experienced by 
women who choose to stay at home to take care of their children.
      Lessens benefit reductions applied to spouses who work 
for certain state and local government jobs not covered by Social 
Security.
6. Consistent with the President's Principles, the President's 
        Commission

      President--Guarantees promised benefits to retirees, 
near-retirees, and all workers; no tax increases; no government 
investing; fully preserves disability and survivor benefits; offers 
individually controlled, voluntary personal retirement accounts that 
will augment Social Security.
      President's Commission to Strengthen Social Security--
Consistent with the Commission's first option to establish voluntary 
accounts.

                The Social Security Guarantee Plus Plan

                   How the Guarantee Plus Plan Works

    The Social Security Guarantee Plus plan saves Social Security by 
updating the Depression-era pay-as-you-go financing system. Rather than 
just taxing workers more and more to meet benefit commitments, the 
Guarantee Plus Plan gives workers the opportunity to save money today 
to ensure payment of full promised benefits tomorrow without increasing 
payroll taxes.
    When benefits are funded in advance and take advantage of the 
better rates of return available in the equity and bond markets, less 
in taxes is needed to pay full benefits and the program's cash 
shortfall is eliminated, thus saving Social Security.
    For the first time ever, real assets will back benefits, instead of 
government IOUs that simply represent claims on future taxpayers.

    1) Each year (starting with 2005), workers who pay Social Security 
payroll taxes will receive a refundable tax credit equaling 4% of wages 
up to a cap of $1,000 (in 2005), with the cap indexed to annual 
increases in wage growth. The tax credit is automatically deposited 
into the worker's account.
    2) Workers will have a choice of qualified asset managers to invest 
their accounts. The investments would be required to meet safety and 
soundness standards. A Social Security Guarantee Board, composed of 6 
members appointed by the Board of Trustees and similar to the Federal 
Retirement Thrift Savings Board, will establish regulations for 
investment policies.
    3) Workers will have a choice of three investment mixes for their 
contributions-- 60/40, 65/35, or a 70/30 mix of equity index funds and 
high-grade corporate bonds. A nationwide education campaign will be 
launched to help workers learn about their options before they make a 
selection. Workers who elect to participate in a Guarantee Account but 
do not choose an investment option will be automatically placed in a 
standard investment option. Workers will be able to change their asset 
manager each year. Account earnings accrue tax-free. Accounts cannot be 
accessed for any reason prior to retirement or disability.
    4) Once a worker begins receiving retirement, disability or 
survivor benefits, the worker will receive 5% of the account balance to 
take as a lump sum. Social Security will calculate a monthly payout 
from the account based on the remaining account balance. The 
calculation accounts for expected future inflation, earnings on the 
account, and survivor benefits. Men and women are treated equally, even 
though women tend to live longer on average. Workers will receive the 
higher of their promised Social Security benefit or the payout based on 
the account. Nobody receives a benefit cut, regardless of how the 
account performs.
Workers are guaranteed the higher of the current-law Social Security 
        benefit or the annuity based on the account. Nobody receives a 
        benefit cut, regardless of how the account performs.
    5) Every month, the beneficiary will receive a single check from 
the Social Security Administration. Every month, the payout from the 
account will be transferred to the trust funds to help pay benefits. 
Even if the account is depleted while the individual is still 
collecting benefits, he or she will still continue receiving the full 
Social Security benefit. If the payout from the account is higher than 
the individual's promised Social Security benefit, then he or she will 
receive the higher amount for life.

      Workers who die before collecting benefits may leave 
their accounts to their heirs tax-free.
      Workers who outlive their account balances continue to 
receive full benefits financed wholly from the trust funds.
      Workers who are not eligible for Social Security once 
they reach full retirement age will receive their account balance as a 
lump sum.
      Workers who choose not to collect Social Security may 
leave their accounts to their heirs tax-free.

                The Social Security Guarantee Plus Plan

                Increasing Protections for Today's Women

    The Social Security Guarantee Plus Plan provides increased 
protection for women. It secures Social Security's finances, ensures 
full promised benefits and cost-of-living adjustments, and enhances 
benefits for widows, divorced spouses, and working mothers. Finally, 
the Guarantee Plus Plan strengthens Social Security without exposing 
women to individual market risk.
    Women are heavily dependent on Social Security benefits during 
retirement, because they often have little or no pension savings or 
other sources of income. In 2002, Social Security provided the only 
source of income for 29 percent of unmarried women age 65 and older.
    Several features of the Social Security program are important to 
women: lifetime benefits, inflation protection, a progressive benefit 
formula, and family benefits. The Guarantee Plus Plan fully protects 
these features of Social Security, ensuring women will be financially 
secure during retirement.
    In addition, the Guarantee Plus Plan improves benefits for women by 
increasing widows' benefits, providing credit for years spent out of 
the workforce caring for young children, and expanding eligibility for 
divorced spouses and disabled widows. These enhancements respond to 
trends in marriage, child-rearing, and labor force participation. Most 
importantly, they will help prevent more women from living in poverty 
in old age.
    Benefit improvements in the Guarantee Plus Plan:

      Widows--For all new and current widow beneficiaries in 
2006, increases widow(er)s' benefits from 100% of the deceased worker's 
benefit to 75% of the couple's benefit while both were alive, up to a 
maximum of the average retiree's full benefit amount, thereby 
increasing the widow(er) benefit of low-wage couples by as much as 50%.
      For widows with disabilities--For all new disabled widow 
beneficiaries in 2006, allows widows of any age with disabilities to 
qualify for benefits based on the deceased workers' earnings. This 
helps widow(er)s with disabilities who may have insufficient wages to 
qualify for disability benefits.
      For divorced spouses--For all new divorced spouse 
beneficiaries in 2006, divorced women would no longer need to wait two 
years to receive spouse benefits if their ex-spouse marries someone 
else.
      For working women--For all new and current beneficiaries 
in 2006, provides a child-care credit equaling 25% of the homemaker's 
previous wages for up to 5 years, if the worker is caring for a child 
age 6 or under. This helps improve the benefits of persons who take 
time out of the workforce to care for young children.
      For certain State, Local, and Federal workers, including 
teachers--For all new and current beneficiaries in 2006, reduces the 
Government Pension Offset (GPO) of spousal benefits from \2/3\ to \1/3\ 
of the pension from non-covered work. In December 2003, three-fourths 
of persons affected by GPO were women.
Enhancing Widow's Protection
    The Guarantee Plus Plan improves benefits for widows and enables 
more disabled widows to receive benefits. These provisions will help 
improve the economic security of elderly and disabled women. In 
addition, widows may inherit the Guarantee Account of their spouse, 
further increasing their financial security and retirement wealth.
    Widows are one of the largest and most vulnerable groups among the 
elderly beneficiaries. In 2002, 16% of elderly widows were in poverty, 
compared to only 10.4% of all the elderly. Widows and widowers with 
disabilities are especially vulnerable--their average monthly benefit 
was only $583 in December 2004, compared to $920 for aged widows and 
widowers and $894 for disabled workers.
    The Guarantee Plus Plan increases benefits for widows.
    Under Social Security today, widows receive benefits that are 
between 50% and 67% of the benefits the couple received when both were 
alive. The Guarantee Plus Plan would allow widows to receive either 75% 
of the couple's combined benefit before the worker died, or the average 
retired worker benefit, if lower. In no case would a widow receive less 
than under current law.
    Widows and widowers with disabilities receive additional benefit 
protections.
    Under current law, a widow with a disability may receive benefits 
if she is age 50-59 and became disabled within 7 years of her spouse's 
death. The Guarantee Plus Plan expands this protection by allowing 
widows with disabilities of any age to receive benefits, regardless of 
when the spouse died.
    Also, young widows who become disabled would be able to receive 
their widow's benefits earlier than age 50. The median family income 
for disabled beneficiaries under age 50 is about half the income of 
non-disabled workers. In addition, women who are not married and 
workers under age 40 have the highest poverty rates among the disabled. 
Around 36% of unmarried women who are receiving disability benefits are 
poor, and about one-half are poor or near-poor.
Providing Economic Security for Divorced Women
    Divorced women would no longer need to wait to receive spouse 
benefits if their ex-spouse maries someone else with two years. Under 
current law, in certain circumstances where the retired individual is 
working or hasn't started collecting benefits, women must wait two 
years after divorcing before they may receive divorced spouse benefits. 
The Guarantee Plus Plan eliminates this two-year waiting period when 
the ex-spouse marries someone else.
    Women would receive equal shares of the couple's contributions in 
the event of divorce. The contributions and accumulations to a couple's 
Guarantee Accounts during a marriage would be divided equally upon 
divorce as long as the marriage lasts at least one year. This 
recognizes that couples share assets during marriage, and that a lower-
earning spouse should not be penalized at divorce.
    Benefits for divorced surviving spouses could be higher than under 
current law.
    In addition to allowing divorced women to keep a portion of the 
Guarantee Account accumulated during marriage, the Guarantee Plus Plan 
increases widow's benefits to 75% of what the couple was receiving 
before the worker died, or the average retired worker benefit.
Enhances Benefits for Working Women
    The Guarantee Plus Plan enhances benefits for women who take time 
away from the workforce to raise young children and those whose jobs 
are not covered under Social Security. These provisions will help 
improve the economic security of women when they retire or if they 
become disabled.
    More and more, women are participating in the workforce. Yet, many 
must either reduce their work hours or withdraw completely for several 
years to care for their children. As a result, women have three times 
more years with no earnings and even more years of reduced earnings 
figured into their benefit amounts, which reduces their monthly 
benefits.
    The Guarantee Plus Plan would give a credit equaling 25% of the 
worker's average wages to a mother (or father) who takes time out of 
the workforce to care for their children age 6 or younger.
    Women with young children are less likely to work full time than 
other women. Only 65% of women with children under age 6 were working 
in 2000, compared with 79% with older children. The childcare credit 
helps insure these women continue to build Social Security benefits 
while performing this vital role in our society
    The Guarantee Plus Plan increases benefits for persons with 
pensions from work not covered under Social Security.
    Today, many women are dually entitled to benefits. They may receive 
their own Social Security worker's benefit, and if that is less than 
50% of their spouse's benefit, they receive the additional amount as a 
Social Security spousal benefit. However, if a spouse receives a 
pension from work not covered by Social Security, she is affected by 
the Government Pension Offset (GPO). Under the GPO, her spouse benefit 
is reduced by \2/3\ of the amount of her pension from non-covered work. 
Of those affected by the GPO, about three-fourths are women. The 
Guarantee Plus Plan would reduce the GPO offset to \1/3\ of the pension 
from non-covered work, and increase the benefits for about half of 
those currently affected by the GPO.

                The Social Security Guarantee Plus Plan

           Repealing the Earnings Penalty on Working Seniors

    In 2001, over 190,000 beneficiaries ages 62 and older had their 
benefits completely withheld at least one month because of wages higher 
than allowed under the earnings penalty. The earnings penalty was 
abolished for workers who reached the full retirement age (age 65-67, 
depending on year of birth) effective January 1, 2000.
    The Social Security Guarantee Plus Plan helps seniors by repealing 
the earnings penalty for workers ages 62 through full retirement age.
    Under current law, workers age 62 through full retirement age who 
earn more than $11,520 in 2003 have their benefit reduced by $1 for 
every $2 of earnings over that amount. The Guarantee Plus Plan 
gradually phases out the limit by 2009.
    Seniors who want to work should be allowed to continue working, 
even after they begin receiving Social Security benefits. Eliminating 
the earnings penalty will make it easier for seniors to work and 
contribute their experience and talent to the economy.

                The Social Security Guarantee Plus Plan

             Enhancing Income Security for Minority Workers

    The Guarantee Plus Plan guarantees full promised current law Social 
Security benefits, including disability and survivor benefits.

      About 40% of elderly African American and Hispanic 
beneficiaries rely on Social Security benefits for all of their 
retirement income.
      African Americans also disproportionately benefit from 
the disability and survivor's benefits. In 2002, about 13 percent of 
the population was African American; however, 17 percent of disabled 
workers receiving benefits were African American.
      In addition, African Americans make up approximately 13 
percent of the American population, but about 23 percent of all 
children receiving Social Security survivor benefits in 2002 were 
African American.
      The Guarantee Plus Plan guarantees Social Security can 
continue to provide income security to African American and Hispanic 
workers and their families without any benefit cuts or tax increases.

    In addition, the Guarantee Plus Plan provides all workers the 
opportunity to accumulate financial assets and build inheritable 
wealth.

      This is particularly important to African American and 
Hispanic workers. In 2000, African Americans had a median net worth 
(excluding home equity) of $1,166, and Hispanics had $1,850, compared 
with $13,473 for all families.
      The Guarantee Plus Plan creates wealth by letting workers 
keep 5 percent of the account balance at retirement and using the rest 
to fund guaranteed current law benefits, regardless of the how the 
investments performed.
      Workers who die before receiving retirement or disability 
benefits may leave their account balances to their heirs. This is 
especially important for minority workers who have less wealth, lower 
earnings, and shorter life expectancies than other workers. In addition 
to inheriting the account balance, survivors still receive full 
benefits promised under current law.
      Minorities would also benefit from enhancements included 
in the Guarantee Plus plan, such as increased benefits for widows 
(including disabled widows), divorced women, workers with pensions from 
work not covered under Social Security, women who take time out of the 
workforce for childcare, and workers who continue to work after 
retirement.

                The Social Security Guarantee Plus Plan

                    Promoting Fiscal Responsibility

    For the past two-thirds of a century, Social Security has 
essentially operated on a pay-as-you go basis-- payroll taxes coming in 
go right back out in the form of benefits. That worked fine around the 
time Social Security began and there were 42 workers supporting every 
retiree. However, people are living longer, families are having fewer 
children, and the number of workers supporting every retiree is 
declining. Soon after baby-boomers start retiring, there will be only 2 
workers supporting each retiree. That means there won't be enough 
payroll taxes coming in to pay full benefits. Like individual families, 
the great American family needs to start saving for the future.
    The Guarantee Plus Plan is fiscally responsible.
    The Guarantee Plus Plan temporarily uses general revenues to 
establish personal accounts and pre-fund benefits. While this 
investment in Social Security's future requires more funds up-front 
than current law, it ultimately saves the government money. Over time, 
it reduces the amount of payroll taxes needed to pay benefits and 
permanently fixes Social Security's finances.
    The Guarantee Plus Plan makes Social Security a budget priority.
    Some say we cannot afford to save Social Security because of budget 
deficits. I say we cannot afford not to, and we must make Social 
Security a budget priority.

      Just like families who set aside funds or borrow to 
invest in a new home or start a business, my plan sets aside assets 
today to ensure a financially sound Social Security in the future.
      If we do not make Social Security a budget priority, 
those who depend most on Social Security would face a bleak future. 
Without any changes, benefits would be cut by 26% when the trust funds 
are exhausted in 2041, increasing to a 32% cut in 2079. Social Security 
payroll taxes would have to increase 34% in 2041, growing to nearly a 
46% increase by 2079 in order to keep paying promised benefits.
      If we do not invest in Social Security's future, we would 
also miss the chance to provide larger and fairer benefits to women and 
low-wage workers and give our kids and grandkids the peace of mind that 
Social Security is there for them.
      By saving assets to pay benefits and enabling workers to 
build real wealth, the Guarantee Plus Plan ensures Social Security 
remains as successful as it has been in the past in helping to provide 
an adequate income for retirees, disabled workers, and survivors 
without putting an undue burden on our kids and grandkids.

                The Social Security Guarantee Plus Plan

                         Questions and Answers

Fiscal Responsibility

    We are now facing budget deficits for several years. Wouldn't this 
plan require the government to borrow extensively or require steep tax 
increases?

      Some plans address Social Security's future cash 
shortfalls by cutting benefits, raising taxes, using general revenues, 
or a combination of these options. Temporarily using general revenues 
is preferable to raising payroll taxes or cutting promised benefits. 
Those who criticize using current Social Security surpluses or general 
revenues need to explain how they would save Social Security forever 
without cutting benefits. Giving workers the opportunity to save money 
through personal accounts that will back up Social Security benefits 
with real assets is not a ``cost,'' but an investment in a fiscally 
sound Social Security program.
      Social Security faces significant financial challenges 
whether or not the rest of the federal budget has surpluses or 
deficits. Any plan that saves Social Security addresses one of the 
greatest long-term fiscal challenges the federal government faces.
      General revenues should go towards securing the program 
by saving today to pay for future benefits and avoid raising taxes on 
our kids and grandkids.
      The Guarantee Plus Plan would use general revenues only 
during a transitional period, until the accounts are firmly 
established. Ultimately, the Guarantee Plus Plan, including 
contributions to Guarantee Accounts, returns the system and the trust 
funds to self-sufficiency. By the end of the 75-year estimation period, 
even if needed funds are borrowed, the plan repays all funds and begins 
generating excess cash to plump up the government's bottom line.
      Borrowing money to secure Social Security through 
personal accounts means that for the first time, the government will be 
using the funds to create a nation of savers rather than paying off the 
spending bill of the federal government. Also, even if the government 
had to temporarily borrow the funds to establish personal accounts, the 
effect on the economy would be neutral. $1 of government debt would be 
offset by $1 of worker savings and assets in the private market.
      Doing nothing potentially commits the government to 
borrowing $36 trillion (in 2004 dollars) by 2079 just to maintain 
current benefits, with debt continuing to grow each year thereafter. 
Unlike any temporary borrowing for personal accounts, this additional 
government debt buys no fiscal security for Social Security, does not 
strengthen the safety net, and does not provide more equitable benefits 
for women.
    Isn't investing under the Guarantee Plus Plan more inefficient than 
similar investing through the trust funds?

      Not necessarily. The Guarantee Plus plan provides for low 
administrative costs that are capped at \1/4\ of 1 percent of the 
account's assets. This ensures that returns on investments are not 
consumed by high administrative costs.
      Alan Greenspan has said of investment through the trust 
funds ``. . . [I]t would be exceptionally difficult to insulate the 
government's investment decisions from political pressures. Thus, over 
time, having the federal government hold significant amounts of private 
assets would risk sub-optimal performance by our capital markets, 
diminished economic efficiency, and lower overall standards of living 
than could be achieved otherwise.'' (Hearing before the Committee on 
the Budget, U.S. Senate, January 25, 2001.)
      Government investment denies workers the right to pass an 
account on to heirs in cases of death before retirement and the 
opportunity to accumulate additional wealth by keeping a portion of 
their account upon retirement, all of which the Guarantee Plus Plan 
provides.

    There is no such thing as a free lunch. How can this plan guarantee 
at least current law benefits, improve benefits for women, restore 
Social Security's solvency, and increase budget surpluses?

      The Guarantee Plus plan relies on general revenues to pay 
for the baby boom transition and fund the savings accounts that secure 
the system. These funds are in high demand to pay for other priorities, 
such as Medicare, national defense, and education. The Guarantee Plus 
Plan makes Social Security a priority by putting aside money, without 
any excuses, like smart families do when they plan for their 
retirement.
      If we do not start saving now, the alternatives would 
have devastating consequences for those who depend most upon Social 
Security for retirement income and upon future workers.
      By starting to save now, we will help ensure Social 
Security remains as successful as it has been in the past in helping to 
provide an adequate income for retirees, disabled workers, and 
survivors without putting an undue burden on our kids and grandkids.

    If the investments do not perform as well as expected, will the 
program still be solvent, or will people face benefit cuts or tax 
increases?

      Under the Guarantee Plus Plan, the trust funds are never 
exhausted even if total returns are about one-fifth lower than what is 
expected.
      Since the Guarantee Accounts would be invested and drawn 
down over several decades, annual fluctuations will smooth out over 
time and are expected to provide a sufficient rate of return to ensure 
solvency for 75 years and beyond.

    Since the government would pay current law benefits regardless of 
the Guarantee Account's performance, wouldn't workers have an incentive 
to take too much investment risk and leave the government holding the 
bag?

      No. Investment options under the Guarantee Plus Plan 
would be required to meet high standards for soundness and would be 
approved by the Board that administers personal accounts, similar to 
the savings plan federal workers and Congress enjoy. Workers would have 
a choice of a 60/40, 65/35 or 70/30 mix of stocks and bonds. The 
investments would be indexed funds that diversify risk. Therefore, 
workers could not gamble on individual high-risk stocks at the 
government's expense. Also, though workers would receive their full 
Social Security benefit regardless of the Guarantee Account's 
performance, they would still have to consider how their investment 
choices would affect the lump sum paid from the account at retirement 
or the balance that could be passed to heirs in cases of death before 
retirement.
Nature of the Guarantee Plus Plan

    Won't the Guarantee Plus Plan lead to substantial weakening of 
support for Social Security, since some higher-wage workers would see 
little difference between the payment from their Guarantee Accounts and 
the benefit level to which they are entitled?

      No. The Guarantee Plus Plan will lead to even greater 
support for Social Security, since workers at all wage levels would be 
better off than under current law. Workers who collect benefits will 
receive a lump sum payment that they may use as they wish. Workers who 
die before collecting benefits will have an account to bequeath to 
their heirs.
      Higher taxes and lower benefits, the inevitable 
consequence of delay, would further erode public support for Social 
Security, not only among wealthier taxpayers, but also lower-income 
workers who would fare worst if we do not act now to sustain promised 
benefits. Under that scenario, workers, retirees, or both would be 
worse off than under current law.
    Won't the Guarantee Plus Plan expose retirees to unnecessary risk?

      No. The real risk is doing nothing. By foregoing 
proposals like the Guarantee Plus Plan, we

         Risk driving the system into insolvency
         Risk not enhancing benefits for women
         Risk not giving low-wage workers bigger savings accounts
         Risk not strengthening the social safety net
         Risk not providing retirees with lump sum payments to ease 
        retirement needs

      The Guarantee Plus plan shields everyone from individual 
investment risk by guaranteeing current law benefits regardless of how 
their investments perform.
      The plan requires workers to invest in broad equity index 
funds and high-grade corporate bonds. These are not high-risk 
investments, especially over the long term.
      Maintaining the current financing structure is much 
riskier, because benefits must be cut or taxes must be raised to keep 
the system solvent.
Individual Impacts

    Can the elderly and poor be taken advantage of under this plan?

      Absolutely not. The refundable credit is given to all 
workers electing to participate in Guarantee Accounts and must be 
invested with mutual funds and other financial institutions meeting 
strict stability and soundness standards. Moreover, Guarantee Accounts 
must be invested in a diversified mix of equity index funds and high-
grade corporate bonds. These safeguards are designed to protect workers 
who do not have experience with market investments.
      Regardless of the Guarantee Account's investment 
performance, workers will receive their full promised benefits from 
Social Security.

Social Security benefits today are tilted toward low-income families. 
        Won't the Guarantee Plus plan just maek the rich richer?

      No. The Guarantee Plus Plan ensures full promised 
benefits using today's formulas, so that it maintains the exact same 
protections for low-income workers as the current system.
      The Guarantee Plus Plan contributes a larger percentage 
of wages to the accounts of low-wage workers than to high-wage workers, 
enabling them to build wealth more quickly. The Guarantee Plus Plan 
also gives low-income families an opportunity to invest in stocks and 
bonds, many of which would have no other opportunity. In 2000, only 
about 9% of families with income in the lowest one-fifth of all 
households owned stocks and mutual fund shares, compared with 27% of 
households at all income levels.
      In addition, the Guarantee Plus Plan would help low-
income workers, who tend to have shorter life expectancy, to create 
wealth they could pass along to their children if they die before 
receiving benefits. This would be in addition to current-law survivor 
and disability benefits.
      Moreover, maintaining Social Security's current financing 
structure would require large tax increases or benefit cuts. These tax 
increases or benefit cuts would hurt low-income families the most. The 
Guarantee Plus Plan avoids that entirely.

    Won't this plan hurt women, minorities, and other low-income 
workers whose account contributions--amd thus balances at retirement--
will be lower?

      Absolutely not. The whole point of the Guarantee Plus 
Plan is that no one is ``hurt'' compared with current law. The 
progressive benefit structure remains intact and the plan avoids the 
benefit cuts or tax increases that would particularly hurt women and 
low-income workers the most.
      In fact, the Guarantee Plus Plan enhances benefits for 
divorced and elderly women, who have higher than average poverty rates.
      The Guarantee Plus Plan also contributes a larger 
percentage of wages to the accounts of low-wage workers than to high-
wage workers, enabling them to build wealth more quickly.
      In addition, all workers would be entitled to keep 5% of 
their account balance at retirement or disability. Therefore, everybody 
will be better off under the Guarantee Plus Plan and nobody will be 
worse off.

    Since women and minorities are more risk averse, wouldn't they be 
disadvantaged by lower account balances?

      No. First, low-wage workers will receive contributions 
that are a larger percentage of their wages than higher-wage workers. 
Second, all workers would invest their Guarantee Accounts in a prudent 
mix of equity index funds and high-grade corporate bonds.
      With promised benefits ensured, all individuals, not just 
the wealthy, can build wealth without worrying about the risks.
Investment Safeguards

    What will happen to Social Security if the stock market declines?

      Beneficiaries will not be affected, even if an individual 
retires during a market downturn, because current promised benefits are 
paid regardless of individual market returns.
      Depositing and withdrawing contributions over long 
periods of time (also known as dollar cost averaging) is a proven way 
of building wealth and minimizing the effect of short-term fluctuations 
in the private market. Moving toward a system in which some benefits 
are paid for ahead of time will only improve Social Security's 
financial outlook.

    Wouldn't the large infusion of money into the stock market affect 
stock prices?

      A General Accounting Office Report states that equity and 
bond markets should be able to absorb the additional inflow without any 
significant long-term disruptions of either market. This is because the 
annual deposits would be only a small fraction of the equity and bond 
markets as a whole (1% or less).
      Government investment of the same funds, however, would 
very likely result in negative economic effects according to the 
Federal Reserve Chairman, Mr. Greenspan.
Efficient Administration to Control Costs

    Won't administrative cost hurt low-income workers with small 
account balances?

      No. Under the Guarantee Plus Plan, administrative costs 
of the Guarantee Accounts are limited to \1/4\ of 1 percent per year 
(25 cents of every $100 invested). Social Security's actuaries say this 
is ``reasonable'' given how the accounts are designed.
      Costs are controlled by: (1) utilizing current tax 
collection and benefit administration systems; (2) keeping investment 
options and procedures simple and straightforward; and (3) pooling 
account balances before they are allocated to accounts.
Personal Accounts: Money for families when they need it most

    How does the Guarantee Plus plan treat balances remaining in the 
worker's account at death?

      If the worker dies prior to collecting benefits, the 
worker's Guarantee Account passes tax-free to the worker's estate. Once 
the Guarantee Account passes to a worker's heirs, they are free to 
spend it as they see fit.
      Workers who retire or are disabled receive a lump sum of 
5% of the account's balance when benefits start. The remaining balance 
is used solely to help pay full Social Security benefits, both for the 
worker and his spouse. Balances in a beneficiary's Guarantee Account 
after both the beneficiary and spouse die go to the Social Security 
program, just like ``unused'' Social Security taxes benefit the program 
today.

    If the government effectively uses most of the account balance to 
pay benefits, why should a worker care how this money is invested 
during or after his working years?

      Depending on investment performance, the Guarantee 
Accounts may result in the worker receiving larger retirement benefits 
than under current law. Also, the 5% lump sum paid at retirement could 
be significant. It might pay off a mortgage, buy a new car, or fund 
health insurance benefits.
      Also, workers who die before receiving benefits will have 
larger accounts to leave to their heirs if they invest wisely.

                                 

    Chairman MCCRERY. Thank you, Mr. Shaw. Next, the Ranking 
Member of the Subcommittee on Trade of the Committee on Ways 
and Means, a gentleman who has worked long and hard on the 
issue of retirement security, particularly in the pension area, 
Mr. Cardin.

STATEMENT OF THE HONORABLE BENJAMIN L. CARDIN, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF MARYLAND

    Mr. CARDIN. Well, thank you very much, Mr. Chairman. I have 
a full statement that I will put in the record, and I will just 
summarize it. Let me just say in response to Mr. Shaw, I also 
talk to college students. I tell them that Social Security will 
be there when they retire. I think our goal should be to make 
sure that Social Security is as strong for our children's and 
grandchildren's generations as it was for our parents' 
generation. We shouldn't be weakening it; we should be 
strengthening Social Security.
    Social Security is very important. It represents a core 
basic retirement amount that is guaranteed for life, inflation 
proof, and it will be there. It is not enough for a person to 
live on when they retire, but it is a core amount, 
approximately one-third of their final income. Forty-eight 
million Americans depend upon Social Security for retirement, 
for annuity and death benefits, and for survivor benefits. The 
current financial circumstances of Social Security are not, as 
described by the President, in crisis or heading for 
bankruptcy. I think we do a disservice to the Nation when we 
use those terms. There are enough funds in Social Security to 
guarantee benefits for 36 years. We know that. We know that. It 
is not the same challenge that we have in dealing with the 
budget deficit. That is in crisis. Or the trade deficit. That 
is in crisis. Or our savings deficit. That is in crisis. Or 
financing of health care. These are issues that do demand 
immediate attention.
    I will tell my friend, Mr. Shaw, I am not so sure I want to 
be there on the take-off, if we are going to have a crash 
landing on Social Security. That is where I think the President 
is heading. The reason that we are concerned about the 
President's proposals for private accounts within Social 
Security is that they would move the program in the wrong 
direction. We want to move in the right direction. It is hard 
to move in the right direction when you hasten insolvency by 11 
years by diverting money from the Social Security Trust Fund. 
We want to work to strengthen Social Security. That is a 
reasonable request for this Congress, to strengthen Social 
Security.
    I agree with the Chair that it is easier to handle the 
issue now than it will be 10, 20, or 30 years from now. Yes, we 
should be talking about ways that we can strengthen Social 
Security. We should be working, Democrats and Republicans, as 
Mr. Rangel has pointed out, to deal with proposals that will 
strengthen Social Security. There have been proposals that have 
been made by both Democrats and Republicans. I might say one of 
the first proposals that we should act upon, that Democrats and 
Republicans have talked about, is tell the trustees to act as 
fiduciaries and take control of the trust funds. Then you can 
use with confidence the 36 years that the money will be there, 
because the trustees will have control over the money, and it 
won't be used to commingle with our other spending, and make it 
easier for us to spend it without paying for our current needs 
today.
    That is one proposal that we all should be willing to 
embrace: allow the Trustees to be fiduciaries. You tell me one 
fiduciary who wants to invest solely in nonnegotiable 
government bonds. We should talk about a diversified portfolio 
for the benefit of the beneficiaries, with the trustees taking 
control of the funds. There are other proposals out there that 
are bipartisan. We understand that you need to increase savings 
in retirement. Former Congressman Portman and I worked with 
other Members of this Committee to provide more opportunities 
for people to have greater retirement savings, particularly 
lower-wage workers. That is where our focus needs to be. Yes, 
we can work together, Democrats and Republicans, on these 
proposals that will extend the strength of Social Security.
    When you ask us to make Social Security less relevant to 
future generations than it has been to prior generations, or to 
this generation, then I must tell you--I can speak for this 
Member--I do not want to be a part of that. I want to be part 
of a solution that strengthens Social Security and makes it 
just as relevant to future generations so that we do have that 
guaranteed core retirement benefit, so that we do have survivor 
benefits, and so that we do have benefits for disability.
    I am worried that when you head down a path and start to 
tell Americans, you are on your own, you can provide for your 
own retirement through private accounts, that we are going to 
compromise a program that has worked so well for this Nation. 
With minor adjustments, and by working together, we can make 
sure that Social Security is there for future generations. 
Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Cardin. Next is a Member 
of the Subcommittee, and also a Member of the full Committee, 
Sam Johnson from Texas. Mr. Johnson has a plan that he has 
introduced. Mr. Johnson, you may proceed.

  STATEMENT OF THE HONORABLE SAM JOHNSON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate you all 
for being here to hear the testimony of all of the House 
Members who want to share our views on the reform of the Social 
Security system. I think Mr. Shaw is absolutely correct in 
saying that we have a problem and we can fix it. I can also 
tell you that we are ready to fix it, too. My bill is the 
simplest, least expensive way to strengthen Social Security out 
there.
    Social Security, as you all know, was created in the 
thirties, and I don't believe the same system can be expected 
to perform well for those who are working and paying taxes 
today and who will retire in the 20thirties. You are talking 
about 100 years since it was created. It is antiquated. We have 
got to fix it. Young people need to build a nest egg, not build 
expectations in a program that cannot deliver for them. The 
only way to fix that system is through personal retirement 
accounts, not private accounts; personal retirement accounts.
    When I am at home in Texas at townhall meetings, I talk 
with my constituents about the money they pay to Social 
Security. I ask them, is it your money, or is it the 
government's money? Nearly every one of them says, it is my 
money. Well, fellow Committee Members, I know you know that the 
Supreme Court declared that it is the government's money, and 
that when 12.4 percent of payroll taxes are taken from each and 
every paycheck, that money is not set aside in an account for 
each person; it is the government's money, it is controlled by 
the government, and they may or may not give it to you.
    This has to change. That is why I have introduced H.R. 530, 
the ``Individual Social Security Investment Program Act of 
2005,'' with my colleague, Representative Jeff Flake of 
Arizona. So, my bill puts Social Security on sound financial 
footing right around the time the critics of reform are willing 
to acknowledge that we have a problem. The Social Security 
actuaries determined our bill permanently fixes the funding 
problems of the Social Security system at about half the cost 
of letting the current system roll forward without change. The 
current system is about $12 trillion in debt, and, as Mr. Shaw 
indicated, it is going to cost about $26 trillion over 75 years 
to fix it.
    In comparison, my bill would cost about $6 trillion to 
implement, and ultimately creates a surplus. Aside from being 
the most affordable way to strengthen Social Security, there 
are several points I would like to share with you.
    First, it is the simplest. The premise is, let's share: 
half to the government, half to you. Each person keeps half of 
their 12.4 percent they pay in a payroll tax for a personal 
retirement account. The government takes the other half to fund 
existing benefit promises to those over 55, disabled, widows, 
and orphans. The Johnson-Flake bill will put real money into 
real accounts to better meet the retirement expectations of all 
Americans.
    Second, what sets this bill apart from others is that it 
has a fully tradable recognition bond. This bond gives each 
person the Social Security benefits they have earned so far. 
The bond is a zero-coupon bond. That means that the interest 
payments are included in the face amount. These bonds can be 
held until maturity (the individual's 67th birthday), or they 
can be traded earlier on public markets. If they trade them 
early, the proceeds of the sale must be deposited into a 
personal retirement account. Clearly those who have worked many 
years under the current system will have a larger recognition 
bond that will be the biggest part of their retirement benefit. 
Younger people, who have only worked a few years in the current 
system, will have a smaller recognition bond, but they will be 
able to contribute 6.2 percent of salary for their whole 
working career. For them, the miracle of compound interest will 
do the rest. These bonds will help ensure that older Americans 
will be able to buy an annuity for their retirement income and 
still have assets to leave to their loved ones. In short, these 
bonds and accounts are inheritable.
    Third, my bill makes sure that people have money for 
retirement by requiring that every person who opts into 
personal retirement accounts buys an annuity. This way, we will 
be sure that every senior retires with income for life. Fourth, 
the bill has a safety net, known as a minimum benefit 
guarantee, to protect people who have worked hard but for one 
reason or another are not able to accumulate enough in an 
account. In that case, the government will top off their 
account. Fifth, my bill will continue to grow traditional 
Social Security benefits and cost-of-living adjustments for 
retired Americans at the rate of inflation. Again, benefits 
continue to grow under my bill. This is an important provision 
because it will bring expectations of Social Security more in 
line with what can actually be paid.
    I find it irresponsible to continue to hold out the promise 
of benefits that we know we cannot afford. My constituents 
support me on this point for being direct with them. I look 
forward to many more hearings in both the Subcommittee and the 
full Committee to learn how this proposal stacks up against the 
other plans and against those who claim we do not have a 
problem until 40 years from now. Mr. Chairman, I ask unanimous 
consent to place a copy of the actuary's memo on my bill into 
the record
    Chairman MCCRERY. Without objection.
    Mr. JOHNSON. Thank you.
    [The information follows:]

MEMORANDUM

Date: February 15, 2005                      Refer To:                   
       TCA

To: Representative Sam Johnson

From:  Stephen C. Goss, Chief Actuary
      Alice H. Wade, Deputy Chief Actuary

Subject:  Estimated Long-Range OASDI Financial Effects of a Proposal 
    for Individual Social Security Investment--INFORMATION

    This memorandum presents long-range estimates of the financial 
effects of the plan you have developed for individual investment 
accounts that would provide retirement income under the Social Security 
program. This memorandum includes a description of the plan, reflecting 
the intent of and specifications for the plan, as provided by Kathleen 
Black of your staff. While the provisions of the plan described in this 
memorandum are consistent with the intent of your recently introduced 
bill Individual Social Security Investment Program Act of 2005 (H.R. 
530), some of the effective dates in the plan description below are 
based on your earlier bill (H.R. 4895 submitted to the 108th Congress). 
Some of these effective dates differ by one or 2 years from those now 
specified in HR 530. In the interest of providing timely analysis, we 
are providing estimates with these qualifications. The estimates should 
be regarded as preliminary, but provide a good indication of the nature 
of the plan and its potential effects. All estimates are based on the 
intermediate assumptions of the 2004 trustees Report, as well as 
additional assumptions described below.
    The plan would offer to workers under age 55 on January 1, 2005 a 
combination of recognition bonds based on accrued benefit obligations 
plus an individual account contribution of 6.2 percent of future 
taxable earnings redirected from the OASDI payroll tax. For those who 
do not choose this option, current law benefits will continue, but will 
be based on a price indexed benefit formula. Older workers will remain 
in the current program without change, and future workers will be 
automatically enrolled in the individual account program. A minimum 
benefit financed with general revenue would be available to those 
participating in the individual account program. In addition, 
disability and young survivor benefits for these participants would 
continue unchanged. General revenue transfers would be provided as 
needed to maintain trust fund solvency during the period of transition. 
Enactment of this plan would eliminate the Social Security long-range 
actuarial deficit and meet the criteria for sustainable solvency. The 
program would be expected to remain solvent throughout the 75-year 
projection period and for the foreseeable future beyond.
    Estimates for this proposal reflect the development of several 
innovations in our methods and substantial work by Chris Chaplain, 
Jason Schultz, and others from the Office of the Chief Actuary. Further 
development and refinement of these methods will allow for improvements 
in the estimates in the future.
1. Description of Proposal
Individual Account (IA) Program-- Participation
    Beginning January 1, 2005, the proposal specifies that:

      Individuals born in 1949 and earlier (those 55 or older 
as of January 1, 2005) would stay in the current system and receive 
full scheduled benefits.
      All individuals eligible for disabled worker and young 
survivor benefits as of January 1, 2005 would stay in the current 
system and receive full scheduled benefits.
      Individuals born in years 1950 through 1982, who are not 
eligible for disabled worker or young survivor benefits as of January 
1, 2005, would be offered the following choice:
      Stay with the current OASDI program, subject to a CPI-
indexed PIA formula starting with those eligible for benefits in 2012, 
or
      Participate in the IA program. For these individuals, a 
recognition bond would be granted for the accrued retired worker 
benefit obligation earned as of January 1, 2005 and an individual 
account (IA) would be established, with contributions of 6.2 percent of 
OASDI taxable earnings starting in 2005.
      All individuals born in 1983 and later (those 21 or 
younger as of January 1, 2005) would participate in the IA program, 
with contributions of 6.2 percent of OASDI taxable earnings starting in 
2005.
IA Program--Recognition bonds
    Recognition bonds will be issued on January 1, 2005, for those 
individuals born in years 1950 through 1982 who choose to participate 
in the IA plan. The recognition bond will be a zero-coupon Treasury 
bond maturing on the date of attaining the normal retirement age (NRA) 
\1\ for the original recipient of the bond. The redemption value of the 
bond at maturity will be explicitly stated on the bond in dollars. It 
will be calculated using the present value (discounted at the trust 
fund yield rate to the redemption date or NRA) of expected retired 
worker benefit obligations accrued prior to January 1, 2005 assuming 
the worker will survive to the NRA and retire at that time. The accrued 
benefit obligation would be based on a computation of the Primary 
Insurance Amount (PIA) that would be payable for entitlement to a 
disabled-worker benefit as of January 1, 2005, increased by assumed 
growth in the average wage thereafter up to the redemption date. To 
reflect the fact that the worker would have only contributed for a 
portion of the potential full career as of January 1, 2005, the PIA 
used for computing the recognition bond value would be multiplied by:
---------------------------------------------------------------------------
    \1\ The normal retirement age is the age that full benefits are 
payable. This age is 66 for those born in 1950 to 1954; is 66 and 2 
months for those born in 1955; is 66 and 4 months for those born in 
1956; is 66 and 6 months for those born in 1957; is 66 and 8 months for 
those born in 1958; is 66 and 10 months for those born in 1959; and is 
67 for those born in 1960 and later.

---------------------------------------------------------------------------
        (Workers age at the beginning of 2005 minus 22) / 45.

    The actual redemption value of the recognition bond would be set 
equal to the expected amount (present value as of NRA) of future 
retired worker benefits based on this adjusted PIA assuming the worker 
survives to NRA with certainty, using unisex mortality, wage and CPI 
increases, and trust-fund yields at the levels projected for the 
current trustees Report at bond issuance.
    Three specifications for the calculation of the recognition bond 
redemption value described above are particularly notable. First, the 
recognition bond value will be based on potential retired worker 
benefits only. Spouse, widow(er) and child benefits that may be payable 
based on the worker's earnings under current law would not be reflected 
in the recognition bond redemption value. Second, the redemption value 
of the recognition bonds will be fixed on January 1, 2005 assuming all 
workers at that time will survive to reach their NRA and receive 
retirement benefits starting at that time. Some workers who would 
receive a recognition bond in 2005 will die before attaining their NRA, 
but the bond will retain its full redemption value in any case. Third, 
the redemption value will be set in 2005 based on the then current 
assumptions for future wage growth and future mortality rates after 
reaching NRA. Actual wage growth (and interest rates) may turn out to 
be substantially different from what is assumed in 2005, and the 
lifespan of individuals will vary considerably. Thus, the redemption 
bond value will only approximate the actual value of specified benefits 
based on earnings prior to January 1, 2005 and the difference will vary 
significantly.
    Recognition bonds would, upon issuance, be deposited in the 
worker's individual account. The recognition bond would be marketable 
in a regulated secondary market; the proceeds of sale of the bond would 
be required to be retained in the individual account. No payment would 
be made by the Federal government prior to the redemption date of each 
bond. The value of redemption bonds in the secondary market would be 
determined by market forces with a full understanding that precisely 
the face value of the bond would be paid to the holder upon maturity. 
The bonds would not be indexed in any way to reflect actual wage 
growth, CPI changes, or interest rates between issuance and redemption.
IA Program--Financing & IA accounts
    The OASDI combined payroll tax rate would remain at 12.4 percent. 
However, for those who choose to participate in the IA program (and all 
workers born after 1982), 6.2 percent of OASDI taxable earnings (the 
employee portion) would be deposited in an IA beginning in 2005. The 
portion not directed to an IA would be retained for the trust funds to 
cover recognition bond redemptions and OASDI benefits. Transfers from 
the General Fund of the Treasury would be provided to reimburse the 
trust funds for the cost of providing a minimum benefit (described 
below) starting in 2012. Additional revenue needed for the OASDI Trust 
Funds in the early decades after implementation would be provided in 
the form of transfers from the General Fund of the Treasury, on an as 
needed basis. The amount transferred from the General Fund of the 
Treasury to the OASDI Trust Funds in any year would be determined as 
the amount needed to ensure that the combined trust fund assets do not 
at any time within the year fall below 100 percent of annual OASDI 
program cost.
    Individual account contributions redirected for any year to the IAs 
of a married couple, both of whom are participating, would be combined, 
and then divided equally between them for deposit in their separate 
individual accounts. Allocations during marriage would be unaffected by 
divorce; divorce would terminate all connection between the future IA 
contributions of previously married couples.
    IA accumulations are assumed to be held in accounts with 
recordkeeping by a central administrative authority (CAA) that will 
offer options for investment, maintain individual records, interface 
with account holders, and combine assets of all accounts for the 
purpose of making investments with private investment companies (such 
as Fidelity, Vanguard, etc.). This approach is important for the 
purpose of keeping the cost of administering the accounts as low as 
possible.
    The default portfolio allocation for accounts would be 60 percent 
in broad indexed equity funds and 40 percent in corporate bond funds. 
However, given the uncertainty and volatility of investments in equity 
and bond markets, we assume that many workers will choose an investment 
portfolio that is less heavily weighted toward equities (see 
assumptions below). A variety of index funds would be offered by the 
CAA with annual options by the account holder to alter the portfolio.
IA Program--IA disbursement & benefit payments
    For those participating in the IA program, a minimum monthly 
annuity/benefit equal to a specified percent of poverty (before any 
reduction for retirement before normal retirement age, NRA) would apply 
for all workers becoming eligible for benefits after 2004. The 
specified percent of poverty would equal 100 percent for workers with 
35 years or more of work (quarters of coverage equal to at least 3.5 
times the number of elapsed years), decreasing to 0 percent for workers 
with 10 years of work (quarters of coverage equal to the number of 
elapsed years). The poverty level is that for aged individuals, 
increased by the CPI thereafter. The annual poverty level for aged 
individuals is $8,825 in 2003. This minimum guarantee, referred to as a 
minimum PIA, would require purchase of a CPI-indexed life annuity at 
retirement with all IA assets, including any recognition bond. If an 
individual's IA assets are not enough to provide the minimum monthly 
annuity/benefit, then the difference would be provided by the OASDI 
Trust Funds. However, the General Fund of the Treasury would reimburse 
the OASDI Trust Funds for the cost of this payment.
    The minimum targeted life annuity is 100 percent of poverty. IA 
accumulations in excess of what is needed to purchase a life annuity 
equal to 100 percent of poverty would be available to the retiree for 
any desired purpose. IA contributions are accumulated tax free. Upon 
distribution, IA balances, including recognition bond amounts, are 
exempt from taxation. In addition, if at any age, the CPI-indexed life 
annuity that could be purchased at age 62 with the current assets in an 
individual's IA account is expected to be greater than 100 percent of 
poverty (assuming the IA assets were thereafter invested solely in 
Treasury bonds), then the individual would no longer be required to 
contribute 6.2 percent of taxable earnings to the IA. At that point the 
individual would no longer contribute to the OASDI program, but the 
employer would continue to contribute 6.2 percent of the employee's 
taxable earnings. Self employed workers would pay one half of the tax 
rate. Additionally at this point in time, the individual would be 
required to purchase an annuity equal to 100 percent of poverty or to 
invest the cost of this level annuity in a fixed-income portfolio of 
assets, i.e. bonds.
    For those in the IA plan, present law scheduled disabled worker 
benefits would be payable up to NRA, with the minimum PIA applying to 
those who become eligible for benefits in 2012 and later. Auxiliary 
benefits to children and spouses with child in care would be paid on 
the account of a disabled worker. Young survivor benefits (child and 
spouse with child in care) would also be payable based on present law 
scheduled benefits, with the minimum PIA applying for those who become 
eligible for benefits in 2012 and later. However, no spouse or non-
disabled child benefits would be payable on the accounts of retired 
worker beneficiaries or accounts of deceased workers (except for the 
young survivor benefits mentioned above).
    At attainment of NRA, disabled worker beneficiaries would convert 
to retired worker status. Those participating in the IA plan would then 
be required to purchase a CPI-indexed life annuity not less than the 
value of the continuation of the disabled-worker benefit (disability 
benefit prior to conversion with cost-of-living adjustment). If the 
individual's IA accumulations, including any recognition bond, are 
insufficient for the purpose, then the OASDI Trust Funds would provide 
the difference. The OASDI Trust Funds would be reimbursed from the 
General Fund of the Treasury for the portion of any individual's 
benefit attributed to providing the minimum PIA.
    IA accumulations including any recognition bonds are transferred to 
the individual account of the surviving spouse (if any) upon death of a 
worker. A portion of this transfer will be reserved to pay for any 
potential young survivor benefits. If there is no surviving spouse, 
then the IA accumulation, less any reserve for potential child survivor 
benefits, goes to the worker's estate.
    CPI-indexed life annuities purchased with IA accumulations 
(including recognition bonds) are assumed to be provided through the 
CAA.
Individuals not in the IA program
    All individuals born in 1949 and earlier (those 55 or older as of 
January 1, 2005), as well as those currently entitled to disabled 
worker or young survivor benefits on January 1, 2005, would remain in 
the current OASDI program and receive full scheduled benefits in 
current law. For those individuals born in 1950 through 1982 who remain 
in the current OASDI program (do not choose to participate in the IA 
program), all benefit payments (including disability and young 
survivors) would be subject to a CPI-indexed PIA formula starting for 
those eligible for benefits in 2012. The benefit formula would modify 
the primary insurance amount (PIA) formula factors (90, 32, and 15) 
starting in 2012, reducing them successively by the measured real wage 
growth in the second prior year. Modified PIA factors would be 
applicable for OASDI beneficiaries becoming eligible for benefits in 
2012 and later. This provision would result in increasing benefit 
levels for individuals with equivalent lifetime earnings across 
generations (relative to the average wage level) at the rate of price 
growth (increase in the CPI), rather than at the rate of growth in the 
average wage level as in current law. Calculation of the average 
indexed monthly earnings (AIME) used in computing the PIA would be 
unaffected by this provision. In addition, the minimum PIA would not 
apply to these individuals.
2. Assumptions Used for Financial Estimates
    The estimates presented in this memorandum are based on the 
intermediate assumptions of the 2004 trustees Report plus several 
additional assumptions relating to specific provisions of this 
proposal.
Participation in the Individual Account Program
    Workers who are at ages 22 through 54 and are not disabled on 
January 1, 2005 will have the option of choosing to participate in the 
individual-account/recognition-bond plan. The default option is to 
remain in the current OASDI program. For the oldest of these workers, 
most will receive more total benefits from staying in the current 
system than from switching to the IA plan. This is particularly true 
for those who are in good health and have potential family Members who 
may become eligible for an auxiliary benefit based on the workers 
earnings record. The recognition bond reflects an expected accrued 
benefit for the worker only after reaching NRA and does not include any 
amount corresponding to potential auxiliary benefits. Moreover, the 
recognition bond amount is computed with a factor to diminish the 
normal PIA computation by approximately 11 percent to recognize a 
longer potential work history than under the current system. Thus, even 
workers with no family Members who are relatively healthy (as will be 
most of this group as the disabled are not included) and relatively old 
would expect more benefits from the current system for past 
contributions than from the recognition bonds.
    These factors suggest that workers at age 54 on January 1, 2005 
will be relatively unlikely to select the IA/recognition-bond option. 
We assume that 10 percent of those at this age will opt for the IA 
plan. For younger workers, however, recognition bonds will represent a 
smaller and smaller portion of their expected future benefit; the CPI-
indexed benefit formula will present a smaller and smaller potential 
benefit from the current system; and potential IA contributions will 
have longer and longer to accumulate. Thus, we assume that younger 
workers will be increasingly likely to opt for the IA plan and that 100 
percent participation will occur for those under age 41 on January 1, 
2005. Participation rates for workers between ages 40 and 54 are 
assumed to be decline linearly from 100 to 10 percent.
Individual Account Investments
    As indicated above, the default portfolio allocation for individual 
accounts would be 60 percent in broad indexed equity funds and 40 
percent in corporate bond funds. However, given the uncertainty and 
volatility of investments in equity and bond markets, we assume that 
many workers will choose an investment portfolio that is less heavily 
weighted toward equities.
    This proposal would replace retirement and aged survivor benefits 
from the current system completely with the IA and recognition bond 
accumulations. For many workers this account will represent their 
primary or only potential source of income in retirement. As a result 
we expect that workers participating in the IA plan will invest 
somewhat more conservatively on average than indicated in the default 
portfolio. We assume that the average portfolio will be 50 percent in 
equity funds, 30 percent in corporate bond funds, and 20 percent in 
government (Treasury) bonds. Due to the relatively large size of IAs 
under this proposal and the specification that accounts and annuities 
will be managed through a central administrative authority, we assume 
that administrative expenses will be relatively low, ultimately 
averaging about 0.25 percent of assets per year. The ``expected'' 
average annual real yield on IA investments before retirement is 
assumed to be 4.65 percent (6.5  0.5 + 3.5  0.3 + 3.0 
 0.2 - 0.25).
    Note that for estimates reflecting a low-yield assumption we assume 
that all investments will have an average real yield equal to that 
expected for long-term treasury bonds, or 3 percent in real terms. 
Therefore, the assumed net real yield after administrative expenses 
would be 2.75 percent. These estimates provide projections on a ``risk-
adjusted'' basis. Risk-adjusted returns omit any expected return in 
excess of that for Treasury bonds, because the excess reflects the 
premium demanded by the market for taking on the increased volatility 
associated with equities and corporate bonds.
    CPI-indexed life annuities purchased from the central 
administrative authority are assumed to provide an average annual 
expected real return of 3 percent net of administrative expenses. For 
the low yield assumption, the net real yield is assumed to be 2.75 
percent. For the purpose of illustrations of individual account and 
annuity assets in this memorandum, we assume that all IA assets will be 
used to purchase annuities. While the proposal allows for much of the 
account to be disbursed in other ways for many workers, this variation 
would not affect the financial estimates presented in this memorandum.
    Future returns on IA assets will vary considerably depending both 
on individual portfolio choices and variation in future returns on 
specific investments. The average annual real return on long term 
Treasury bonds is assumed to be 3 percent, consistent with the 2004 
Trustees Report. Corporate bonds are assumed to have an average real 
yield that is about 3.5 percent.
    The expected long-term ultimate average annual real yield for 
equities is assumed to be 6.5 percent. This is somewhat lower than the 
historical real equity yield over the last several decades. A consensus 
exists among economists that equity pricing, as indicated by price-to-
earnings ratios, may average somewhat higher in the long-term future 
than in the long-term past. This is consistent with broader access to 
equity markets and the belief that equities may be viewed as somewhat 
less ``risky'' in the future than in the past. Equity pricing will vary 
in the future as in the past. Price-to-earnings ratios were very high 
through 1999, and are now lower. The average ultimate real equity yield 
assumed for estimates in this memorandum is consistent with an average 
ultimate level of equity pricing somewhat above the average level of 
the past.
    The assumption for an ultimate real equity yield of 7 percent that 
was used by the Office of the Chief Actuary until 2001 was developed in 
1995 with the 1994-6 Advisory Council. At that time, the trustees 
assumption for the ultimate average real yield on long-term Treasury 
bonds was 2.3 percent. Real yields on corporate bonds are believed to 
bear a close relationship to Treasury bond yields of similar duration. 
The 2004 trustees Report includes the assumption that the ultimate real 
yield on long-term Treasury bonds will average 3 percent, or 0.7 
percentage point higher than assumed in 1995. This increase in the 
assumed bond yield is consistent with a reduction in the perceived risk 
associated with equity investments.
    It should be noted that the precise effects on the yields of 
equities and corporate bonds is not clear when implementing a plan that 
would result in a large demand for these securities. This demand would 
likely be at least partially offset by reductions in demand for other 
investment mechanisms. For the purpose of these estimates, it is 
assumed that there will be no net dynamic feedback effects on the 
economy or on the financial markets.
3. Benefit Levels under the Proposal
    Tables B1 and B2 show projected potential benefits under the 
proposal for two-earner and one-earner married couples, respectively. 
While a range of potential benefit levels is shown, actual investment 
returns and total benefit levels could vary considerably, reaching 
levels both well above and below the range presented.
    Table B1 presents monthly benefit levels for one spouse of a two-
earner couple. Table B2, however, presents monthly benefit levels for 
the total married one-earner couple. Effects for single workers (never 
married) would be more similar to those of the two-earner couples. 
Potential benefits include both OASDI benefit payments and potential 
annuity payments based on IA accumulations (including recognition bond 
values). For these illustrations, it is assumed that workers will 
retain their recognition bonds essentially until maturity, although 
some may be expected to sell the bonds on a secondary market even at a 
relatively young age and invest the proceeds in some other financial 
security. For simplicity, recognition bonds are assumed to be available 
for annuitization at age 65. In fact this would be possible by selling 
the bonds on the secondary market.
    Benefits are illustrated for workers retiring at age 65 with 
various lifetime earnings patterns. These patterns include average 
career indexed earnings at about 45 percent of the level of the SSA 
economy wide average wage for the scaled low earner, 100 percent of 
this level for the scaled medium earner, 160 percent for the scaled 
high earner, and earnings steadily at the level of the OASDI taxable 
maximum for the maximum earner.\2\
---------------------------------------------------------------------------
    \2\ Actuarial note 2004.3 provides details about the calculation of 
the scaled earner factors. Actuarial note 2004.3 is located at the 
following Internet site: http://www.ssa.gov/OACT/NOTES/ran3/an2004-
3.pdf.
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    The first three columns provide projected benefits scheduled under 
current law (column 1), payable under current law (column 2), and 
scheduled under the proposal for those who do not participate in the IA 
plan (column 3). In 2045, the CPI-indexed benefit under the proposal 
for non-IA participants would be close to the level payable under 
current law for two-earner couples.
    The next 5 columns develop the expected total retirement payment 
under the proposal prior to application of the guaranteed minimum for 
those in the IA plan. The projected annuity based on the recognition 
bond would be progressively smaller for subsequent generations who 
would have had fewer potential work years prior to 2005. Potential IA 
annuities assuming full annuitization are shown with both an IA 
accumulation at a low (risk-adjusted) yield and the expected yield for 
the expected average portfolio. These amounts are summed to show total 
payments prior to application of the minimum benefit under both 
investment return assumptions.
    The final three columns show the available minimum benefit payment 
(100 percent of poverty), and the total potential payments under the 
proposal expressed as a percentage of the current-law scheduled benefit 
level. For the scaled low earner, the proposal minimum benefit would be 
expected to provide an increment for retirees at age 65 through 2035. 
Proposal expected total benefits for the scaled low two-earner couple 
would decline from 94 percent of current-law scheduled benefits for 
those retiring at age 65 in 2015, to 72 percent for those retiring at 
age 65 in 2055. For the low-earner one-earner couple, proposal expected 
benefits would decline from 90 to 66 percent of the present-law 
scheduled level.
    Medium and higher two-earner couples with expected IA returns would 
fall short of the CPI-indexed PIA initially, but would exceed that 
level starting with those retiring in 2035. Older workers would be 
expected to strongly consider staying in the current program, 
consistent with our assumption of low participation by the older 
eligible workers.
    While benefits for a scaled medium earner who experienced the low 
yields consistent with risk adjusted returns would fare little if any 
better than the CPI-indexed alternative benefit, the scaled high earner 
retiring in 2045 and later and experiencing the low yields would beat 
the CPI-indexed benefit. In addition, by 2055 the maximum earner 
retiree would even beat the present-law scheduled benefit.
    Table B2 shows that benefit levels for the one-earner couple would 
be considerably lower than those for the two earner couple. Only for 
the one-earner steady maximum couple retiring at 65 in 2055 would 
expected returns exceed the present-law scheduled benefit.
4. Financial Effects of the Proposal
    Tables 1, 1a, 1b, 1b.c, 1c, and 1d illustrate the expected 
financial implications of enactment of the proposal under the 
assumptions described above. These effects are described briefly below. 
Additional tables 2, 2a, 2b, 2b.c, 2c, and 2d provide similar estimates 
using the low-yield (risk-adjusted) returns on individual account 
assets described above.
    The proposal would replace OASDI retirement and aged survivor 
benefits with an individual account that would be financed with one 
half of the payroll tax rate (6.2 percent). This change would apply to 
all workers under age 22 on January 1, 2005, and to others under age 55 
on that date who choose to accept a recognition bond in place of the 
benefit obligation based on past contributions. Disability and young 
survivor benefits would be retained as in current law through the 
normal retirement age. A minimum benefit (PIA) guarantee equal to a 
specified percent of the poverty level (100 percent for those with at 
least 35 years of work) would be financed through reimbursements from 
the General Fund of the Treasury. Those, who do not choose to 
participate in the IA program, would remain in the current program and 
be subject to a CPI-indexed PIA formula that provides slower growth in 
benefits across generations than does the current wage-indexed benefit 
formula.
Cash Flow and Solvency
    In part because the recognition bonds for voluntary participants 
would mature on the date each worker would attain their normal 
retirement age, substantial general revenue transfers would be needed 
to maintain solvency of the OASDI Trust Fund. Table 1 indicates that 
transfers are expected to be needed from 2013 through 2045, peaking at 
9.7 percent of payroll in 2028, and totaling $6.8 trillion in present 
value (see table 1a.)
    After 2045, the OASDI program would be expected to operate with 
substantial annual positive cash flow (see annual balance on table 1 
and the first four columns of table 1c). Table 1 shows that the OASDI 
Trust Fund would grow at an increasing rate as a percentage of annual 
program cost after 2045. The large and rising trust fund ratios \3\ 
reflect both the small residual amount of payments made from the OASDI 
program, and the increasing size of trust fund assets. The OASDI 
program would clearly satisfy the criteria for sustainable solvency 
under the proposal.
---------------------------------------------------------------------------
    \3\ The trust fund ratio for a year is calculated as (1) the level 
of assets at the beginning of the year divided by (2) program cost 
during the year, excluding recognition bonds.
---------------------------------------------------------------------------
    Relative to current law, net cash flow from the OASDI Trust Fund to 
the General Fund of the Treasury would be substantially diminished 
through 2038. After 2038, however, cash flow from the trust funds to 
the Treasury would be increased over the current program modified to 
permit borrowing.\4\ The proposal is expected to produce positive cash 
flow from the trust funds beginning 2046.
---------------------------------------------------------------------------
    \4\ Without this modification to permit borrowing, the current 
program would presumably operate with reduced benefits based on 
available tax revenue after the OASDI Trust Funds exhaust in 2042.
---------------------------------------------------------------------------
Total System Assets
    Table 1a provides estimates of expected OASDI Trust Fund assets 
under the proposal in column 5, and estimated individual account (and 
annuity) assets in column 6. All IA assets are assumed to be fully 
annuitized in a CPI-indexed life annuity for the purpose of these 
illustrations. For the purpose of these illustrations, married 
individuals are assumed to choose a joint & \2/3\ survivor annuity.\5\ 
The sum of these amounts may be referred to as total system assets 
under this proposal. By 2078, expected total system assets are expected 
to reach over $70 trillion in constant 2004 dollars, or more than 
double the size of the OASDI Trust Fund ($27 trillion), if all 
transfers expected under the proposal were provided to current OASDI 
program (see column 9).
---------------------------------------------------------------------------
    \5\ Two-thirds of the benefit level continues to the survivor.
---------------------------------------------------------------------------
    Table 2a, with low-yield assumptions (risk-adjusted) shows that 
total system assets under the proposal would be over $50 trillion. This 
amount is still higher than the assets under the current OASDI program 
with the same general revenue transfers as under the proposal ($28 
trillion). This is because of the gradual reduction and eventual 
elimination under the proposal of retirement benefits other than the 
individual account annuities.
Recognition Bonds and Effects on the Unified Budget
    Tables 1b, 1b.c, 2b, and 2b.c show expected effects on the unified 
budget of the Federal government from enactment of this proposal. It 
should be noted that these effects are not comparable to the effects 
that would be estimated by the Office of Management and Budget (OMB) 
and the Congressional Budget Office (CBO), at least in part because the 
trustees assumptions used for estimates presented here differ from 
those of OMB and CBO.
    Column 1 shows the projected IA contributions redirected from the 
trust funds starting in 2005. These contributions, along with 
distributions upon maturity of recognition bonds starting in 2016 
(column 2) represent increased expenditures from the unified budget. 
Generally lower benefit payments from the OASDI program are reflected 
in column 3 and would be reductions in expenditures. These changes are 
combined to produce the net change in unified budget annual cash flow 
in column 4.
    The implications for the size of the Federal debt held by the 
public are shown in column 5. Debt would be increased substantially 
through the 75-year period, but the increment would be decreasing 
toward the end of the period.
    The net effect on annual unified budget balances, including the 
debt service from prior year effects on cash flow, is shown in column 
6. Negative effects on unified budget balances would gradually decline 
and reverse to positive changes starting in 2070 under the expected 
yield scenario and starting in 2072 under the low yield scenario.
Change in Long-Range Trust Fund Assets/Unfunded Obligation
    Tables 1d and 2d provide estimates of the amount of assets in the 
combined OASI and DI Trust Funds at the end of each year, in present 
discounted value. Negative values do not indicate levels of trust fund 
assets as the program does not have borrowing authority. Instead, 
negative values reflect the magnitude of the unfunded obligation of the 
program through the end of the year. The first column presents these 
estimates under present law, where the unfunded obligation is $3.7 
trillion through 2078, the end of the 75-year long-range period.
    Columns 2 through 5 show the annual effects of the components of 
the proposal that move the OASDI program to elimination of the unfunded 
obligation. These include:

      The change in the OASDI basic benefits,
      IA contributions redirected from the trust funds to the 
individual accounts,
      Recognition bond payments from the trust funds to the 
individual accounts, and
      General Fund transfers needed to reimburse the trust 
funds for providing the minimum benefit level and to maintain solvency 
in 2013 through 2045.

    The combination of the annual effects in columns 2 through 5 is 
accumulated in column 6, showing effect on projected trust fund assets, 
or on the unfunded obligation, through the end of each year. Column 7 
shows the resulting trust fund asset levels projected under the 
proposal. The overall effect of the proposal is to transform the 
projected $3.7 trillion long-range unfunded obligation for the program 
under current law into an expected positive trust fund balance of $1.8 
trillion at the end of the period.

                                 
    [The prepared statement of Mr. Johnson follows:]
 Statement of The Honorable Sam Johnson, a Representative in Congress 
                        from the State of Texas
    Chairman McCrery, Ranking Member Levin and fellow Subcommittee 
members, I want to thank you for being here today to hear the testimony 
of all House Members who want to share our views on reform of the 
Social Security system.
    I have introduced the simplest, least expensive bill to strengthen 
the Social Security system. Social Security was created in the 1930s 
and I don't believe the system can be expected to perform well for 
those who are working and paying taxes today and will retire in the 
2030s. Young people need to build a nest egg, not build expectations in 
a program that cannot deliver for them. And the only way to fix the 
system is through personal retirement accounts,

        When I am home in Texas at town hall meetings, I talk with my 
        constituents about the money they pay to Social Security and 
        ask, ``Is it your money? Or is it the government's money?'' 
        Nearly everyone says ``It's my money.''

    Well, fellow Committee members, we know that the Supreme Court has 
declared that this is the government's money and that when the 12.4 
percent of payroll is taken from each and every paycheck, that money is 
not set aside in an account for each person. It is the government's 
money and it is controlled by the government.
    This has to change!
    That is why I have introduced H.R.530, with my colleague Jeff Flake 
of Arizona. So you know, my bill puts Social Security on sound 
financial footing right around the time critics are willing to 
acknowledge we have a problem. The Social Security Actuary determined 
that our bill permanently fixes the funding problems of the Social 
Security system at about half the cost of letting the current system 
roll forward without change. The current system is about $12 Trillion 
in debt. In comparison, my bill would cost about $6 Trillion to 
implement....and ultimately creates a surplus!
    Aside from being the most affordable way to strengthen Social 
Security, there are several points I'd like to share with you.
    First, my bill is the simplest. The premise is ``let's share''--
``half to the government, half to you.''
    Each person keeps half of their 12.4% they pay in payroll tax for a 
personal retirement account. The government takes the other half to 
fund existing benefit promises to those over 55 and to the disabled, 
widows and orphans. The Johnson/Flake bill will put real money into 
real accounts to better meet the retirement expectations of all 
Americans.
    Second, what sets my bill apart from others is that it has a fully 
tradable recognition bond. This bond gives each person the Social 
Security benefits they've earned so far. The bond is a zero coupon bond 
which means that the amount printed on the face of the bond is what it 
is redeemed for on its maturity date and that the interest payments are 
included in the face amount. Each person who opts into personal 
accounts would get a bond that matures on that person's 67th birthday. 
These bonds can be held until that date or can be traded earlier on 
public markets but the proceeds of the sale must be deposited into 
personal retirement accounts.
    Clearly someone who has worked and paid Social Security for 30 
years will have a large recognition bond that will be able to grow for 
the last ten years of their working career. Younger people who have 
only a few years in the workforce will have a smaller recognition bond. 
But, they will be able to contribute 6.2 percent of salary for their 
whole working careers and, for them the miracle of compound interest 
will do wonders.
    These bonds will help to ensure that older Americans will be able 
to buy an annuity for their retirement income and still have assets 
left to leave to loved ones.
    In short, these bonds and accounts are inheritable.
    Third, my bill makes sure people have money for retirement by 
requiring that every person who opts into personal retirement accounts 
buys an annuity. This way we will be sure that every senior retires 
with income for life.
    Fourth, my bill has a safety net. Known as a minimum benefit 
guarantee, it protects people who have worked hard but for one reason 
or another are not able to accumulate enough in an account. In that 
case, the government will top off their account.
    Fifth, my bill will continue to grow traditional Social Security 
benefits, and COLAs for retired Americans, at the rate of inflation. 
Again, there is nothing I, or anyone else, has proposed that would 
change how COLAs are calculated for those already receiving Social 
Security benefits.
    This is an important provision of my legislation because it will 
bring the expectations of Social Security more in line with what can 
actually be paid by the system. I find it irresponsible to continue to 
hold out the promise of benefits that we know we cannot afford. My 
constituents support me on this point for being direct with them.
    I look forward to many more hearings in both the Subcommittee and 
the Full Committee to learn how my proposal stacks up against other 
plans and against those who claim we don't have a problem until 40 
years from now.

                                 

    Chairman MCCRERY. Thank you, Mr. Johnson. Next, another 
Member of the Subcommittee, Mr. Lewis from Kentucky.

   STATEMENT OF THE HONORABLE RON LEWIS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF KENTUCKY

    Mr. LEWIS. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify today. Mr. Chairman, I certainly 
appreciate the leadership this Committee has taken in 
addressing the looming budget shortfalls facing the Social 
Security program. Social Security is of vital importance to so 
many Americans who depend upon these benefits during their 
retirement years. As David Walker, the U.S. Comptroller 
General, mentioned before our Committee on March 9th of this 
year, there is an overall fiscal crisis facing our Nation.
    Entitlement spending has swollen to the point that in 2015, 
only 10 years from now, our entire Federal budget will be 
consumed by mandatory spending and interest on the debt. 
Current projections estimate a $43 trillion unfunded mandate 
for entitlement programs. This course is unwise and 
unsustainable. Many of our colleagues have mentioned during the 
past few weeks of debate that Social Security may be the least 
challenging of the entitlement problems to fix. Both Medicare 
and Medicaid are already running shortfalls and will face an 
even more severe dilemma with the aging of the Baby Boomer 
generation.
    We must put partisan politics aside and work toward long-
term solvency of the Social Security program, and to ensure a 
more secure retirement future for all Americans. I am hopeful 
that our work on a reform package will allow us to address some 
other important related issues. One provision that is 
particularly important to constituents in my district is 
updating the optional method for reporting Social Security. I 
have introduced legislation, H.R. 1929, that would allow 
farmers and ranchers to fully access benefits provided by 
Social Security. For farmers and ranchers who do not have a 
steady stream of income and occasionally suffer net losses, 
qualifying for Social Security benefits can be difficult. 
Without enough earnings, farmers are not eligible to 
participate in the system. The optional method, which is 
supported by the administration, provides farmers the 
opportunity to maintain their benefits by voluntarily paying 
into the system. The current law includes outdated maximum 
thresholds limiting the amount farmers can contribute and no 
longer allows farmers to maintain benefits for themselves and 
their families. My bill would update these thresholds so that 
farmers taking advantage of the optional method will be able to 
fully opt into Social Security. Updating the optional method is 
an important provision to my constituents and is something that 
I urge this Committee to consider. As we continue to explore 
options to reform Social Security and the overall retirement 
situation in America, we must allow those with low wages or net 
losses to fully opt into the program.
    In closing, I want to again thank Chairman Thomas and 
Chairman McCrery for their willingness to put politics aside, 
roll up their sleeves, and start addressing these pressing 
issues. Social Security is entirely too important of an issue 
to demagogue or to be used as a political football. We must act 
now to ensure that the promise of Social Security will be there 
for future generations.
    [The prepared statement of Mr. Lewis follows:]
Statement of The Honorable Ron Lewis, a Representative in Congress from 
                         the State of Kentucky
    Mr. Chairman, I appreciate the leadership that this committee has 
taken in addressing the looming budget shortfalls facing the Social 
Security program. Social Security is of vital importance to so many 
Americans who depend upon these benefits during their retirement years.
    As David Walker, the United States Comptroller General, mentioned 
before our Committee on March 9, 2005, there is an overall fiscal 
crisis facing our nation. Entitlement spending has swollen to the point 
that in 2015--only 10 years from now--the entire federal budget will be 
consumed by mandatory spending and interest on the debt. Current 
projections estimate a $43 Trillion unfunded mandate for entitlement 
programs. This course is unwise and unsustainable.
    Many of our colleagues have mentioned during the past few weeks of 
debate that Social Security may be the least challenging of the 
entitlement problems to fix. Both Medicare and Medicaid are already 
running shortfalls and will face an even more severe dilemma with the 
aging of the Baby Boomer generation. We must put partisan politics 
aside and work toward long-term solvency of the Social Security program 
and to ensure a more secure retirement future for all Americans.
    I am hopeful that our work on a reform package will allow us to 
address some other important related issues. One provision that is 
particularly important to constituents in my district is updating the 
Optional Method for reporting Social Security. I have introduced 
legislation, H.R. 1929, that would allow farmers and ranchers to fully 
access benefits provided by Social Security.
    For farmers and ranchers, who do not have a steady stream of income 
and occasionally suffer net losses, qualifying for Social Security 
benefits can be difficult. Without enough earnings, farmers are not 
eligible to participate in the system.
    The Optional Method, which is supported by the Administration, 
provides farmers the opportunity to maintain their benefits by 
voluntarily paying into the system. The current law includes outdated 
maximum thresholds limiting the amount farmers can contribute and no 
longer allows farmers to maintain benefits for themselves and their 
families. My bill, H.R. 1929, would update these thresholds so that 
farmers taking advantage of the Optional Method will be able to fully 
opt in to Social Security.
    Updating the Optional Method is an important provision to my 
constituents and is something that I urge this Committee to consider. 
As we continue to explore options to reform Social Security and the 
overall retirement situation in America, we must allow those with low 
wages or net losses to fully opt in to the program.
    In closing, I want to again thank Chairman Thomas and Chairman 
McCrery for their willingness to put politics aside, roll up their 
sleeves, and start addressing these pressing issues. Social Security is 
entirely too important of an issue to demagogue or be used as a 
political football. We must act now to ensure that the promise of 
Social Security will be there for future generations.

                                 

    Chairman MCCRERY. Thank you, Mr. Lewis. Next, another 
Member of the full Committee on Ways and Means, Mr. Weller from 
Illinois. Mr. Weller, you may proceed.

 STATEMENT OF THE HONORABLE JERRY WELLER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. WELLER. Well, thank you, Mr. Chairman. I want to thank 
you and Mr. Levin for today's hearing. I also want to thank all 
of the Members who are present for what I consider to be a 
great opportunity, that is, for Members to share their ideas 
and their solutions. I was always taught, if you are not part 
of the solution, you are part of the problem. I believe we each 
have an obligation to offer our solutions for the challenges 
facing Social Security.
    Recently, I had a series of meetings and functions to 
discuss the challenges facing Social Security. I was joined by 
my colleague, Clay Shaw, former Chairman of the Subcommittee, 
and we happened to be at a community college. We asked the 
students at the community college, how many of you are age 21 
or younger? About 90 percent of the students there raised their 
hands, including Ms. Jones. When I asked them to keep their 
hands up, I said, how many of you believe when it is your turn 
to be eligible for Social Security that it will be there when 
it is your turn? Keep your hands up. Every one of those 
students lowered their hands.
    My good friend from Maryland mentioned 36 years, they all 
come into the system after 36 years. That is really what this 
debate is about, the young people. Of course, the challenge is 
what are the solutions that we have to offer. There has been 
discussion of taking a look at this challenge from a broad 
perspective of what can we do to look at the whole of 
retirement security, Social Security being one component. What 
are the other ideas we should consider?
    I want to offer one of those options today in what is known 
as KidSave, which I think is an innovative idea that helps for 
retirement security. Studies of retirement savings plans show 
the most important step toward retirement security is the 
decision to save. This simple decision is even more important 
to an individual's retirement income than how the money is 
invested. In the year 2000, there was a bipartisan proposal 
sponsored by former Senators Bob Kerry, John Breaux, Daniel 
Patrick Moynihan, as well as current Senators Rick Santorum (R-
PA) and Charles E. Grassley (R-IA). They would have made that 
decision much easier by creating KidSave accounts as a first 
step for providing retirement security for future generations.
    I felt it was important to revive this idea. My friend and 
colleague from Ohio, Mr. Brown, joined me in a bipartisan 
effort to reintroduce KidSave into the House as H.R. 1041, the 
``Social Security KidSave Accounts Act.'' Under this proposal, 
at birth, every American child would receive a loan of $2,000 
from Social Security to open a KidSave account. After 2006, the 
amount would be indexed annually for inflation. The funds could 
only be withdrawn at retirement or after the account owner's 
death. Even if no other money is ever added to the account, it 
is projected that the $2,000 initial loan can grow to more than 
$50,000 by the time the child reaches retirement age.
    The nest egg could then be used for such things as 
increasing retirement income, sending a grandchild to college, 
starting a small business, making a donation to their own 
church or community charity. Money would be invested through 
the Thrift Savings Plan, something that the vast majority of 
Members of Congress have chosen to do, as have Federal 
employees. The money would be invested in three safe and low-
cost investment options: a government bond fund, a corporate 
bond fund, or a stock index fund. I would note that each of 
those over the last 20 years have enjoyed an average rate of 
growth of between 7 to 12 percent, with very modest overhead 
cost.
    Under the proposal, the parents or legal guardians of 
under-aged citizens would choose one of those investment 
options. In addition to the base loan of $2,000, parents would 
be allowed to deposit up to $500 annually in each child's 
account tax free, until that child is 19. This money could come 
from the parents' or grandparents' 401(k) or Individual 
Retirement Account (IRA) as well as other accounts to help 
their child save for their retirement. When the account holder 
reaches the age of 30, the initial loan would be repaid, 
without interest, in five equal annual installments. However, 
the account owner would repay an inflation-adjusted amount. In 
other words, if the $2,000 initial loan had increased to $3,500 
in inflation-adjusted dollars over the 30 years, the owner 
would repay $3,500 in five equal annual installments.
    In addition to enabling all individuals, every American, to 
build a retirement nest egg, the KidSave plan would have other 
benefits. I would note this is universal. KidSave would be 
available for everyone. Every child, regardless of family 
income level, would receive a KidSave account. Instead of 
attempting to redistribute income or targeting only a few 
specific groups, the program would help all Americans save for 
retirement. Lower-income workers would have the same 
opportunity to build assets as those in higher-income brackets. 
KidSave, as I noted earlier, would be a loan, not a gift. 
KidSave would teach children that while people may be willing 
to assist them, loans must be repaid. Unlike proposals to seed 
retirement accounts with government matching grants, KidSave 
would not divert other people's tax dollars into the accounts.
    After 30 years, KidSave would become a self-sustaining 
program with loan repayments providing necessary funds to 
establish accounts for future beneficiaries. KidSave would help 
to reduce the gap between rich and poor. Many lower-income 
individuals find it impossible to save because Social Security 
and other taxes leave them with nothing after their rent, food, 
and other expenses. KidSave would enable low-income families to 
accumulate a nest egg for their family's future without cutting 
into their paychecks. Furthermore, since the KidSave account 
would be owned by the individual and would become part of his 
or her estate, it would help the family, even if the worker 
died before retirement. KidSave money would stay in the 
community, since every KidSave account would be owned by the 
individual worker, become part of the worker's estate after 
death. KidSave accounts from lower-income workers would tend to 
remain in their communities, giving their communities a greater 
opportunity to build wealth.
    Mr. Chairman, I would like to submit my entire statement 
for the record, but I do believe as we look at the various 
options for the KidSave proposal--which is a bipartisan 
proposal, it has been around for a while, kicked around, and of 
course, I believe it has been fine-tuned--but as we look at our 
options for a broad retirement security package, I believe 
KidSave offers a way to provide a universal solution for every 
American child. Thank you.
    [The prepared statement of Mr. Weller follows:]
 Statement of The Honorable Jerry Weller, a Representative in Congress 
                       from the State of Illinois
    While it is critical that we address the challenges Social Security 
faces, I believe that we can and should expand the options available to 
America's hard working men and women to provide a sound retirement. One 
such option is KidSave, an innovative step towards better retirement 
security.
    Studies of retirement savings plans show that the most important 
step toward retirement security is the decision to save. This simple 
decision is even more important to an individual's retirement income 
than how the money is invested.
    In 2000, a bipartisan proposal sponsored by former Senator's Robert 
Kerrey and cosponsored by Senators Rick Santorum, Charles Grassley, and 
John Breaux and former Senator Daniel Patrick Moynihan--would have made 
that decision much easier by creating ``KidSave'' accounts as a first 
step toward providing retirement security for future generations.
    More recently, on March 2, 2005, I, along with Mr. Brown of Ohio 
reintroduced KidSave into the House of Representatives as HR 1041.
    Under the proposal, at birth, every American child would receive a 
loan of $2,000 from Social Security to open a KidSave account. After 
2006, the amount would be indexed annually for inflation. The funds 
could be withdrawn only at retirement or after the account owner's 
death. Even if no other money is ever added to the account, the $2,000 
initial loan could grow to more than $50,000 by the time the child 
retired.
    The nest egg could then be used for such things as increasing 
retirement income, sending a grandchild to college, starting a small 
business, or making a donation to a church or community organization. 
This money would be invested through the Thrift Savings Plan (TSP), 
which helps federal employees invest for retirement. The money would be 
invested in the three safe and low-cost investment options: a 
government bond fund, a corporate bond fund and a stock index fund.
    Under the proposal, the parents or legal guardians of under-age 
citizens would choose one of the investment options. In addition to the 
base loan of $2,000, parents would be allowed to deposit up to $500 
annually in each child's account, tax free, until the child is 19. 
Additionally, income tax overpayments up to the amount of $500 may be 
directly deposited from a parent or grandparent into the child's 
account. Part of the $500 could also come from grandparents, who would 
be allowed to roll over money, tax-free, from 401(k) or similar 
retirement plans.
    When the account owner reached the age of 30, the initial loan 
would be repaid without interest in five equal annual installments. 
However, the account owner would repay an inflation-adjusted amount. In 
other words, if the $2,000 initial loan had increased to $3,500 in 
inflation-adjusted dollars over the 30 years, the owner would repay 
$3,500 in five equal annual installments.
    In addition to enabling all individuals to build a retirement nest 
egg, the KidSave plan would have other benefits. Specifically:
    KidSave would be available for everyone. Every child, regardless of 
family income level, would receive a KidSave account. Instead of 
attempting to redistribute income or targeting only a few specific 
groups, the program would help all Americans save for retirement. 
Lower-income workers would have the same opportunity to build assets as 
those in higher income brackets.
    KidSave would be a loan, not a gift. KidSave would teach children 
that while people may be willing to assist them, loans must be repaid. 
Unlike proposals to ``seed'' retirement accounts with government 
matching grants, KidSave would not divert other people's tax dollars 
into the accounts. After 30 years, KidSave would become a self-
sustaining program, with the loan repayments providing the necessary 
funds to establish accounts for future beneficiaries.
    KidSave would help to reduce the gap between rich and poor. Many 
lower-income individuals find it impossible to save because Social 
Security and other taxes leave them with nothing after rent, food, and 
other expenses. KidSave would enable low-income families to accumulate 
a nest egg for the family's future without cutting into their 
paychecks.
    Furthermore, since a KidSave account would be owned by the 
individual and would become part of his or her estate, it would help 
the family even if the worker died before retirement.
    KidSave money would stay in the community. Since every KidSave 
account would be owned by the individual worker and become part of the 
worker's estate after death, the KidSave accounts of lower-income 
workers would tend to remain in their communities, giving these 
communities a greater opportunity to build wealth.
    We should revive the KidSave plan. Such a move would be an 
innovative step toward enabling every American to build a retirement 
nest egg, permitting all income groups to build assets. This would be 
especially important in lower-income communities, where today workers 
often retire with only Social Security for income. KidSave would allow 
all young Americans to look forward to a retirement that did not depend 
entirely on traditional Social Security benefits.
    Regardless of what is done to resolve America's problems with 
entitlement programs, modest programs such as KidSave, can make the 
American Dream accessible to millions who are currently excluded 
because they lack the means to save.

                                 

    Chairman MCCRERY. Thank you, Mr. Weller. Next, another 
Member of the Subcommittee, Kevin Brady from Texas. Mr. Brady.

  STATEMENT OF THE HONORABLE KEVIN BRADY, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. BRADY. Thank you, Mr. Chairman. Part of this reform of 
Social Security is not simply to sustain the solvency of it and 
look for long-term solutions, but also to make the system we 
have more fair. We know that about 4 percent of the workers in 
America do not pay into Social Security, but pay into a 
substitute for Social Security. Many of these are teachers, or 
firefighters or police officers, to name a few. About half of 
those in a substitute have earned a second pension in Social 
Security. A teacher who has a summer job, a firefighter who has 
a second job to make ends meet. When they retire, the Windfall 
Elimination Provision (WEP) kicks in and penalizes them up to 
$300-and-some a month for having earned those two pensions. 
Now, I think that is wrong. If you have earned two pensions, 
you ought to receive two pensions. We have introduced 
legislation, H.R. 1714, the ``Public Servant Retirement 
Protection Act,'' bipartisan legislation, which repeals the 
WEP.
    What it does, basically, is treat all of the people in 
substitute systems just as everyone else in Social Security. 
So, it tailors it to each worker, rather than a one-size-fits-
all formula. It recreates the wages for those workers, and they 
are treated exactly the same, with the exact same formula as 
everyone else in Social Security. So, if they have worked 10 
years in Social Security, they get 10 years of full benefits. 
If they have worked 15 years, 15 years of full benefits. Equal 
treatment for all workers within that system. This bill has the 
support of many of the teacher and firefighters and police 
groups, because again, nothing is fairer than equal treatment. 
I will tell you the reason we chose this is that the WEP 
pretends that everyone that earns two pensions is wealthy; 
hence the name, ``windfall.'' That is certainly not the case. 
Repealing this pretends everyone is poor. Well, with $200,000 
school superintendents, and $100,000 high school coaches, that 
is not the case either. This equal treatment treats each worker 
based on, and is tailored to their work history and their 
situation. I think it is an improvement that I would encourage 
our Committee to look at as we look at Social Security reform.
    There has been an effort, and a growing effort to force 
mandatory coverage for State and local employees who are in 
these substitutes. I think that is a mistake. I would urge this 
Committee to reject the idea of mandatory coverage. In fact, 
the teacher systems, like in Texas, the substitute systems like 
in Galveston, the substitute systems for some of our 
firefighters; the fact of the matter is, they should not look 
more like Social Security, we should make them look more like 
their system: real pensions, backed by real assets, to create 
larger retirement checks that is there and ready for them when 
they retire. With that, Mr. Chairman, I will conclude my 
testimony 3 minutes early.
    [The prepared statement of Mr. Brady follows:]
 Statement of The Honorable Kevin Brady, a Representative in Congress 
                        from the State of Texas
    My initial interest in Social Security developed when hundreds of 
teachers in my district started letter and phone call campaigns and 
began researching the GPO and the WEP--the Government Pension Offset 
and the Windfall Elimination Provision. I have boxes of correspondence 
from teachers and other public employees throughout Texas chronicling 
their work histories and concerned about their retirement and spousal 
benefits. The GPO and WEP are complicated formulas that most retirees 
learn about just before retirement.
    I would like to focus the scope of my testimony on the frustrations 
that many public servants, teachers, firefighters, police officers, and 
others face with regard to their own benefits within Social Security.
    There is a great deal of anger and confusion about the GPO and the 
WEP.
The Windfall Elimination Provision

    The following is one of hundreds of examples that the folks back 
home have shared with me of how the WEP adversely affects tens of 
thousands of public employees nationwide:

     ``As a school district employee married to a retired Houston 
Police officer, no one could be more interested in what is fair as far 
as Social Security benefits. My husband now draws only 40% of what he 
should be drawing, after working in the private sector until he was in 
his early thirties. Then as an underpaid police officer, he worked 
many, many extra jobs that he paid into Social Security. When he became 
of age and went to the Social Security office, he was informed of his 
dilemna because of his employment with a government agency. I too 
worked in the private sector for years before joining my school 
district. No one informed me of this penalty until recent years. We 
only want what is our due--what we worked so hard for.''

            --from Carolyn Keefe at CyFair ISD.

    I strongly agree with Texas teachers and many other public servants 
that their own Social Security benefits should not be docked because 
they have earned both Social Security and teacher's pensions. I am 
again introducing The Public Servant Retirement Protection Act--H.R. 
1714. to repeal the WEP and make it more fair.
    The Public Servant Retirement Protection Act repeals the WEP. It 
eliminates the arbitrary formula and treats public servants just like 
the rest of the American workforce who contributed only to Social 
Security.
    Today, about 758,000 firefighters, police officers, teachers and 
other public servants earn both a Social Security benefit and a Social 
Security substitute--such as a state public pension--where workers did 
not contribute to Social Security. When they retire, their Social 
Security worker benefit is determined using an arbitrary formula called 
the Windfall Elimination Provision (WEP), which may reduce their Social 
Security checks by up to $306 a month. WEP's one-size-fits all approach 
does not adjust benefits fairly for all workers.
    This bill guarantees public servants keep the Social Security they 
earned while they paid into the federal program. Their Social Security 
amount will no longer be figured by an arbitrary WEP formula, but will 
be based on each worker's real-life Social Security contributions and 
work history--just like everyone else. For example, a worker who 
contributes to Social Security for 10 years would receive all of their 
Social Security due them based on the earnings and contributions made 
in that 10 years. The same for 15 years, 20 . . . or more.
Equal treatment.
    This bill will return billions of dollars of additional Social 
Security back to public servants that don't receive today because of 
the WEP. And, because it applies the same Social Security formula 
equally for the same wage-years itis fair to both government and 
private-sector workers. Public employees will get back what they 
deserve based on their contributions--no more, no less.
Fair treatment.
    Current law WEP pretends that public employees are high income and 
cuts their benefits. Full repeal of the WEP would give an unfairly 
higher benefit to some by pretending they are low income workers. Lets 
quit pretending and grade teachers on their own work record; base the 
formula on facts, not fiction and pay these people what they worked so 
hard to earn while contributing to the system.
    There is nothing more fair than equal treatment under the law.
    On a related note, I urge the committee to throw out the idea of 
mandatory coverage for state and local employees in Social Security 
Substitute ``government pension'' systems and to begin to look at these 
systems as models for our own reform process.
    Forcing the 4% of American workers who created a better retirement 
deal for themselves into Social Security would not only be hypocritical 
but would jeopardize many of these public pension systems. It would 
barely even make a minor dent in the solvency of the system, not really 
even enough to measure.
    The folks in Galveston Texas, Texas teachers, fire fighters and 
policemen, just to name a few--they have the right idea--invest our 
money smarter--protecting it for our futures while growing it at a 
higher rate of return. We could all learn something from the investment 
choices 30% of state and local governments made 30 years ago when they 
chose to create retirement investment options for their employees--
investments that have yielded much higher returns that Social 
Security's paltry 2% returns.
    I look forward to working throughout the coming months with my 
colleagues to create a brighter future for the Mrs. Keefes of the world 
as well as my boys, Will and Sean. I also know that while doing so, we 
can find the right balance continue to take care of my Mother and 
provide me and my wife with benefits in the meantime if we need it. I 
thank the Chairman and the Ways and Means and Social Security 
Subcommittee for having the courage to take on such an emotional and 
complicated issue.

                                 

    Mr. SHAW [presiding]. Mr. Ryan, you are next.

   STATEMENT OF THE HONORABLE PAUL RYAN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Mr. RYAN. Mr. Chairman, Mr. Levin, thanks for this 
opportunity. I want to go through my quick PowerPoint, but I 
wrote this bill with John Sununu about a year and a half ago. 
It was introduced in the last Congress, introduced in this 
Congress. It has been scored by the chief actuary of Social 
Security three times now as achieving full and permanent 
solvency. A couple of principles I wanted to uphold while 
writing this plan are as follows: The plan must protect 
benefits for seniors and near retirees. It should not raise 
taxes or expose people to unnecessary risk. It should maintain 
a strong safety net for all workers. It should also stop the 
government from raiding the Social Security Trust Fund to pay 
for unrelated programs. This is an issue I have felt strongly 
about since I came to Congress. Last, it ought to make Social 
Security fair for future generations. This is an issue that is 
just not really talked about that often.
    Now, let me just go through the quick PowerPoint to show 
you how the plan is designed, then we will go vote, I guess. 
Number one. You can see from here, no change in benefits would 
occur to those over the age of 55 and no change in survivor or 
disability benefits occur in this plan. Accounts are purely 
voluntary for those under the age of 55. From 2006 to 2015--I 
will explain why I do it this way--5 percent of the first 
$10,000 of a worker's wages coming from their existing payroll 
taxes go over to their account, and 2.5 percent of their wages 
above that from their existing payroll taxes go to their 
account.
    In 2016, the accounts double. It becomes 10 percent of the 
first $10,000 and 5 percent of the wages above that. The reason 
I designed it that way was to make the benefit structure and 
the account structure progressive. So, lower-income workers can 
put more of their payroll taxes in their accounts than could a 
higher-income worker. A $20,000-a-year earner, when this is 
fully phased in, will have about a 7.5 percent account; the 
$90,000 earner will have about a 5 percent account. The average 
account size is about 6.4 percent. Workers would keep the 
Social Security benefits that they are due based on the payroll 
taxes that they have already paid. Personal accounts will work 
just like the Federal Thrift Savings Plan, with an automatic 
option called a life cycle fund where your account adjusts as 
your age changes, so you are heavy on indexed stock funds when 
you are young; then, by the time you are near retirement age, 
you are out of the stock market and in government-backed bonds. 
The accounts are backed up with a safety net or benefit 
guarantee equal to promised benefits. So, there is no benefit 
formula change, no change whatsoever.
    Now, where the rubber hits the road on this and any other 
plan is the transition financing. How do you get from here to 
there? I want to mention the transition financing is just 
another way of saying refinancing the debt that is out there, 
that is already outstanding for Social Security. Whether it is 
the 75-year, $4 trillion number, or the sustainable $11.1 
trillion number, what any of these plans do, so long as they 
are certified by the actuary of achieving permanent solvency, 
that transition financing number, no matter what it is, is just 
another way of saying we are paying off that debt today on a 
discounted present-value basis, putting the program on the road 
to full sustainability.
    Here is how I propose to do it. Number one, dedicate from 
now on the rest of the Social Security surpluses to Social 
Security, to the personal retirement accounts. Under my plan, 
with the personal retirement accounts that we have had, the 10-
year cost in our plan is $1.2 trillion. We are going to get 
about $2 trillion from the surpluses with interest over the 
next 12 years. You can more than pay for the 10-year start-up 
costs of this plan by simply stopping the raid of the Social 
Security Trust Fund and putting that into the Social Security 
accounts. Now, I believe we ought to unmask the true size of 
the deficit, show the country really what the deficit is. I 
think that is the prudent thing to do. More importantly, we 
need to reconnect the notion that if you pay a tax for a given 
purpose, like Social Security, that is where it ought to go. 
The other thing we do is we take Social Security off budget and 
set it up outside of the General Fund so as to make it much 
more difficult for us to go back to the days of raiding, and 
the financing goes into that off-budget Social Security fund.
    The second thing we do is limit spending. We propose a one 
percent spending cap, meaning reduce spending by 1 percent for 
the next eight years. Let's put this into context. This is my 
bipartisan bridge that I am trying to connect here. Everybody 
likes to say Bill Clinton was the biggest spender around. Well, 
under the Clinton years we grew spending at 2.6 percent. Today, 
the baseline is we are growing spending at 4.6 percent. So, 
what I am proposing in this bill is let's grow spending for the 
next 8 years at 3.6 percent a year instead of the 4.6 percent, 
transfer those savings over to the Social Security trust fund. 
Not only does that pay back the money has been taken out of the 
trust fund, pays those bonds back, but it largely takes you 
most of the way to fully funding this transition.
    The third thing we do, is something that was developed by a 
number of economists, but chief among them Martin Feldstein 
from the Harvard Economics Department. He and others tell us 
that with these kinds of personal accounts, we will see a surge 
in corporate tax revenues coming into the government. What we 
say is if and to the extent that that happens, do not spend it 
on General Fund spending; put that into the Social Security 
trust fund and apply that to transition financing. If those 
three things occur now; three times according to the Social 
Security actuary, no borrowing whatsoever is needed to pay for 
the transition to these accounts. If one of these three things 
don't occur, or if they partly occur or don't occur, then you 
will have to borrow or float some bonds. You can bond-finance 
this entire program and pay for itself with the surpluses that 
this program materializes. I will get more into that in a 
second. What our bill basically does, it is like a home 
mortgage in that is it paid off over time, leaving the family 
with homeownership.
    Contrast that to the current system, where by the year 2043 
the debt will have accumulated to more than $16.4 trillion in 
today's dollars, with ongoing additional debt and no personal 
wealth. Under our plan, the Ryan-Sununu plan, by 2038, 
according to the actuary's official score, Social Security 
enters permanent surplus, and by 2051 Social Security reaches 
permanent solvency and the personal accounts will have 
accumulated growing assets. Now, one more thing that you can 
accomplish by harnessing the power of compound interests is you 
can establish better benefits for retirees. This is how you 
make this generationally fair. A 70-year-old today gets about 
4.5-percent rate of return on his or her payroll taxes. At my 
age, or my age cohort, we get about 1 percent. My children's 
age gets negative 1-percent rate of return. What we want to do 
is set up a system so that current and future workers can get 
the same kind of relative Social Security benefit that current 
retirees are getting.
    Chairman MCCRERY. [Presiding.] We have about 4-and-a-half 
minutes here.
    Mr. RYAN. Four-and-a-half minutes to vote? Okay. I will 
just quickly summarize. This chart shows you that a $25,000-a-
year 40-year old gets a 42-percent increase in their benefit, a 
person making $40 grand a year who is 40 years old, 33-percent 
increase in their benefit. A person making $60 grand a year, 
66-percent increase in their benefit in our default plan.
    Let me just conclude with this: One more thing you 
accomplish by using personal retirement accounts that are safe, 
that are conservative within a system, is not only do you make 
it fair for future generations, you accomplish a greater thing 
for society, and that is, you radically decentralize the 
concentration of wealth in America. You narrow the gap between 
rich and poor in America. What the actuaries tell us is that, 
within 15 years, under this plan with these accounts, workers 
will have over $7 trillion of their own individually owned 
accounts. That is not my number, that is the Social Security 
actuary's number; $7 trillion that workers will own and control 
and have that they otherwise would not have had, that would 
have been sent to Washington. Half of Americans do not own 
stocks and bonds. The other half do; that is good. What this 
plan does--and any large personal account plan does--is it 
gives every single laborer and worker in America the choice and 
chance to be an owner in America so that the ownership society, 
the investor class is every willing working American. With 
that, I will just yield since we have votes. Thank you.
    [The prepared statement of Mr. Ryan follows:]
Statement of The Honorable Paul Ryan, a Representative in Congress from 
                         the State of Wisconsin
    Chairman McCrery, Ranking Member Levin and fellow subcommittee 
members, I appreciate the opportunity to testify before the 
subcommittee and to share my views on how we should work to strengthen 
the Social Security system. About 45 million seniors depend on Social 
Security to provide vital financial support during retirement years, 
and this important program provides critical benefits to widows and 
those with disabilities. It is my top priority to preserve Social 
Security and make sure it remains solvent for future generations.
    As the debate over Social Security reform progresses in an 
increasingly politicized environment, we must not lose sight of the 
fact that this Congress has the tremendous opportunity to put the 
program on solid financial footing for the long term and enable Social 
Security to keep serving all generations well.
    When I sat down to come up with a plan to strengthen Social 
Security for future generations, I chose to uphold several principles. 
The plan must protect the benefits of our seniors and near-retirees. It 
must not raise taxes or expose people to unnecessary risk, and it 
should maintain a strong safety net for all workers. It should also 
stop the government from raiding the Social Security trust fund to pay 
for unrelated programs. Lastly, it should make Social Security fair for 
future generations.
    There's no denying that as time goes on, Social Security is 
becoming a poor deal for workers. Whereas a 70-year-old retiree today 
enjoys about a 4.5 percent return on the tax dollars they paid into 
Social Security, a 40-year-old in today's workforce can expect only 
about a one percent rate of return on their Social Security payments. 
Even worse, today's young children will get about a negative one 
percent return, assuming the government comes up with the funds to pay 
their benefit when they retire.
    Improving the rate of return on workers' investment in Social 
Security and moving toward a retirement system in which workers can 
actually own a substantial part of their retirement benefit under 
Social Security should be at the heart of reform that strengthens and 
protects the program for future generations.
    My legislation, H.R. 1776, the Social Security Personal Savings 
Guarantee and Prosperity Act, which I have introduced with Senator John 
Sununu of New Hampshire, creates personal accounts within the current 
Social Security framework without cutting benefits, raising taxes, or 
increasing the retirement age. Furthermore, the plan is completely 
voluntary, and workers who decide to stay in traditional Social 
Security rather than exercising the personal accounts option would 
receive the benefits promised to them under current law.
    From 2006-2015, this legislation would allow workers to devote to 
tax-free personal accounts 5 percentage points of the current 12.4% 
Social Security payroll tax on the first $10,000 in wages and 2.5 
percentage points on taxable wages above that. Starting in 2016, 
workers will then be able to shift 10 percentage points of the current 
12.4% on the first $10,000 in wages and 5 percentage points on taxable 
wages above that. Once fully implemented, workers would be dedicating 
an average of 6.4 percentage points of the Social Security payroll tax 
to their accounts. This progressive account structure allows lower 
income workers to keep more of their FICA taxes in their personal 
account than higher income workers.
    The plan is completely voluntary, and workers who decide to stay in 
traditional Social Security rather than exercising the personal 
accounts option would receive the benefits promised to them under 
current law.
    Those choosing to participate in personal accounts will be enrolled 
in a ``life-cycle'' fund that automatically adjusts the worker's 
portfolio based on his or her age, moving near-retirees into safe, 
government-backed bond funds. Workers may stay with this ``life-cycle'' 
fund or choose from a list of five index funds similar to those found 
in the federal Thrift Savings Plan (TSP) that members of Congress and 
federal employees have that helps them save for retirement. The federal 
government would then back the personal accounts with a guarantee that 
workers receive at least as much as Social Security promises under 
current law, providing an added level of security for workers' 
retirement savings.
    To finance the transition, we propose a three-tiered approach.
    First, our plan separates Social Security and the reform's 
transition financing from the rest of the federal budget and dedicates 
the Social Security surplus--projected until 2017--to Social Security. 
For decades, Congress has used the surplus to pay for priorities other 
than Social Security, and this practice must stop if we want to save 
the program for our children and grandchildren.
    Stopping the raid on Social Security tax dollars goes a long way 
toward jump-starting this reform. In fact, the total projected surplus 
over the next ten years--about $2 trillion including interest--is more 
than enough to pay the $1.2 trillion transition cost over that same 
period.
    In addition to devoting the short-term surplus to Social Security, 
our legislation would slow the growth of federal spending by one 
percentage point a year for eight years and transfer the savings to 
Social Security.
    Lastly, the anticipated increase in corporate tax revenue, sparked 
by increased investment through personal accounts, would go to the 
Social Security Trust Fund.
    With these three steps successfully implemented, no borrowing would 
be necessary to finance the transition to a solvent Social Security 
system. If one of the steps doesn't occur, federal bonds could be 
issued to help reimburse Social Security for the surpluses it has lent 
the government in the past. Even in this case, the temporary cost would 
be worth it because our plan achieves permanent solvency and pays off 
Social Security's entire unfunded debt for the foreseeable future.
    The Chief Actuary of Social Security has already scored this 
legislation as achieving permanent solvency for the program, without 
benefit reductions or tax increases. This plan also pays off the entire 
$11.1 trillion unfunded debt owed to Social Security.
    By establishing personal accounts within the Social Security 
system, we can give every American worker the choice of building a nest 
egg for his or her retirement. With personal retirement accounts, every 
worker will become a laborer and a capitalist earning a much higher 
rate of return on their payroll tax dollars than the current system can 
currently offer them. Furthermore, I firmly believe that there is no 
better way to bridge the wealth gap and decentralize the concentration 
of wealth in America than to adopt personal accounts like the ones 
Senator Sununu and I are proposing.
    I look forward to working with my colleagues on the Social Security 
Subcommittee and ultimately, the full Ways and Means Committee on this 
issue. Thank you and I look forward to your questions.
H.R. 1776, the Ryan-Sununu Social Security Personal Savings Guarantee
and Prosperity Act

    This bill empowers workers with the freedom to choose a large 
personal account option for Social Security, with no benefit cuts or 
tax increases.

      From 2006-2015, the Ryan-Sununu legislation would allow 
workers under Social Security to devote to tax-free personal accounts 5 
percentage points of the current 12.4% Social Security payroll tax on 
the first $10,000 in wages and 2.5 percentage points on taxable wages 
above that. Starting in 2016, workers will then be able to shift 10 
percentage points of the current 12.4% on the first $10,000 in wages 
and 5 percentage points on taxable wages above that. Once fully phased-
in, this creates a progressive structure with an average account 
contribution among all workers of 6.4 percentage points.
      Workers will be enrolled in a ``life-cycle'' fund that 
automatically adjusts the worker's portfolio based on his or her age--
moving near-retirees into safe, government-backed bond funds. Workers 
may stay with this ``life-cycle'' fund or choose from a list of five 
index funds similar to those found in the federal Thrift Savings Plan 
(TSP).
      The accounts are backed up by a safety net guaranteeing 
that workers would receive at least as much as Social Security promises 
under current law.
      Survivors and disability benefits would continue as under 
the current system unchanged.
      Social Security and the reform's transition financing are 
placed in their own separate Social Security budget, apart from the 
rest of the Federal budget.
Financing the transition:
      The short-term Social Security surpluses now projected 
until 2017 are devoted to financing the transition--instead of fueling 
other government spending;
      A national spending limitation measure that would reduce 
the rate of growth of Federal spending by one percentage point a year 
for eight years will be imposed. These savings are transferred to the 
Social Security Trust Fund;
      One of the basic assumptions of the Ryan-Sununu plan is 
that increased investment through personal accounts will result in 
increased tax revenues to the General Fund. The Ryan-Sununu plan 
recaptures a set portion of these projected revenue increases and 
dedicates them to the Social Security Trust Fund.
Social Security Chief Actuary's Analysis:
      Permanent and growing surpluses begin in 2038.
      Permanent solvency achieved in 2051.
      The reform would also greatly increase and broaden the 
ownership of wealth and capital through the accounts. All workers could 
participate in our nation's economy as both capitalists and laborers. 
Under the Chief Actuary's score, workers would accumulate over $7 
trillion dollars in their accounts by 2024. Wealth ownership throughout 
the nation would become much more equal, and the concentration of 
wealth would be greatly reduced.
      The official score shows that by the end of the 75-year 
projection period, instead of increasing the payroll tax to over 20% as 
would be needed to pay promised benefits under the current system, the 
tax would be reduced to 5.18%, enough to pay for all of the continuing 
disability and survivors' benefits. The bill includes a payroll tax cut 
trigger providing for this eventual tax reduction once all transition 
financing and debt obligations have been paid off.
      Eliminates the $11.1 trillion unfunded liability of 
Social Security, which is almost three times the current reported 
national debt.
Key Figures:
      10--year transition cost equals $1.2 trillion (without 
offsets).
      75-year total cost equals $2 trillion (without offsets).
      Money attained through spending limitation equals $7.323 
trillion.
      Money attained through corporate tax recapture equals 
$7.651 trillion.
      By the end of the 75-year actuarial window, (when you 
take into account the Ryan-Sununu plan's financing mechanisms) the plan 
covers its cost and generates about $4.4 trillion in extra money.

                                 

    Chairman MCCRERY. I have a few questions.
    Mr. RYAN. I have got to go vote. Thank you, Chairman.
    Chairman MCCRERY. Thank you, Mr. Ryan. I have been assured 
by a couple Members I saw that they would be back to give their 
testimony, so--I am tempted to say a few words myself, but that 
may not be fair, so I will withhold.
    [Recess.]
    Chairman MCCRERY. Any Members who submitted testimony and 
who failed to appear this afternoon, their written testimony 
will be submitted in the record. Welcome, gentlemen, you are 
our first live ones since the vote, so please have a seat. 
Gentlemen, you are welcome to each make remarks or let one 
speak for the other, whichever you prefer, but Mr. Boyd has 
been sitting for a while, so I think I will let him go first. 
Then you all can decide how you want to handle the 
presentation. You may proceed.
    Mr. BOYD. Mr. Chairman, if it is suitable to the Chair, I 
would like Mr. Kolbe to go first.

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

    Mr. KOLBE. What we are saying here fits in order for my 
remarks to go first. Thank you very much, Mr. Chairman, for 
this opportunity to testify, and thank you very much for 
holding this hearing. I think this is part of a process that is 
very, very important. I am very mindful of the fact that a 
couple Members of the Subcommittee have introduced pieces of 
legislation themselves, so I will be very careful not to say 
anything that would be negative at all toward any piece of 
legislation that has been introduced by others. I wouldn't 
anyhow.
    I think, as you know, Mr. Chairman, for the last five 
congresses, I have introduced bipartisan legislation to reform 
Social Security--first, I did it with Charlie Stenholm, and now 
with Allen Boyd. Each time that we have introduced this 
legislation, the steps we have to take to achieve solvency 
become more difficult because Social Security's financial 
condition worsens with each succeeding year. As Members of 
Congress, we can disagree about how to best repair Social 
Security, but we ought not to let its financial condition 
deteriorate any longer. So, I applaud the Subcommittee for 
holding this hearing to focus our attention on how we can 
strengthen this vital program.
    By appearing here today with my co-sponsor, Allen Boyd, we 
prove that there is a Social Security reform plan that 
Republicans and Democrats alike can support. It is the only 
bipartisan plan that has been introduced in either the House or 
the Senate. The Kolbe-Boyd plan includes principles that 
Members on both sides of the aisle can endorse. I will briefly 
lay out just a couple of those principles, and then allow Mr. 
Boyd to elaborate on the fact that this is the most fiscally 
responsible plan yet proposed.
    First, Kolbe-Boyd makes Social Security more progressive 
than it is today. We modify the benefit formula to achieve a 
higher replacement rate for low-income workers. In addition, 
higher-wage earners would experience slower benefit growth. As 
you see in the estimates that we have provided to you, the low 
earners would receive higher guaranteed benefits under Kolbe-
Boyd than what they can expect under current law. I repeat, low 
earners receive a better deal with the Kolbe-Boyd plan than the 
current Social Security system. This increased benefit is 
before you include any money that is derived from personal 
retirement accounts. Second, the Kolbe-Boyd plan expands the 
safety net. Under our plan, anyone working a full career is 
guaranteed a minimum defined benefit equaling 120 percent of 
poverty. That is higher than the current law.
    We also raise widows' benefits to 75 percent of the couples 
combined benefit; again, higher than current law. Not only do 
we believe in maintaining the Social Security safety net, we 
believe in making it better, and that is what our provisions 
would do. Finally, we believe that personal accounts should be 
affordable, with no obligation to invest in stocks, but a 
choice to invest in Treasury bills, or in bonds, or in index 
funds. Kolbe-Boyd lets younger workers place slightly more than 
2 percent of their earnings into an account, 2 percent as a 
carve-out of what they are now paying in their Social Security 
taxes.
    Our accounts are more affordable because they are smaller, 
and we finance them through the Social Security surplus rather 
than let the surplus be raided for other government programs. 
Under Kolbe-Boyd, the trust fund surplus dollars go to 
retirement income, not to more Federal spending. Plus, by 
offering the possibility of accounts that only contain 
Treasuries, Kolbe-Boyd will provide a guaranteed benefit for 
retirees, and even that benefit is still better than what they 
receive today. Let me conclude with this: Mr. Boyd and I have 
approached Social Security's deficit not as a Republican or a 
Democratic issue, but as a problem that our Nation has to 
solve. That is why we have sought bipartisan agreement in an 
atmosphere devoid of partisan rhetoric that accomplishes 
nothing for the next generation. That is why we believe our 
plan represents the best hope for Social Security's future. 
With that, let me turn it to my colleague.

  STATEMENT OF THE HONORABLE ALLEN BOYD, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. BOYD. Thank you very much, Mr. Chairman. I want to 
thank you for inviting us here to speak. I want to thank your 
Ranking Member, my friend, Mr. Levin, and also the Ranking 
Member, Mr. Engle, for his involvement in this issue. I have 
often heard that Social Security was the third rail and that it 
is something you should stay out of. I never understood the 
implications of that until I got involved in this issue. Like 
my friend, Mr. Kolbe, has said, the rhetoric, the partisan 
rhetoric that exists around this issue has stifled a productive 
debate on this issue. What he and I want to do and have done is 
to prove that you can set aside that rhetoric and develop a 
bipartisan solution that works and deals and addresses the 
principles that both sides would embrace.
    I first became interested in Social Security reform, Mr. 
Chairman, back in 1999 when my good friends Charlie Stenholm 
and Jim Kolbe and I started talking about the long-term 
solvency of the Social Security Trust Fund. My primary interest 
in Social Security reform then and now is to ensure solvency, 
to ensure that this vital program continues to provide basic 
retirement, survivor and disability benefits for future 
generations. I also believe that, to achieve solvency, we must 
address all three components of Social Security; that is, the 
benefits side, the revenue side and the investment side. Today, 
I want to specifically address how our bill works to achieve 
the long-term solvency, what components do we have in it to 
achieve solvency in the program.
    In addition to the savings generated by progressivity, 
which Congressman Kolbe has talked about, our proposal would 
increase the taxable wage base to set the wage cap at 87 
percent of all wages. In dollar terms, this would increase the 
cap from $90,000 to $142,500 over the next approximate 5 years. 
In the past, as you know, Mr. Chairman, the payroll taxes 
covered 90 percent of the Nation's earnings while currently, it 
covers only 84 percent. By gradually raising the cap to cover 
87 percent of all wages, we are modernizing Social Security to 
keep up with economic growth.
    Our proposal would also require that the Bureau of Labor 
and Statistics adopt the chained Consumer Price Index (CPI) 
when it computes COLA and Tax Code adjustments. Economists 
agree that the chain CPIs are a better and more accurate tool 
to measure the cost of living. This proposal was recommended by 
the Blue Ribbon Commission in the nineties that studied the 
CPI, and we would use savings from this to strengthen and make 
solvent the Social Security program. In terms of affordability, 
our plan is the most fiscally responsible. The Kolbe-Boyd bill 
has been scored by the Congressional Budget Office (CBO) and 
the Social Security Administration (SSA) as achieving solvency 
for 75 years and beyond. While solvency is our ultimate goal, 
our plan achieves this honestly and reasonably because we make 
changes to all three factors of Social Security. Kolbe-Boyd has 
by far the lowest transition costs of all the plans that have 
been introduced. I strongly believe that any Social Security 
proposal considered by the House of Representatives should 
include concrete proposals to pay for the transition costs. In 
other words, Mr. Chairman, there is no free lunch.
    I would submit to you that our plan has no transition cost 
by the fact that there is no additional general revenue 
required. The costs for this plan to pay for the reforms are 
contained in the structural changes we make in the program and 
in wise use of the existing trust fund. I want to make two 
other points, Mr. Chairman, and--well, let me stop there, Mr. 
Chairman, because there will be a question-and-answer session.
    Mr. LEVIN. Probably not.
    Chairman MCCRERY. Since you all are the only ones here.
    Mr. BOYD. Well, Mr. Chairman, I want to make two other 
points, and I will wind up. First of all, I reject the notion 
that the Kolbe-Boyd bill is a privatization of Social Security. 
Social Security is a government-run guaranteed defined benefit 
program, and we maintain it that way. Even though our plan 
contains personal accounts, Mr. Chairman, I have long believed 
that solvency from a mathematical perspective can be achieved 
without personal accounts. Those are the two points that I want 
to make, and I want to thank you and your Ranking Member for 
giving us the opportunity to be here today.
    [The prepared statements of Mr. Kolbe and Mr. Boyd follow:]
Statement of The Honorable Jim Kolbe, a Representative in Congress from 
                          the State of Arizona
    I thank the Chairman and Members of the Subcommittee for the 
opportunity to testify today. For the past five Congresses, I have 
introduced bipartisan legislation to reform Social Security--first with 
Charlie Stenholm, now with Allen Boyd. Each time my colleagues and I 
introduce our bill, the steps we have to take to achieve solvency 
become more difficult, because Social Security's financial condition 
worsens with each succeeding year. As Members of Congress, we can 
disagree about how to best repair Social Security, but we must not let 
its financial condition deteriorate any longer. So I applaud the 
Subcommittee for holding this hearing to focus our attention on how we 
can strengthen this vital program.
    By appearing here today with my cosponsor, Allen Boyd, we prove 
there is a Social Security reform plan that Republicans and Democrats 
alike can support. As the only bipartisan plan in Congress, Kolbe-Boyd 
includes principles that Members on both sides of the aisle can 
endorse. I will briefly lay out some of those principles, then allow 
Mr. Boyd to elaborate on the fact that this is the most fiscally 
responsible plan yet proposed.
    First, Kolbe-Boyd makes Social Security more progressive than it is 
today. We modify the benefit formula to achieve a higher replacement 
rate for low-income workers. In addition, higher-wage earners would 
experience slower benefit growth. As you see in the benefit estimates 
we have provided, low earners would receive higher guaranteed benefits 
under Kolbe-Boyd than what they can expect under current law. I repeat: 
low earners receive a better deal with Kolbe-Boyd than the current 
Social Security system. And this increased benefit is before you 
include any money derived from personal retirement accounts.
    Second, Kolbe-Boyd expands the safety net. Under our plan, anyone 
working a full career is guaranteed a minimum defined benefit equaling 
120% of poverty--that is higher than current law. We also raise widows' 
benefits to 75% of the couple's combined benefit--again, higher than 
current law. Not only do we believe in maintaining Social Security, we 
believe in making it better. That is what these provisions would do.
    Finally, we believe that personal accounts should be affordable, 
with no obligation to invest in stocks, but a choice to invest in T-
bills, or in bonds, or in index funds. Kolbe-Boyd lets younger workers 
place slightly more than 2% of their earnings into an account. Our 
accounts are more affordable because they are smaller, and we finance 
them through the Social Security surplus rather than let the surplus be 
raided for other government programs. Under Kolbe-Boyd, the Trust 
Fund's surplus dollars go to retirement income, not to more federal 
spending. Plus, by offering the possibility of accounts that only 
contain Treasuries, Kolbe-Boyd would provide a guaranteed benefit for 
retirees.
    Let me conclude with this: Mr. Boyd and I have approached Social 
Security's deficit not as a Republican or Democratic issue, but as a 
problem that our nation has to solve. That is why we have sought 
bipartisan agreement--in an atmosphere devoid of partisan rhetoric that 
accomplishes nothing for the next generation. That is why we believe 
our plan represents the best hope for Social Security's future.

                                 

  Statement of The Honorable Allen Boyd, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman, I want to thank you for holding this hearing on a 
subject that is vital to every American. In addition, I want to thank 
Ranking Member Levin and the Full Committee Ranking Member, Mr. Rangel, 
for their work on this complex issue.
    I first became interested in Social Security reform back in 1999 
when my good friends, Charlie Stenholm and Jim Kolbe, and I started 
talking about the long term solvency of the Trust Fund. My primary 
interest in Social Security reform, then and now, is to ensure this 
vital program continues to provide basic retirement benefits for future 
generations.
    I strongly believe that to achieve solvency, we must address all 
three components of Social Security--the benefit side, the tax side, 
and the investment side.
    Today I want to specifically address how our bill works to achieve 
the long-term solvency of Social Security.
    In addition to the savings generated by progressivity, our proposal 
would increase the taxable wage base to set the earnings cap at 87% of 
all wages. In dollar terms, this would increase the cap from $90,000 to 
$142,000 over five years. In the past, the payroll tax has covered 90% 
of the nation's earnings, while currently it covers only 84%. By 
gradually raising the cap to cover 87% of all wages and moving it to a 
middle ground that is fairer, we are modernizing Social Security to 
keep up with economic growth.
    Our proposal would also require the Bureau of Labor Statistics to 
adopt the chained CPI when it computes the COLA. Economists agree that 
the chained CPI is a better and more accurate tool to measure the cost 
of living. This proposal was recommended by a blue ribbon commission in 
the 1990's that studied the CPI, and we would use savings from this to 
strengthen Social Security.
    In terms of affordability, our plan is the most fiscally 
responsible. The Kolbe-Boyd bill has been scored by the Congressional 
Budget Office and the Social Security Administration as achieving 
solvency for 75 years and beyond. While solvency is our ultimate goal, 
our plan achieves this honestly and reasonably because we make changes 
to all three factors of Social Security reform. Kolbe-Boyd has by far 
the lowest transition costs of all of the plans that have been 
introduced. I strongly believe that any Social Security reform proposal 
considered by the House of Representatives should include concrete 
proposals to pay for the transition costs. In other words, there is no 
``free lunch.''
    Again, I want to thank the Chairman and Ranking Member for giving 
me the time to speak before the Subcommittee today on this important 
issue.

                                 

    Chairman MCCRERY. Just one very quick question. Are you 
saying that there are no transition costs to your proposal?
    Mr. BOYD. Well, Mr. Chairman, currently the surpluses, the 
Social Security surpluses, go into a trust fund which are used, 
as you well know better than I, and used by the Federal 
government for other programs. To do our program, you would--
the savings or the cost required to implement it would be 
achieved in two ways. One is in use--is in the savings that are 
inherent in the plan itself. Secondly, you would have to use 
part of the existing trust fund dollars to transition in a 
fashion that would be faster than others under current law, if 
that makes sense.
    Mr. KOLBE. Can I just add to that?
    Chairman MCCRERY. From a unified budgetary standpoint 
though, what are the transition costs over 10 years?
    Mr. KOLBE. Between $600 and $650 billion dollars. One of 
the reasons our system is as low as it is because we do have 
some things at the front end that get more cash in, such as the 
change in the acceleration of the retirement age and----
    Chairman MCCRERY. I understand your plan. I thought there 
was a transition cost, so I just want to make sure. The $650 
billion, to some that seems like a lot. It is lower than 
anybody else's, I understand, but for some, it is still a lot. 
Okay. Thank you very much. Congratulations, gentlemen, on 
having a bipartisan plan. Next, we have the Representative from 
California. Ms. Solis, you may proceed. Your written testimony 
may be presented for the record, and you may summarize as you 
wish.

STATEMENT OF THE HONORABLE HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. SOLIS. Thank you very much, Mr. Chairman. I am 
Congressman Hilda Solis representing the 32nd Congressional 
District of California which incorporates a largely Hispanic 
community. About 65 percent of the population is Latino; 25 
percent is Asian, and the rest are mixed. The Los Angeles 
County is a very diverse community. I am very proud to also be 
representing the Chair of the Democratic Women's Working Group 
and also the Democratic Co-chair of the Congressional Caucus on 
Women's Issues. I would like to thank our Ranking Member Levin 
and his staff for inviting me to speak today on behalf of my 
constituents and on behalf of the millions of women that would 
be affected by the proposed changes to the Social Security 
program.
    President Bush's proposed plan for Social Security would 
have a devastating impact on women. Currently, there are more 
than 7.5 million women receiving Social Security benefits, and 
2.7 million children under the age of 18 who receive disability 
or survivor benefits. Women, as you may know, make up a vast 
majority, 60 percent, in fact, of Americans receiving Social 
Security, and over half of all women over the age of 65 will 
live in poverty without Social Security. I know in my own 
community, there are a good number of people in east Los 
Angeles in the San Gabriel Valley, approximately 60,000 people 
who receive Social Security benefits, and many of those are 
disabled women, wives and widows who rely very heavily on this 
hard-earned monthly Social Security check.
    I have heard overwhelmingly from many of my constituents 
and particularly from women throughout the country because I 
have traveled the different States, that they strongly oppose 
President Bush's privatization plan. Under the President's 
privatization proposal, women will have seen fewer benefits to 
rely on when they retire. Women, as you know, live longer than 
men, and are more likely to run out of personal savings before 
men. Mothers also sacrifice earnings in order to care for their 
children, and oftentimes because they take time out of the work 
force to raise their children or care for an elderly individual 
in the family. Women professionals, family caretakers, and 
widows also endure continuing disparities in their income and 
savings. The continuing pay gap, for example, which accounts 
for women making about $11,000 less than their male 
counterpart, means women have less money to invest in private 
accounts, period. The proposed plan would account for 42 
percent benefit cuts for a woman earning $58,000 a year. These 
benefits are critical to women, especially young women, older 
women, and women of color, minority women.
    Social Security provides more than 90 percent of the total 
income for two-thirds of non-married Latinas. The privatization 
plan will not help Latino families, and will especially hurt 
female Latinas. The proposal will also be detrimental to women 
who receive survivor benefits. Nationally, 50 percent of Social 
Security beneficiaries receive all or part of their benefit 
either as a widow or widower spouse, child of a worker, or a 
disabled worker. Over 80 percent of these beneficiaries are 
women and children. Right now, the typical widow receives a 
Social Security benefit of $865 a month. If the 45 percent cut 
projected by the CBO were to take effect, that would leave her 
with only $476 per month, even when the proceeds from personal 
accounts are included.
    We understand that we are facing a long-term challenge here 
with Social Security, but in my belief, privatization is not 
the way to go. I have heard it repeatedly from well over 500 to 
close to a thousand people in my own district, having held a 
series of forums in my own district. People are sending us 
notes, e-mails, letters, people that don't even speak English 
well know the difference that privatization is going to 
actually be a drawback for them and their livelihood. Thank you 
very much, Mr. Chairman, and Mr. Levin, for allowing me the 
opportunity to speak to you this afternoon.
    [The prepared statement of Ms. Solis follows:]
Statement of The Honorable Hilda L. Solis, a Representative in Congress 
                      from the State of California
    Good afternoon.
    I am Congresswoman Hilda Solis and I represent the 32nd 
Congressional District in California--which incorporates the San 
Gabriel Valley and parts of East Los Angeles, in Los Angeles County. I 
am also the Chair of the Democratic Women's Working Group and the 
Democratic Co-Chair for the Congressional Caucus for Women's Issues.
    I would like to thank Ranking Member Levin and his staff for 
inviting me to speak on behalf of the people of California's 32nd 
district and on behalf of the million of women that will be affected by 
the proposed changes to the Social Security program.
    President Bush's proposed plan for Social Security would have a 
devastating impact on women.
    Currently, there are more than 7.5 million women receiving Social 
Security benefits and 2.7 million children under 18 who receive 
disability or survivor benefits. Women make up a vast majority--60% in 
fact--of Americans receiving Social Security. Over half of all women 
age 65 and older would live in poverty without Social Security.
    I know in the community I represent, in East Los Angeles and the 
San Gabriel Valley, there are nearly 60,000 Social Security 
beneficiaries--many of whom are disabled women, wives and widows, who 
rely heavily on their hard-earned monthly Social Security benefits.
    I have heard overwhelmingly from my constituents and from other 
women throughout the country that they strongly oppose President Bush's 
privatization plan. Under the President's privatization proposal, women 
will have even fewer benefits to rely on when they retire.
    Women live longer than men and are more likely to run out of 
personal savings. Mothers also sacrifice earnings in order to care for 
children and the elderly leaving them with lower personal savings and 
lower Social Security benefits. Women professionals, family caretakers, 
and widows also endure continuing disparities in their income and 
savings.
    The continuing pay gap, for example, which accounts for women 
making about $11,000 less than their male counterpart, means women have 
less money to invest in private accounts and less money to save.
    The proposed plan would account for a 42% benefit cut for a woman 
earning $58,000 a year.
    These benefits are critical for women, especially young women, 
older women and women of color.
    Social Security provides more than90% of total income for two-
thirds of non-married Latinas. The privatization plan will not help 
Latino families and will especially hurt Latinas in the future. The 
proposal will also be detrimental to women who receive survivor 
benefits.
    Nationally, 50% of Social Security beneficiaries receive all or 
part of their benefit either as the widow or widower, spouse or child 
of a worker, or as a disabled worker. Over 80% of these beneficiaries 
are women and children. Right now, the typical widow receives a Social 
Security benefit of $865 per month. If the 45% cut projected by 
Congressional Budget Office were to take effect currently, the typical 
widow would receive only $476 per month, even when the proceeds from 
private accounts are included.
    We understand that we are facing long-term challenges, but the 
Social Security privatization scheme is not the answer. Privatization 
only worsens Social Security's challenges. We need to focus on 
strengthening Social Security for future generations. All American 
workers should get the benefits they pay for.

                                 

    Chairman MCCRERY. Thank you, Ms. Solis. Next, the gentleman 
from Mississippi, Mr. Thompson. Your written testimony has been 
inserted in the record, and you may summarize as you please.

STATEMENT OF THE HONORABLE BENNIE G. THOMPSON, A REPRESENTATIVE 
           IN CONGRESS FROM THE STATE OF MISSISSIPPI

    Mr. THOMPSON. Thank you very much, Mr. Chairman, and, 
Ranking Member Levin, and other Members of the Committee. 
Social Security for me is a very personal matter. My father 
died when I was in tenth grade, and it was his earnings that 
allowed me to complete high school and complete college. The 
earnings were $42 a month. In my State, in the sixties, that 
wasn't too bad. It was that that allowed me to move on and 
finish college and ultimately complete a dream of now being a 
Member of Congress. Unfortunately, my father never saw his only 
son reach that goal, but nonetheless, it was Social Security 
and the survivor benefit of Social Security that allowed me to 
do that.
    Another example of that is a number of young people, that I 
knew very well, went to Vietnam. They didn't come back, but 
their Social Security benefits did and allowed a number of 
their wives and children to have a basic level in life for 
survival. Those are two great programs for us to risk, Mr. 
Chairman, and other Members of the Committee. I don't want 
people to misunderstand the importance of that. In my district, 
there are some 122,000 Social Security beneficiaries. Of that 
number, 61,000 are retired; 22,000 are disabled; 13,000 are 
widowers. So, those numbers aggregated in the demographics of 
my district, which as some of you know has a high percentage of 
poverty, I have the highest number of earned income tax 
recipients living in my district, so Social Security is an 
absolute necessity.
    Looking at the program, I don't know many programs here in 
Washington that have never been late with a payment. Social 
Security has always been on time. In my area, you can look for 
the postman and the Social Security check, and pretty much, 
they are on time. I say that because I live in a community of 
500 people, and you get to meet a lot of people in a community 
that size, but nonetheless, Social Security is absolutely 
critical to that area.
    Mr. Chairman, other Members of the Committee, the President 
was in my district 2 weeks ago, he came on election day--which 
was not the best day to do a townhall meeting on Social 
Security, but nonetheless, he came. Every person the television 
crews could find had real problems with privatization. They 
said it was something that they didn't want to risk. Most of 
them admitted that they voted for the President, but in this 
instance, he is wrong, and we are not willing to risk, for so 
many people, that income. So, I would like for this Committee, 
in its deliberation, to remember the survivors, remember the 
people who absolutely don't have 401(k)s, don't have other 
things to depend on other than Social Security. If there are 
some problems, I think you can look at other options other than 
privatization of the accounts. Thank you very much.
    [The prepared statement of Mr. Thompson follows:]
  Statement of The Honorable Bennie G. Thompson, a Representative in 
                 Congress from the State of Mississippi
      I would like to thank Ranking Member of the Committee, 
Charles Rangel and Ranking Member of the Social Security Subcommittee, 
Sander Levin for the invitation to testify.
      Social Security is a personal matter for me. In the 10th 
grade, I lost my father.
      As his child, I received $42 a month for six years ($260 
in 2005)--money that helped me and my family.
      The money came from funds that he had earned as a working 
person and, pooled with money from other working people, provided 
security for his family. Because of Social Security payments and my 
mother's sacrifices, I was able to finish high school and college. 
Without this money, it would have been impossible to complete my 
schooling.
      Other examples of the need for Social Security are that I 
had childhood friends whose fathers were killed in Vietnam. They 
received Social Security survivor benefits. Without Social Security, I 
could only wonder where they would be: losing a parent at a young age 
without Social Security.
      A report by the non-partisan Center on Budget Priorities 
recently made the following statement about Social Security going 
bankrupt: ``These statements of this Administration seriously 
misrepresent Social Security's financing and the challenges the program 
faces.''
      In my District, the Second Congressional District of 
Mississippi:

        The total number of Social Security beneficiaries is: 
122,168
        The total number of Retired beneficiaries is: 61, 607
        The total number of disabled workers is: 22,954
        The total number of widowers: 13,822
        The number of wives and husbands: 4,809
        The number of children: 18,976
        The number of old age beneficiaries: 70,988
        Monthly Benefits in the District (Dollars):

        All beneficiaries: $86,121
        Retired workers: $50,179
         Widowers: $9,574

      Social Security is critical for the people of my 
District. As a Democrat, I am convinced that we need to protect Social 
Security benefits for retirees, future retirees, survivors and disabled 
people.
      Social Security has been an on time benefit every year 
for its beneficiaries since the Roosevelt Administration and must 
continue to be so.
      As many of you know, I held town hall meetings in my 
District. The title of the meeting was Fully Fund it and Leave it 
alone. At the meeting, experts on Social Security presented the 
privatization plan to beneficiaries and future beneficiaries.
      My District is the second poorest District in the 
country. As a result my constituents rely heavily on Social Security 
benefits for their well being and the well being of their family.
      These meetings were a way to gauge what my constituents 
were feeling about this Administration's privatization plans for Social 
Security. The reaction of seniors, widows and disabled folks was 
overwhelming.
      Time and time again, my constituents told me how Social 
Security was the reason why they were not living in absolute poverty. 
Social security helped them pay for their housing, schooling for their 
children and their family's prescription drugs.
      Recently, after my town hall meetings, the President paid 
a visit to my district to promote his social security plan. My 
constituents made their position clear and stand by that. Social 
Security is, has and will be off limits for wall street brokers and the 
President alike.
      Social Security should not be compromised in order to 
compensate for excessive spending and tax cuts. In short, Social 
Security must be fully funded and left alone.

                                 

    Chairman MCCRERY. Thank you, Mr. Thompson. The next the 
gentleman from the State of Texas, a gentleman who has shown 
some interest in this subject, even though he is not on a 
Committee of jurisdiction, and we welcome his input, Mike 
Conaway of Texas. You may proceed.

STATEMENT OF THE HONORABLE K. MICHAEL CONAWAY, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. CONAWAY. Thank you, Mr. Chairman. I ask unanimous 
consent that my full testimony be put in the record.
    Chairman MCCRERY. Without objection.
    Mr. CONAWAY. Thank you, sir. As a point of personal 
privilege, thank you for attending the meeting with AARP and 
some other Democrats and Republicans. While we didn't solve 
anything, at least we had a chance to visit with each other. I 
will get right to the four recommendations that I would make 
with respect to personal retirement accounts.
    First would be the concept that, as you age and begin to 
reach retirement age, the options available for investment 
would begin to narrow. In other words, if at 30, a worker might 
want 70-plus percent of their personal retirement account in 
equity funds, and 30 percent at fixed income; at 55, most 
reputable retirement planners would recommend to their clients 
that they begin to shift that risk profile so that they would 
be much less exposed to the volatility of the market because 
they have got less time for their account to recover from that. 
I think we can build into the system some safeguards that would 
address this issue. One of the big issues that I hear is: what 
happens if I am fixing to retire and the stock market tanks? I 
think we can build into the personal account system to address 
that particular issue.
    The second recommendation would be that, as a part of the 
program, that as I retire, because I have been participating in 
personal savings accounts, my defined benefit that I have 
earned with the 8.4 percent of my taxes that have gone into 
that account earned me a lower defined benefit. Built into this 
requirement would be a distribution scheme that would say I 
need to take a part of my personal retirement account and buy a 
lifetime annuity that would make up the difference between what 
I have earned with lower contributions and what somebody would 
have earned had they opted out of the Social Security system, 
so that each retiree at 65 is in a position of having the exact 
same lifetime benefit. Then I, having taken advantage of the 
personal savings account, have money on top of that within a 
different distribution scheme that would be available to me.
    The third point that I would make is that, while we talk 
about ownership--and it is an important element of these 
personal savings accounts--these first two recommendations and 
this third one would put restrictions on that ownership. This 
third recommendation would be that these personal retirement 
accounts be used solely for retirement, that whatever life 
events may occur, buying a home, critical illnesses, all of 
those things are very, very tempting to allow for distributions 
to come out of that personal retirement account. I would think 
that we would build into that system restrictions that say, 
these moneys, whatever they are, are not allowed to you until 
you retire. The current Social Security is like that. I can't 
borrow against it. I can't pledge it, and I can't spend it 
early. In order to protect society from having people who have 
not paid into the system then become, in effect, wards of the 
State, I would think that we would want restrictions in there 
that say these are retirement dollars, period, as tempting as 
it is to borrow or buy a house or college education for 
children, or whatever the life event might be, that we not 
allow those kinds of things.
    The fourth is an option that I think may be attractive to 
some, and that is that most upper-and middle-income individuals 
have savings and retirement opportunities on top of their 
Social Security, IRAs, Thrift Savings Plans that Federal 
employees participate in, 401(k)s, and others. For the low-
income wage earner, often it is a barrier to doing those kinds 
of things, partly because of just the administrative part of 
it. I would recommend that we allow an optional pretax payroll 
deduction in addition to whatever we decide on goes in from the 
Social Security tax piece. On top of that, I could elect on a 
payroll deduction plan to add additional moneys to this very 
account that would encourage me. Now, it doesn't sound like 
much, but very small amounts of money added week after week 
after week would have a dramatic impact on those savings.
    There is a great silent majority in America that consists 
of future generations of retirees. It is those silent 
generations, many of whom are too young to vote and are not 
currently engaged in this process that are depending on this 
Congress to make these difficult decisions. If we do not fix 
Social Security now, they will eventually look at us, wondering 
why we didn't do everything in our power to ensure a fair 
retirement system. Those who are speaking with the loudest 
voices in opposition to substantive Social Security reform do 
not represent the people in my district in Texas or the 
majority of the population. They certainly do not represent our 
children and our grandchildren's generation. This debate 
involves all Americans, including those who cannot speak for 
themselves. We have the ability to leave a better system for 
them than the one we inherited, a Social Security system that 
is sustainable and provides true retirement security for all 
Americans. Thank you, sir. I appreciate the opportunity to 
testify today. Any questions?
    [The prepared statement of Mr. Conaway follows:]
  Statement of The Honorable K. Michael Conaway, a Representative in 
                    Congress from the State of Texas

 Four Recommendations from a CPA: Eliminating the Risk Associated with 
                      Personal Retirement Accounts

    Mr. Chairman and distinguished Members of the Committee, it is an 
honor and a privilege to testify before you today about one of the most 
important issues we will address in this Congress: Social Security 
Reform.
    I would like to commend the members of this committee on the work 
you have already done and convey my appreciation for the hard work and 
difficult decisions you will face in the coming weeks and months.
    I would also like to take a moment to thank Chairman McCrery for 
joining me in the first bi-partisan meeting with the AARP last month. 
While I am still very disappointed with the tone and rhetoric 
surrounding the Social Security debate and the abundance of negative TV 
ads focusing on scaring senior citizens, it was encouraging to have a 
meeting where both sides could use their ``inside voices'' and actually 
listen to each other. I found our discussion to be refreshing and 
encouraging and I thank the Chairman for participating.
    I am here today to offer four specific recommendations that I feel 
will strengthen personal retirement accounts I'm a CPA, father of four, 
and a grandfather of six. I tend to look at Social Security reform 
through this perspective and that is why I have come to testify before 
you today.
    We would be remiss to only talk about Social Security in the 
context of the present and the future. The history of this important 
program can help point us in the right direction. When President 
Roosevelt signed the Social Security Act into law on August 14, 1935, 
he said, ``Young people have come to wonder what would be their lot 
when they came to old age.--We can never insure one hundred percent of 
the population against one hundred percent of the hazards and 
vicissitudes of life, but we have tried to frame a law which will give 
some measure of protection to the average citizen and to his family 
against the loss of a job and against poverty-ridden old age.''
    The same is true today. Young people, like my two sons and two 
daughters, are skeptical about what will be left of Social Security 
when they retire. Too many Americans will spend a lifetime paying into 
this system, but expect little or no return on their investment come 
retirement. While there are no guarantees, our predecessors have tried 
to frame a law that gives some measure of protection to the average 
family against ``poverty-ridden old age.'' But without changing the 
current system, that will not continue.
    Americans contribute their hard earned dollars into a system that 
cannot sustain itself. If we continue down the current path, the 
federal government will not be able to ensure benefits even at the 
poverty level to future generations. It is the responsibility of this 
Congress to produce solutions so our children and grandchildren can 
look forward to a safe and secure retirement. This is simply an issue 
of generational fairness. In order to be fair to our nation's young 
people, we must modernize the Social Security system now so that it 
will be able to provide true retirement security for generations to 
come.
    The issues we are facing are not just about the Social Security 
program, they are also about retirement as a whole. We need to fix this 
problem at its root by looking at a broad array of retirement related 
issues. Congress must address Social Security reform as part of a 
broader ``Retirement Security'' plan that addresses personal savings, 
pensions, taxes, long-term health care and every other aspect of 
retirement.
    We must be united behind two goals, a permanently solvent Social 
Security program and a system that is equally fair for future 
generations as it is for today's. I have heard a lot of rhetoric saying 
that solvency and generational fairness are two separate and opposing 
goals. I disagree. It is possible to devise a plan that simultaneously 
creates solvency while making the system more equitable for future 
generations.
    Thus far, the proposals for individual accounts have been given the 
most attention and have been the most contentious. Individual accounts 
are part of the solution and are necessary if we want to move Social 
Security away from the current pay-go format that is neither equitable 
nor sustainable. Just to be clear, individual investment accounts 
should have a very limited set of investment options modeled after 
those included in the current Federal employee retirement plan. There 
is a major misconception out there that people will be able to invest 
in individual stocks with these accounts. I'm sure this Committee would 
be unanimous in opposing investments in individual stocks.
    Dating back to the 106th Congress, there has been much talk about a 
Social Security ``lock box,'' to protect Social Security funds from the 
spendthrift hands of government. Individual accounts are the ultimate 
``lock box.'' These accounts will be 100% safe from the government.
    The accounts will belong to the individual, have limited risk, and 
be fully inheritable. However, we must be clear with the American 
people. While individuals will have substantial control and total 
ownership over their retirement accounts, there must be limits, 
safeguards, and regulations on the way accounts are administered.
    I've heard a number of my colleagues describe personal accounts as 
a risky scheme. This characterization is not only unfounded, but also 
incredibly insulting to millions of Americans. The assumption is that 
most Americans aren't smart enough or responsible enough to manage 
their own accounts. Currently, over two million employees manage their 
own personal accounts as part of the Federal Employee's Retirement 
System (FERS). This system of individual accounts does not require a 
high level of expertise to manage and with a few important restrictions 
can minimize risks.
    As a CPA, I have dealt with retirement planning and tax related 
issues for more than 30 years. I believe I can bring a special 
perspective to this important debate and I would like to take this 
opportunity to voice four recommendations to this Committee:
    My first recommendation relates to the way personal accounts are 
invested over a person's lifetime. Most competent retirement advisors 
recommend a shift of risk concentrations in investments as their 
clients near retirement. To give an overly simplified example, a 30 
year old might prefer to have 70% of his retirement account in a stock 
index fund and 30% in a less risky fixed income fund. But as one gets 
older and closer to retirement, they should shift the ratio from equity 
funds to fixed income funds. By the time an individual gets to age 55, 
it would be prudent to reverse that ratio to have 70% in the fixed 
income fund and only 30% in the stock index funds. As one nears 
retirement the maximum and minimum percentage limits on the various 
investment funds will be altered to minimize an individual's risk. 
Individual stocks would not be an option, only allocations within a few 
index funds. This provision of required diversification should be 
included to ensure the safety and security of individual accounts. This 
safeguard will allow for the greatest rate of return while 
simultaneously alleviating volatility risks.
    My second recommendation concerns the way these accounts are 
administered at the time of retirement. As I've said earlier, Social 
Security was designed as an insurance policy against a ``poverty ridden 
old age.'' With personal accounts, we can ensure that every retiree is 
receiving payments equal to, at a bare minimum, the poverty level. When 
an individual ops in to the system of personal accounts, they will be 
contributing less to the general Social Security fund and therefore 
will have a lower defined benefit than someone who has decided not to 
participate. Personal account participants should be required to 
purchase, at retirement, a lifetime annuity that when combined with 
their defined Social Security benefit will equal at a minimum, the 
poverty level. By requiring a portion of the personal account to be so 
invested in a lifetime annuity, all retirees will have a requisite 
defined benefit for a lifetime. This is a necessary protection, not 
only for the individual, but also for society.
    My third recommendation will ensure that this personal retirement 
fund is used solely for retirement. Individuals must be prohibited from 
making withdrawals from their personal retirement accounts for any 
reason other than retirement. This would preclude any borrowing against 
the fund or using funds for unanticipated life events, either good or 
bad. These funds are intended for retirement, not for healthcare, not 
for college funds, not to pay for mortgages. The fund must be reserved 
and protected for retirement.
    Finally, I would also recommend an optional pretax contribution to 
the individual accounts for any person earning less than a certain 
multiple of the poverty level. Most middle to upper class families have 
the option of investing in 401k type plans, Thrift Savings Plans or 
IRA's to save money towards their retirement. But low income families 
and those Americans working for hourly wages often do not have a chance 
to save and invest in these personal retirement accounts. We should 
give them an option to contribute pretax dollars, through payroll 
deductions, on top of the individual accounts we create with this 
Social Security reform. We are trying to foster an ownership society, a 
society where people are encouraged to save for their future. Under 
this system, tens of millions of Americans who are not now saving for 
retirement will have the option to do so under the enactment of a 
retirement security measure.
    There is a great silent majority in America that consists of future 
generations of retirees. It is those silent generations, many of whom 
are still too young to vote or not yet currently engaged in the 
political process, that are depending upon this Congress to make the 
difficult decisions. If we do not fix Social Security now, they will 
eventually look to us wondering why we did not do everything in our 
power to ensure a fair retirement system. Those who are speaking with 
the loudest voices in opposition to substantive Social Security reform 
do not represent the people in Texas' 11th Congressional District or a 
majority of the population. And they certainly do not represent our 
children and grandchildren's generation. This debate involves all 
Americans including those who cannot yet speak for themselves. We have 
the ability to leave a better system for them than the one we have 
inherited: A Social Security system that is sustainable and provides 
true retirement security for all Americans.
    I thank the Committee for its time and I look forward to working 
with you in the weeks and months ahead to find a working solution to 
put the Security back in Social Security.

                                 

    Chairman MCCRERY. Thank you. We have four Members who are 
waiting to testify here at the table. I am tempted to go in 
order of seniority. However, if any of you has a plane that you 
need to catch or a pill that you need to take, raise your hand. 
Otherwise, I am just going to go in order of seniority. Okay. 
In that case, we will hear from the esteemed Ranking Member of 
the House Budget Committee, a gentleman who has worked on 
fiscal issues for a long, long time, John Spratt.

STATEMENT OF THE HONORABLE JOHN M. SPRATT, A REPRESENTATIVE IN 
           CONGRESS FROM THE STATE OF SOUTH CAROLINA

    Mr. SPRATT. Mr. Chairman, I hope you won't mind if I look 
at this chart. Mr. Chairman, thank you for this opportunity to 
testify.
    Chairman MCCRERY. Yes, sir. Thank you for coming.
    Mr. SPRATT. Let me see if I can pull this over here. I 
can't. To understand the position that we take on Social 
Security, you need to put Social Security into the broader 
context of the budget. At the close of the Clinton 
Administration through the start of the Bush administration, 
the budget was in the black, and surplus by $5.6 trillion, 
projected surplus over the next 10 years. Today, over that same 
10-year time span, the budget is deep in deficit, in the red by 
$3.8 trillion. This simple table that I have put up here as the 
first chart is one way to score the Bush administration's 
budget over the last 5 years. What this chart shows is that the 
debt ceiling has been raised three times and is due a second 
increase, three times in 5 years, 4 years in order to 
accommodate the budgets of the Bush administration, the budgets 
that the Congress has passed. As a result, if you include the 
$781 billion included in the concurrent budget resolution just 
passed by the House, the total amount of debt increase is $3.15 
trillion, four times over 5 years for $3.15 trillion, a spike 
of $3 trillion in debt, that is the basic point.
    [The information follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    
    What this chart shows is more debt every year. It doesn't 
really spell that out, but I am afraid that is in the cards, 
unless we have a major budget plan that reverses the fiscal 
policy and the course that we are on now. Someday, surely, a 
day of reckoning awaits us. One of the problems with the Bush 
Administration is that they are taking the same fiscal 
philosophy and the same permissive attitude toward debt and 
carrying it over Social Security. The President's so-called 
reforms would require the Treasurer to borrow $4.9 trillion 
between 2009 and 2028. That debt would be stacked on top of the 
enormous debt already mounting up in the budget.
    This next chart shows the debt that would have to be 
incurred in order to finance the transition. Now, the Bush 
administration said this is transitional debt; this is 
temporary debt; this debt will be paid back in time. This 
solution would increase debt as a percentage of Gross Domestic 
Product for at least 60 years before any pay down began. We met 
yesterday with former Secretary Robert Rubin, and he told us he 
had been around financial markets all of his life. He knew of 
no financial markets with time horizons so long or so lenient 
as to give credence to any borrower who was promising to pay 
back that didn't start for 60 years. This is the first leg of 
the Bush administration's proposal, and necessarily borrowing 
$4.9 trillion over the next 10 years, and it is one major 
reason that we consider the proposal a non-starter and call for 
privatization to be taken off the table so we can have a 
discussion about other aspects of the problem.
    [The information follows:]




    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




    
    After all, Mr. Chairman, our objective is to make Social 
Security solvent. By diverting 4 percentage points off a third 
of all payroll taxes away from the Social Security Trust Fund 
and into private accounts, the gap between revenues and outlays 
is only made wider and worse. To achieve solvency, the Bush 
Administration does have a plan. It wasn't brought forth 
immediately, but it was buried in the detail of their proposal 
that was given to others as background briefings, and it was 
part of model number two as proposed by the President's 
Commission.
    What the President proposed is to recalculate the initial 
benefit that is payable to prospective retirees by indexing the 
pinpoints in the basic benefit formula to price inflation 
instead of wage growth. Now, wages tend to grow by 1.1 percent 
more than prices, and over time, this difference becomes highly 
significant. By the 70th year, if this type of indexation is 
chosen, price indexation over wage indexation, the replacement 
ratio will be cut in half, from about 42 percent for the 
average beneficiary to about 22 percent. By the 70th year, that 
effect would be significant; it would reduce the benefit for 
the average beneficiary by about 50 percent.
    So, when people got past the private accounts idea and when 
they began to ask about other parts of the President's proposal 
and saw how this change affects the traditional benefits, their 
prospective benefits; the response was overwhelmingly negative. 
Therefore, the President came forth with another idea, a 
modification of the original idea, progressive re-indexation or 
sliding scale indexation. The next chart I have takes into 
account that particular approach proposal and shows what would 
happen to an average beneficiary retiring at age 65 with an 
earnings basis of 59,000. It assumes a rate of return on the 
private portfolio, which is the CBO's risk-adjusted rate of 
return. As you can see, the resulting benefit is well below the 
scheduled benefit payable under current law, and the 
traditional Social Security benefit, that little tip at the 
very bottom on the last bar, is all that is left of the 
traditional Social Security benefit; it is practically at the 
vanishing point.
    [The information follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



    
    So, there are two things that are made clear by this 
poster. First of all, partial privatization by the 70th year 
amounts to almost total privatization. The basic benefit, 
traditional benefit, provided by Social Security, is almost 
eradicated. It has also been implied, broadly speaking, that 
the purpose of privatization would be to reap the greater 
returns in the equity market and, therefore, have benefits that 
are at least equal to or better than the existing program, 
which depends upon returns in the bond market, which are low, 
but this analysis doesn't support that outcome at all. So, Mr. 
Chairman, we recognize that the challenge facing Social 
Security is real. We agree that the sooner we act, the better, 
but we also believe that Social Security benefits are vital, 
vital to millions of Americans. More than that, they are 
irreplaceable. There is no private plan likely to yield the 
same, provide the same benefits for the survivors, for the 
disabled, and for retirees.
    The plan before us would cut these significantly. So, we 
fervently believe that we can and must do better. We are 
willing to work with you to that end, but we honestly believe 
that these two legs of the Bush proposal, first of all, the 
notion that we would borrow $5 trillion over a 20-year period 
of time in order to finance a transition, and second that we 
would re-index the basic benefit need to be seriously given 
serious scrutiny and need to be laid off the table so we can 
find if there aren't other benefits to achieve the same purpose 
without the same results. Thank you for this opportunity to 
testify.
    [The prepared statement of Mr. Spratt follows:]
  Statement of The Honorable John M. Spratt, Jr., a Representative in 
               Congress from the State of South Carolina
    1.  At the close of the Clinton Administration and the start of the 
Bush Administration, the budget was in the black, in surplus by $5.6 
trillion over the next 10 years. Today, over that same 10 year span, 
the budget is deep in deficit; in the red by $3.8 trillion.
    2.  Here's one way to sum up or score the Bush Administration's 
budget over the last five years.
        a.  What this chart shows is how much the debt ceiling, our 
legal borrowing limit, has been raised each year in order to 
accommodate the Bush Administration's budgets.
        b.  What this chart depicts is a $3 trillion spike in the 
national debt over five years. Our problem with the Bush Administration 
is that they are taking this same fiscal philosophy, this same 
indifference toward debt, and carrying it over to Social Security.
    3.  The President's so-called reforms would require the Treasury to 
borrow $4.9 trillion between 2009 and 2028; and that would come on the 
top of the enormous debt already mounting up in the rest of the budget.
    4.  The Bush Administration says that this debt will be temporary 
or transitional, but their solution would increase debt held by the 
public as a percent of GDP for at least 60 years before any pay-down 
began. Yesterday, we met with former Secretary Rubin, and he told us 
there are no financial markets with time horizons so long or so lenient 
as to give credence to any borrower promising a payback that starts 
sixty years later.
    5.  This is the first leg of the Bush Administration's proposal, 
borrowing $4.9 trillion over the next 20 years, and one major reason we 
consider the proposal a non-starter, and call for privatization to be 
taken off the table.

    Our objective, after all, is to make Social Security solvent, and 
by diverting four percentage points off the FICA, a third of all 
payroll taxes, away from the Social Security Trust Fund and into 
private accounts, the gap between revenues and outlays is only made 
wider and worse.
    To achieve solvency, the Bush Administration has proposed to re-
calculate the initial benefit payable to prospective retirees, by 
indexing the bend points to price inflation instead of wage growth. 
Wages tend to grow about 1.1% more than prices; and over time, this 
difference become significant. By the 70th year, the replacement ratio 
is cut by half. When people got past private accounts, and began to ask 
about other aspects of President Bush's proposal, and saw how this 
change affects traditional benefits, the response was overwhelmingly 
negative. So, the President has come forth with another idea; 
progressive re-indexation.
    But this next chart shows what happens as powers converge on 
traditional Social Security benefits. One factor is progressive 
indexation. The other is the ``clawback,'' the obligation to repay, 
with interest at the real bond rate, all that is diverted from one's 
payroll taxes into Social Security. This chart is based on a worker 
retiring at age 65, having an earnings base of $59,000. It assumes a 
rate of return equal to the real rate of return on government bonds. As 
you can see, the resulting benefit is well below the standard benefit, 
payable under current law, and the traditional Social Security benefit 
is almost at the vanishing point.
    Mr. Chairman, we recognize the challenge facing Social Security, 
and agree that the sooner we act, the better. But, we also believe that 
Social Security benefits are not only vital to millions of Americans, 
but irreplaceable, and survivor benefits, disability benefits, and 
retirement benefits would be cut significantly by this plan. We 
fervently believe that we can and must do better.

                                 

    Chairman MCCRERY. Thank you, Mr. Spratt. Next, the 
Honorable Charles Gonzalez, another colleague from Texas, who 
is going to share his thoughts with us. Mr. Gonzalez?

       STATEMENT OF THE HONORABLE CHARLES A. GONZALEZ, A 
       REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

    Mr. GONZALEZ. Thank you very much, Mr. Chairman, and, 
Ranking Member Levin, for this opportunity. I know everybody's 
tired. It is getting late in the day, and I will attempt to be 
brief. I would ask that my written statement be submitted for 
the record in its entirety, and then I will just summarize 
pretty much and get through this. First of all, today there are 
2.3 million Hispanics that receive Social Security benefits. 
Obviously, any plan that impacts the basic structure of this 
program is going to have a greater impact on a certain segment 
of this Social Security population. So, let me get into 
specifics.
    While you can say for the general Social Security 
recipient, 65 percent of that population relies for one-half of 
their income on that Social Security check, but for Latinos, it 
is 75 percent. In the general Social Security recipient 
population, 20 percent relies on that monthly check for 100 
percent of their income. For Latinos, it is 38 percent, nearly 
twice of that the general population. Disability rates, higher 
in the Latino community. In the general population, it is 11.9 
percent; in Latinos, it is nearly 17 percent.
    So, you say, well, that is present; where is all this 
going? Why is it so important to Latino communities? Social 
Security is also of particular importance, though, because more 
often than not this particular demographic group, the Latinos, 
occupy jobs that do not offer pension coverage, have high 
turnover, leading to periods of unemployment, have higher 
disability rates because of the type of work that we do and 
live paycheck to paycheck, making it nearly impossible to save 
for retirement. In fact, 81 percent of Hispanic seniors have no 
pension benefits, and 72 percent of Hispanics have no savings 
for retirement. So, you can imagine the importance of a Social 
Security system in its present form solvent there to provide 
these particular benefits for this huge, huge population. When 
I say huge, I will get into some other specifics.
    First of all, in the next 30 years, nearly half of the 
population in the United States, the increase will take place 
in California, Florida, and Texas, which have huge Latino 
populations. So, are the demographics changing? How about the 
work force? Will things change in our lives because of 
education and great opportunities? I read from an article that 
came out on the 3rd of May, Hispanics wages not keeping up. Led 
by immigrants, employment among Hispanics who filled 40 percent 
of new jobs created last year is rising faster than employment 
among non-Hispanics, but salaries for Hispanics have been 
dropping steadily since 2002 as pay for their non-Hispanic 
counterparts has essentially held steady.
    Hispanic job gains were driven by immigrants who entered in 
this country between 2002 through 2004. The employment of this 
group increased by 914,000 in 2004 and accounted for more than 
one-third of the total increase in employment in the United 
States economy last year; 81 percent of new jobs for foreign-
born Hispanics and 76 percent of new jobs for native-born 
Hispanics were in occupations requiring minimal formal 
education. In contrast, 64 percent of new jobs for native-born 
white workers were in occupations requiring a college degree or 
more. We know what that equates to, pension, savings, and 
health insurance, all of it that this vast population, the 
Latino population is not going to be a beneficiary now or in 
the foreseeable future. That is a tragedy in and of itself 
which needs to be addressed, but that is the reality that this 
country faces.
    I do want to leave with one thought. I know that my 
colleague, Congressman Conaway, was telling you about the 
different variables, the volatility of the stock market. For 
all those reasons, you can't build that into this particular 
system, which will destabilize it. I think, as John Spratt 
eloquently pointed out, as he always does, it will destroy the 
system at the end if you have this privatization scheme. I 
believe that Social Security is a reflection of our society's 
values and understanding that we are a community that ensures 
our elderly and disabled citizens do not live in destitute 
poverty. Social Security, therefore, reflects the wealth we 
share collectively as a nation, not to some of what individuals 
accumulate individually. I agree with the President; I like the 
thought of an ownership society, but an ownership society that 
shares a common destiny and understands that we are all in this 
together, and that the health and well-being of our citizens 
will impact the health and well-being of our individual 
existence. With that, I thank the Chairman and the Ranking 
Member.
    [The prepared statement of Mr. Gonzalez follows:]
  Statement of The Honorable Charles A. Gonzalez, a Representative in 
                    Congress from the State of Texas
    Chairman McCrery, Ranking Member Levin, members of the 
subcommittee, thank you for the invitation and opportunity to testify 
today.
    I believe that Social Security is a reflection of our society's 
values and understanding that we are a community that ensures our 
elderly and disabled citizens do not live in destitute poverty. Social 
Security therefore reflects the wealth we share collectively as a 
nation, not the sum of what individuals accumulate.
    Millions of Hispanic Americans, including the Hispanic constituents 
who make up a majority of my congressional district, pay into Social 
Security all of their working lives, and as a result, Social Security 
has kept millions of Latinos out of poverty.
    Today, 2.3 million Hispanics receive Socials Security benefits and 
38% of elderly Latinos in this country rely on Social Security for 
their entire retirement income, and without this program, the current 
number of Hispanics living in poverty would more than double from 
today's 19% to an incredible 55%.
    Social Security is also of particular importance to the Latino 
community because more often than other demographics, they occupy jobs 
that do not offer pension coverage, have high turnover leading to 
periods of unemployment, have higher disability rates, and tend to live 
paycheck to paycheck making it nearly impossible to save for 
retirement.
    In fact, 81% of Hispanic seniors have no pension benefits and 72% 
of Hispanics have no savings for retirement. That is why today, 41% of 
Hispanics rely on Social Security for all of their retirement income 
and 75% of Hispanics rely on Social Security for a majority of their 
income
    As you can see, because it is not a simple adjustment to the 
program that will guarantee its solvency and secure the safety net, the 
effects of privatization on social security is of particular importance 
to the nation's Hispanic population.
    On top of that there are other questions for which we need 
answers--How much control will the taxpayer have over their own private 
account? Will the taxpayer have the choice of financial manager and 
investment types? How much will financial mangers be allowed to charge 
for managing these accounts? What contingency plan is there should a 
catastrophic market loss deplete the taxpayer's private account? Will 
taxpayers that choose NOT to direct any portion of their payroll taxes 
into a private account suffer a reduction of benefits? Are Survivor and 
Disabled benefits truly protected under the privatization proposal?
    I don't have the answers to all of those questions yet, but what I 
do know is that by privatizing Social Security and allowing the stock 
market to dictate the size of retirees' checks, we are destroying the 
ability for Latinos to pay into a reliable retirement system that will 
guarantee them a steady income for retirement.
    I want to touch on one other point and that is that I have heard 
the president and other advocates of privatization suggest that the 
Social Security Trust Fund is nothing more than a pile of ``IOUs'' that 
will somehow be discarded or left unpaid because they hold no real 
value.
    The truth is that when we pay taxes or even when we put money in a 
bank, it doesn't sit around in piles in a vault. It becomes a debt 
instrument through loans, bonds, and notes, which are all in a sense 
``IOUs.''
    To that extent, the ``IOUs'' in the Trust Fund are no different 
from a savings bond or any other bond sold by a government entity to 
fund services and projects. When a city or county issues bonds to pay 
for a school, that is an ``IOU'' owed to those who buy the bonds, and 
if the city or county default there are serious consequences. The same 
is true for the federal government which has not only borrowed the 
Social Security Trust Fund by way of bonds, but has also borrowed from 
foreign countries, companies, and citizens by way of savings bonds and 
treasury notes.
    All of those ``IOUs'' have a real value, and yes, I fully expect 
the U.S. Government to pay its debts, to include honoring the Social 
Security Trust Fund bonds.
    I hope that no one, including anyone in the Administration, is 
suggesting that our government can default on the monies owed to the 
Trust Fund, while advocating for a privatization plan that may well 
require $5 trillion in new debt to finance the privatization of Social 
Security. That is simply a bad idea.
    Chairman McCrery, Ranking Member Levin, members of the 
subcommittee, thank you again for the opportunity to testify today.

                                 

    Chairman MCCRERY. Thank you, Mr. Gonzalez. Ms. Wasserman 
Schultz has requested that she go next. If no one objects--she 
has got to go somewhere, she says. With no objection, then, Ms. 
Wasserman Schultz, you may proceed.

    STATEMENT OF THE HONORABLE DEBBIE WASSERMAN SCHULTZ, A 
      REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

    Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman, and Ranking 
Member, for accommodating me. Thank you for the invitation to 
testify in front of you this afternoon. There are those who 
would have you believe that Social Security is in crisis and at 
its breaking point, that the whole thing--I have heard the 
President use the term--is going bankrupt. Social Security is 
clearly not about to disappear. We must address its funding 
problems, but we need to be responsible and take the time to do 
it right, without undermining the entire system or pulling the 
rug or safety net out from under our current generation and 
generations to come, including families, survivors, and 
children.
    Social Security, it is clear, will continue to pay full 
benefits for the next 40 to 50 years, at which point the trust 
fund will be exhausted, and we will have a situation where we 
will pay out more in benefits than we collect in revenue. After 
that, Social Security will continue to exist and can afford to 
pay benefits at 70 to 80 percent of their existing levels 
because workers will continue to pay into the system. Social 
Security is and has always been an insurance program with a 
guaranteed return, not an investment gamble subject to the 
whims of the stock market, which is what has been proposed by 
the President. It is there to provide a guaranteed level of 
security for retirees, for widows, for disabled workers and 
children. Privatization will do nothing to solve Social 
Security's funding problem. In fact, it will make it worse. It 
will cost trillions of dollars, is fiscally irresponsible, and 
according to the 2004 Economic Report of the President, it will 
explode the national debt to unsustainable levels. It will cost 
at least $5 trillion to implement in the first 20 years alone.
    The cost of privatization will saddle our children and 
grandchildren with debt. Today, every man, woman, and child 
owes $26,000 to pay down the national debt, essentially a birth 
tax which I and many of my colleagues find unconscionable. Just 
imagine how high the birth tax would be if $5 trillion of 
additional debt is added to it. The Center on Budget and Policy 
Priorities recently released a study, the results of which I 
would like to share with you today. They found that Social 
Security lifts 1 million children across the country above the 
poverty line. Social Security does more to reduce child poverty 
than any other program. The Center found that Social Security 
reduced the child poverty gap by 21 percent in 2002. That is 
slightly more than the reduction achieved by the earned income 
tax credit, which is 20 percent, or food stamps, which is 15 
percent. In Louisiana, Mr. Chairman, Social Security lifted 
29,000 children out of poverty during 2002. In Michigan, Mr. 
Levin, Social Security kept 34,000 children out of poverty. In 
California, 141,000 children. In Texas, 81,000 children. In 
Pennsylvania and Ohio, 36,000 and 38,000 children were lifted 
out of poverty due to Social Security respectively. In my home 
State of Florida, Social Security lifted approximately 50,000 
children out of poverty.
    Social Security's own records show that, at the end of 
2003, 3.1 million children qualified as survivors or dependents 
of deceased, disabled or retired workers, but has a combined 
effect on family's resources greater than what is indicated 
simply by the children who collect Social Security benefits 
directly. A substantial number of children receive no payments 
but still benefit from the fact that family Members receive 
those benefits. Children, approximately 5.3 million of them, 
lived in families that received Social Security income in 2002. 
Mr. Chairman, I am 38 years old, and I have friends and 
colleagues who believe that Social Security will not be there 
for them because the President has created what has amounted to 
a crisis mentality of mythological proportions.
    In 2041, which is the most likely year in which we will 
actually begin to have a problem, I will be 74 years old, 10 
years later in 2051, which is the more likely, given the 
economic projections, year in which we will begin to have a 
problem, I will be 84 years old, long past retirement age, long 
past when my friends and colleagues will be at retirement age. 
I think we need to kind of ratchet down the rhetoric. We need 
to make sure that people truly understand what the facts are. 
When it comes to Social Security and its difficulties, we need 
to take the time, be responsible, and make the changes together 
that need to be made. We are willing to come to the table, but 
we are not willing to pull the rug out from under this 
generation or the generations to come. As a Member of that 
generation, I urge you to come to the table, sit with us, take 
privatization off the table so that we can make the compromises 
necessary to fix it. Thank you.
    [The prepared statement of Ms. Wasserman Schultz follows:]
 Statement of The Honorable Debbie Wasserman Schultz, a Representative 
                 in Congress from the State of Florida
    Thank you Chairman McCrery and Ranking Member Levin for inviting me 
to testify before you and the Subcommittee on this important issue 
today. It's an honor to be here among such an esteemed group of 
colleagues, who have--and continue--to lead the fight to protect Social 
Security.
    There are those who would have you believe that the Social Security 
system is in crisis and at its breaking point--that the whole thing is 
about to go bankrupt. But Social Security is not about to disappear. We 
must address the funding problems, but we have time to do it right and 
without undermining the entire system or pulling the rug out from under 
seniors, families, survivors and children.
    Social Security will continue to pay full benefits for the next 40-
50 years, at which point the Trust Fund will be exhausted. After that, 
Social Security will continue to exist and can afford to pay benefits 
at 70-80% of their existing levels because workers will continue to pay 
into the system.
    Social Security is and has always been an insurance program with a 
guaranteed return, not an investment gamble subject to the whims of the 
stock market. It is there to provide a guaranteed level of security for 
retirees, widows, disabled workers and children. Privatization does 
nothing to solve Social Security's funding problem. In fact, it makes 
it worse. Privatization costs trillions of dollars and is fiscally 
irresponsible. According to the 2004 Economic Report of the President, 
privatization explodes the national debt to unsustainable levels. 
Privatization costs at least $5 trillion dollars to implement in the 
first 20 years alone.
    The administration intends to cover these costs by taking even more 
money out of the Social Security Trust Fund and borrowing heavily from 
foreign countries like China--and it's the taxpayers, all of us, who 
are on the hook to pay them back. The plan is so expensive that it 
threatens to bankrupt the Trust Fund in only 11 years, nearly three 
decades earlier than current projections.
    The cost of privatization saddles our children and grandchildren 
with debt. Today, every man, woman and child owes $26,000 to pay down 
the national debt--a ``birth tax'' if you will, which I find 
unconscionable. Just imagine how high the birth tax will be if $5 
trillion dollars of additional debt are added into the equation to pay 
for only the first 20 years of the President's proposed privatization 
scheme.
    But on top of that debt--privatization threatens the families, 
survivors and children who rely on Social Security to keep them out of 
extreme poverty and destitution. Across this country, one-third of all 
Social Security's beneficiaries are not retirees. Social Security 
offers a set of insurance protections for workers and their families, 
providing protection against poverty in the event of death, disability 
or old age, the likes of which are simply not available in our private 
markets.
    The Center on Budget and Policy Priorities (or CBPP) recently 
released a study, the results of which I would like to share with you 
today. They found that Social Security lifts 1 million children across 
this country above the poverty line. Social Security does more to 
reduce child poverty than any other program. CBPP found that Social 
Security reduced the child poverty gap by 21% in 2002--that is slightly 
more than the reduction achieved by the Earned Income Tax Credit (20%) 
or food stamps (15%).

      In Louisiana, Social Security lifted 29,000 children out 
of poverty during 2002.
      In Michigan, Social Security kept 34,000 children out of 
poverty.
      In California--141,000 children.
      In Texas--81,000.
      In Pennsylvania and Ohio--36,000 and 38,000 children 
respectively.

    And in my home state of Florida, Social Security lifted 
approximately 50,000 children out of poverty.
    Social Security's own records show that at the end of 2003, 3.1 
million children qualified as survivors or dependents of deceased, 
disabled or retired workers. But Social Security has a combined effect 
on families' resources greater than what is indicated by looking at 
``child payments'' alone. In other words, a substantial number of 
children receive no payments but still benefit from the program because 
a member of their family receives benefits. CBPP used Census Bureau 
data to determine that approximately 5.3 million children lived in 
families that received income from Social Security in 2002.
    With so much at stake Democrats believe that this is the time for 
public education and debate about Social Security's future, not the 
time to rush into a risky and untested plan. To Democrats, the greatest 
challenge is that Social Security may face significant benefit cuts in 
the future. But instead of seeing future benefit cuts as a problem to 
avoid, some of our Republican colleagues see cuts as the solution to 
the current difficulties.
    Social Security means more than retirement. It provides disability 
insurance that young families need. For a 27-year-old worker with a 
spouse and two children, Social Security provides the equivalent of a 
$353,000 dollar disability insurance policy. Most young people cannot 
obtain or afford similar coverage in the private markets. Suppose--god 
forbid--a young parent dies suddenly. Social Security provides for the 
children who are left behind. For a young parent, the survivors' 
benefits are equivalent to a $403,000 dollar insurance policy.
    You've heard the president say that private accounts would be 
voluntary. That may be the case, but the benefit cuts would apply to 
everyone, not just those who signed up for private accounts. In fact, 
they are the largest middle class benefit cut in Social Security's 
history.
    Democrats are ready to work with Republicans on a solution to 
strengthen the system, but we cannot support any plan that involves 
massive cuts in guaranteed benefits or huge increases in our national 
debt. If the President will drop his demand to include privatization, 
then we can discuss bipartisan solutions that really strengthen Social 
Security.
    President Bush, says that, and I quote, ``leadership means not 
passing problems on to future generations and future presidents,'' but 
this plan passes trillions of dollars of debt onto our children and 
grandchildren. I urge you--my colleagues--to consider this advice and 
do what's best for the American people, for our children and for our 
future.
    Thank you Chairman McCrery, Ranking Member Levin and Members of the 
Subcommittee.

                                 

    Chairman MCCRERY. Thank you. Mr. Cleaver, since you have 
been patiently waiting for some time, having come back twice 
now, I am going to recognize you, the gentleman from Missouri. 
Mr. Cleaver, thank you for coming and being so patient. You may 
proceed.

STATEMENT OF THE HONORABLE EMANUEL CLEAVER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MISSOURI

    Mr. CLEAVER. Thank you. I wanted my colleague, because she 
is older, to have the chance to speak before me. Thank you, Mr. 
Chairman, and, Ranking Member Levin, for convening this 
important hearing on Social Security. I really appreciate the 
opportunity to provide testimony. I represent the Fifth 
Congressional District of Missouri. In my district, we have 
103,193 total Social Security beneficiaries. So, the future of 
Social Security is very important to me and my constituents. 
Whenever I return home, people want talk to me about Social 
Security, and their message is almost always the same: Don't 
privatize Social Security.
    This past March, I held an amazing townhall meeting at Penn 
Valley Community College. We had more than 500 of my 
constituents in attendance. The vast majority of attendees told 
me that they came to express their strong opposition to 
privatizing Social Security. Some told me they worry that 
privatizing Social Security would endanger the benefits of 
current retirees and people with disabilities and cut benefits 
for future generations. Others told me that they worry that 
privatizing Social Security will saddle their grandchildren 
with a massive debt they cannot afford. I heard time and time 
again that everyone knows Social Security needs reform, but 
this is not the way to do it.
    Social Security is an American success story that has 
helped millions of Americans enjoy a secure retirement for more 
than 70 years. It is the single largest source of retirement 
income in this country. For over two-thirds of seniors, Social 
Security provides the majority of their income, while four in 
ten widows rely on Social Security to provide 90 percent or 
more of their income. Without Social Security, nearly half of 
seniors would live in poverty. Social Security has been so 
successful because its benefits are guaranteed for as long as 
the worker or his or her spouse lives. Social Security is 
predictable, steady, and has never failed to pay promised 
benefits.
    Whenever I think about the importance of Social Security, I 
don't have to think very far from my own life. My great 
grandfather, the Reverend Albert Cleaver, lived to the ripe old 
age of 102. He was married for the final time at age 87. He 
was, by any standard--except his sex appeal--considered poor, 
but because he received Social Security, he was able to live 
out his last years comfortably. My great grandfather died while 
I was in college, but if he hadn't had Social Security, he 
would have lived in abject poverty.
    The suggestion that African-Americans should support 
privatization because they don't live as long as other groups 
is both laughable and insulting. It would be like one of our 
spouses saying, I am going to be nice to you sooner because you 
are going to die soon. I think that it is a horrible way for us 
to talk about Social Security. I am not sure who advised the 
President to bring that into the conversation, but they should 
be put out of Washington. The worst part of that is if we are 
going to talk about a group of Americans dying sooner, we 
should talk about trying to come up with cures to sickle cell 
sooner, or so many other diseases that wreak havoc among 
African-Americans. Instead, we were told, since you are going 
to die, you should support Social Security reform the way we 
want it with privatization.
    The promise of a guaranteed benefit is especially important 
for African-Americans. Social Security is the only source of 
retirement income for 40 percent of African-American seniors. 
The SSA estimates that the poverty rate for elderly blacks 
would more than double, from 24 percent to 65 percent, without 
Social Security. The fact of the matter is that proposals to 
privatize Social Security put that benefit in danger. By 
diverting trillions of dollars in revenue away from Social 
Security, privatization plans require drastic upfront cuts to 
Social Security, reducing the guaranteed amount. Now, to those 
of us sitting at this table making 6 figure incomes, this may 
not be a big deal, but to seniors like my great grandpa, 40 
percent is the difference between a comfortable, sustainable 
retirement, and living in painful and unpalatable poverty.
    I know the argument that some would have, which is--and we 
have all heard--that the proponents of privatization say that 
private accounts would make up for any benefit cuts that may be 
necessary. From what I have seen of these proposals, benefit 
cuts will be necessary. The argument simply isn't true. The 
stock market is by no means a safe investment. A study by AARP 
demonstrated that about 20 percent of older Americans who lost 
money when the stock market declined from 2002 to 2004 have 
subsequently postponed their retirement dates. Clearly, the 
daily fluctuations in the market make it inherently unreliable.
    On the Missouri River, I hate to say this, but during the 
term I served as Mayor for 8 years, the State and our city made 
it possible to bring in river boats. We have three on the 
Missouri River now, and they attract all sorts of people 
looking to hit it big. You don't go down to the boats and 
expect to come back with your retirement income from the 
winnings. That is exactly what proponents of private accounts 
are asking us to do. Even if you do beat the odds and come away 
from the stock market a winner, you still won't have enough 
accumulated earnings to make up for the benefit cuts, and that 
is because, for every dollar a retiree has in a private account 
at retirement, about 70 cents will be deducted.
    Let me conclude, Mr. Chairman, I appreciate your patience. 
This is a true story--1 day the wind and the sun had an 
argument, and the argument was over which one could cause a man 
to take off his coat. The wind tried it first, and he blew and 
blew, and the more he blew, the harder the man pulled his coat 
against him. Finally, he gave up and so it was time for the 
sun. So, the sun simply poured out its warmth and more warmth, 
and then finally, the man took off his coat. The sun won. Now, 
what is the moral of that story? Well, people cannot be won 
over by the wild and wicked winds of whim, but rather the 
warmth of welcoming sunlight brought about by security and 
guarantees.
    [The prepared statement of Mr. Cleaver follows:]
    Statement of The Honorable Emanuel Cleaver, a Representative in 
                  Congress from the State of Missouri
    Thank you Mr. Chairman and Ranking Member Levin for convening this 
important hearing on Social Security. I appreciate the opportunity to 
testify before the Subcommittee.
    I represent the 5th District of the great state of Missouri. In my 
district, we have 103,193 total Social Security beneficiaries, so the 
future of Social Security is one of the most important issues to my 
constituents. Whenever I return to the Fifth District, people want to 
talk to me about Social Security, and their message is almost always 
the same: don't privatize Social Security.
    This past March, I held an amazing town hall meeting on Social 
Security that over 500 of my constituents attended. The vast majority 
of attendees told me that they came to express their strong opposition 
to privatizing Social Security. Some told me they worry that 
privatizing Social Security would endanger the benefits of current 
retirees and people with disabilities, and cut benefits for future 
generations. Others told me they worry that privatizing Social Security 
will saddle our grandchildren with a massive debt they cannot afford. 
And I heard time and time again that everyone knows Social Security 
needs reform, but this isn't the way to do it.
    Social Security is an American success story that has helped 
millions of Americans enjoy a secure retirement for the past 70 years. 
It is the single largest source of retirement income in the country. 
For over \2/3\rds of seniors, Social Security provides the majority of 
their income, while 4 in 10 widows rely on Social Security to provide 
90% or more of their income. Without Social Security, nearly half of 
seniors would live in poverty.
    Social Security has been so successful because its benefits are 
guaranteed for as long as the worker and his or her spouse lives. 
Social Security is predictable, steady, and has never failed to pay 
promised benefits.
    Whenever I think about the importance of Social Security, I don't 
have to think far from my own life. My great grandfather, the Reverend 
Noah Albert Cleaver, lived to the ripe old age of 102. He was--by any 
standard--poor. But because he received Social Security, he was able to 
live out his last years comfortably. My great grandfather died while I 
was in college, but if he didn't have Social Security's guaranteed 
benefit, he would have, absolutely, lived out his last years in abject 
poverty.
    The promise of a guaranteed benefit is especially important for 
African Americans. Social Security is the only source of retirement 
income for 40% of African American seniors, and the Social Security 
Administration estimates that the poverty rate for elderly blacks would 
more than double--from 24% to 65%--without Social Security. But the 
fact of the matter is that proposals to privatize Social Security put 
this guaranteed benefit in danger. By diverting trillions of dollars in 
revenue away from Social Security, privatization plans require drastic 
up-front cuts to Social Security, reducing the guaranteed amount 
received by seniors on fixed incomes by as much as 40%. Now, to those 
of us sitting at this table making six figure incomes, this may not be 
a big deal. But to seniors like my great-grandfather, 40% is the 
difference between a comfortable, sustainable retirement and living in 
poverty.
    Now I know the argument that's coming now. We've all heard 
proponents of privatization say that private accounts will make up for 
any benefit cuts that may be necessary (and from what I've seen of 
these proposals--benefit cuts would be necessary.) But that argument 
simply isn't true.
    The stock market is, by no means, a safe investment. A study by 
AARP demonstrated that about 20 percent of older Americans who lost 
money when the stock market declined from 2000 to 2002 have 
subsequently postponed their retirement dates. Clearly, the daily 
fluctuations in the market make it an inherently unreliable tool around 
which to plan one's retirement: it's tantamount to gambling. On the 
Missouri River we have a number of riverboats that attract all sorts of 
people looking to hit it big. You don't go down to the boats and expect 
to come back and retire off your winnings--but that's exactly what 
proponents of private accounts are asking us to do.
    And even if you do beat the odds and come away from the stock 
market a winner, you still won't have enough accumulated earnings to 
make up for the benefit cuts. That's because, for every dollar a 
retiree has in their private account at retirement, about 70 cents will 
be deducted from their Social Security benefits.
    It's clear to me privatizing Social Security is a losing 
proposition. Does Social Security face difficulties down the road? Yes. 
And we need to address them. But Social Security will be fully solvent 
for nearly 50 years, and even after that it will still be able topay 80 
percent of benefits. But right now, the real threat to Social Security 
is the threat of benefit cuts. My constituents have made their views 
clear: they do not support any plan that gambles seniors' benefits on 
the stock market or guts guaranteed benefits. I must vote with my 
constituents, and for these reasons, I cannot, in good conscience, 
support any plan to privatize Social Security.

                                 

    Chairman MCCRERY. Thank you, Mr. Cleaver. Next, it is my 
distinct privilege to welcome to the Subcommittee Ms. Matsui, 
whose late husband dedicated much of his time and energy to 
this subject while he was a proud Member of the Committee on 
Ways and Means. So, welcome, Ms. Matsui. You may proceed.

 STATEMENT OF THE HONORABLE DORIS MATSUI, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. MATSUI. Thank you very much, Mr. Chairman and Ranking 
Member Levin, and I appreciate being here. I realized today 
that I had never been here to watch my husband, and that is 
something I regret. I am happy to be here today to have this 
opportunity to express my views on Social Security. Social 
Security is one of the most successful Federal initiatives ever 
created, and I welcome the opportunity Congress has to 
strengthen the program. As we work to ensure the long-term 
solvency of Social Security, we must find the right combination 
of changes, and we must be mindful of the effects of the 
changes on current and future Social Security recipients.
    The challenges facing Social Security are not so imminent 
that we must rush through the reforms. We have the time to get 
these fixes right. Were we to rush a quick fix or ill-conceived 
plan through Congress, we would be doing our constituents a 
grave disservice. However, I am hopeful that Congress can, in a 
thoughtful and bipartisan manner, work to address this issue 
for current retirees as well as for future generations. 
Unfortunately, not every reform option is on the table. The 
President has a single-minded focus of replacing Social 
Security with risky private accounts to the exclusion of all 
other possibilities, regardless of the long-term harm private 
accounts would do to a program every senior receives which was 
created as a security net as a last line of defense for all 
seniors against poverty.
    The Nation has watched Enron collapse and pension bailouts, 
and Americans want reassurance that Social Security, their 
retirement safety net, is secure. Their instinct that the 
private account scheme would only add the risk of the stock 
market on top of the proposed benefit cuts is well-founded. 
Despite months of talking directly to the American people and 
trying to sell this plan, the majority of Americans are opposed 
to the President's proposal to replace Social Security with 
risky private accounts, and their objections are completely 
legitimate.
    The President's proposed answer to Social Security's long-
term shortfall is deep cuts in guaranteed benefits for the 
middle class. Most Americans, though, see benefit cuts as the 
problem, not the solution. These concerns are shared by most 
Americans, and they are not specific to one community or one 
segment of the population. Just as these concerns resonate with 
women, African-Americans, middle class, lower class, the Asian-
American community is also worried about the long-term effects 
of the President's plan. Millions of Americans rely on Social 
Security to provide rock-solid guaranteed benefits and 
retirement.
    Although so many in the Asian-American community enjoy a 
wide degree of prosperity, many more are low-wage earners who 
frequently have no savings or pension coverage. With 30 percent 
of Asian-American seniors relying on Social Security for all or 
part of their retirement income, compared to 70 percent of all 
seniors nationally, this assurance is even more important. Over 
one-quarter of the Asian-American community is under the age of 
21; this is a very young community. I firmly believe that 
Social Security is a fundamental commitment between generations 
that reflects the values that we share, an emphasis on family, 
and an agreement among the entire community that survivors, the 
disabled and seniors should benefit from a shared assistance. 
By taking this path to change Social Security, we are adding 
almost $5 trillion in additional debt on the backs of our 
children and our grandchildren.
    I would not be honoring this fundamental commitment to my 
granddaughter or any other young person by supporting poor 
policy executed with fiscal irresponsibility. As I conclude my 
testimony, I would like to share just a moment with you a story 
about my husband and Social Security reform. As you know, Bob 
had built quite a legacy from his long and productive career in 
the House of Representatives, much of it here on the Committee 
on Ways and Means, in fact, in service to this Subcommittee. He 
believed, as do I, that Social Security as woven into the 
social and moral fabric of our country, that it reflects an 
unwritten and unspoken agreement that all of us are better off 
with it as a guarantee beneath our feet. As I said, Bob had 
quite a wealth of accomplishments in his 26 years of service to 
this country. With all his legislative accomplishments, there 
was only one piece of legislation hanging in his office: The 
1983 bipartisan Social Security reform bill. I don't think many 
people were aware of that fact. Bob saw in that legislation the 
fundamental promise of Social Security and the importance of 
bipartisanship. As we consider a host of ideas about how to 
again reform Social Security, we should not stray so far as to 
forget those central ideas. I thank you very much.
    [The prepared statement of Ms. Matsui follows:]
 Statement of The Honorable Doris Matsui, a Representative in Congress 
                      from the State of California
Mr. Chairman:

    Thank you for this opportunity to express my views on Social 
Security reform before the Subcommittee.
    Social Security is one of the most successful federal initiatives 
ever created and I welcome the opportunity Congress has to strengthen, 
the program. As we work to ensure the long-term solvency of Social 
Security, we must find the right combination of changes. And we must be 
mindful of the effects of the changes on current and future Social 
Security recipients.
    The challenges facing Social Security are not so imminent that we 
must rush through reforms. We have the time to get these fixes right. 
Were we to rush a quick fix or an ill-conceived partisan plan through 
Congress, we would be doing our constituents a grave disservice. 
However, I am hopeful that Congress can, in a thoughtful and bipartisan 
way, work to address this issue for current retirees as well as future 
generations.
    Unfortunately, not every reform option is on the table. The 
president has a single-minded focus on replacing Social Security with 
risky private accounts, to the exclusion of all other possibilities--
regardless of the long-term harm private accounts would do to a program 
every senior receives and which was created as a security net, as the 
last-line of defense for all seniors against poverty.
    The nation has watched Enron collapse and pension bailouts and 
Americans want reassurance that Social Security--their retirement 
safety net--is secure. Their instinct that the private account scheme 
will only add the risk of the stock market on top of the proposed 
benefit cuts is well-founded.
    Despite months of talking directly to the American people and 
trying to sell his plan, the majority of Americans are opposed to the 
President's proposal to replace Social Security with risky private 
accounts. And their objections are completely legitimate. The 
president's proposed answer to Social Security's long-term shortfall is 
deep cuts in guaranteed benefits for the middle class. Most Americans, 
though, see benefit cuts as the problem, not the solution.
    These concerns are shared by most Americans. They are not specific 
to one community or one segment of the population. Just as these 
concerns resonate with women, African Americans, middle class, lower 
class, the Asian American community is also worried about the long-term 
effects of the president's plan.
    Millions of Americans rely on Social Security to provide a rock-
solid guaranteed benefit in retirement. And with 30 percent of Asian-
American seniors relying on Social Security as their only source of 
retirement income, this assurance is even more important.
    Over one quarter of the Asian-American community is under the age 
of 21; we are a very young community. I firmly believe that Social 
Security is a fundamental commitment between generations, a compact of 
shared risk in exchange for shared security. But by taking this path to 
change Social Security we are adding almost $5 trillion in additional 
debt to the backs of our children and grandchildren. I would not be 
honoring this fundamental commitment to my granddaughter or any other 
young person by supporting poor policy executed with fiscal 
irresponsibility.
    As I conclude my testimony, I would like to take a moment to share 
with you a story about my husband and Social Security reform. Bob has 
built quite a legacy from his long and productive career in the House 
of Representatives, much of it on Ways & Means in service to this 
Subcommittee. He believed, as do I, that Social Security has been woven 
into the social and moral fabric of our country--that it reflects an 
unwritten and unspoken agreement that all of us are better off with it 
as a guarantee beneath our feet.
    As I said, Bob had quite a wealth of accomplishments in his twenty-
five years of service to his country. But there was only one piece of 
legislation hanging in his office . . . the 1983 bi-partisan Social 
Security reform bill. I don't think many people were aware of that 
fact. Bob saw in that legislation the fundamental promise of Social 
Security and the importance of bipartisanship. As we consider a host of 
ideas about how to again reform Social Security, we should not stray so 
far as to forget those central ideals.

                                 

    Chairman MCCRERY. Thank you, Ms. Matsui. Ms. Jackson-Lee, 
thank you for patiently waiting. Did you present written 
testimony?

STATEMENT OF THE HONORABLE SHEILA JACKSON-LEE, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Ms. JACKSON-LEE. No. I will submit it.
    Chairman MCCRERY. That is fine. You may proceed as you wish 
for 5 minutes to summarize your testimony. Thank you.
    Ms. JACKSON-LEE. I thank the Chairman and I thank the 
Ranking Member for particularly giving us the opportunity. I 
have heard, sitting here this afternoon, moving testimony and 
certainly that of Doris Matsui, in terms of the commitment of 
Bob Matsui to this issue. I guess the singular theme of which 
she offered was consideration in a bipartisan manner, being 
able to reflect the hopes and dreams of all Americans.
    My district is dominated by senior citizens. I had the 
opportunity of visiting with about 800 of them in a townhall 
meeting. One, to make a presentation, but more importantly to 
listen to them. It is interesting that the overwhelming theme 
was the safety net factor that Social Security provided. As I 
listened to my colleague speak about his great grandfather, I 
simply want to add to his story that of my grandmother, was 
born in the 1800s and worked most of her life as a domestic. It 
was with the creation of Social Security in World War II by 
President Roosevelt, that my grandmother was allowed to live 
her life after retirement from working in the homes of many in 
a more dignified manner.
    So, I simply say to my colleagues that as we look at Social 
Security, even as the President may push forward on 
privatization, can we not think of the hundreds of thousands 
and millions of Americans, some who have now since lost their 
lives through aging, of being able to survive because of that 
safety net? In this season of basketball, we might consider 
Social Security as a slam dunk. It has worked for more than 60 
years. It has been solvent. In tribute to the 1983 reform and 
the bipartisan reform, it is now solvent until at least 2042 to 
2043. In fact, as we have been informed, it is probably the 
strongest now in 2005 than it has ever been. Social Security 
provides for 47 million retirees, family Members of workers who 
died, and people with disabilities. About 30 percent of Social 
Security beneficiaries receive survivor disability benefits. 
Nearly two thirds of retirees count on Social Security for most 
of their retirement income. Social Security, as I said, is a 
safety net that keeps retirees out of poverty. Between 1960 and 
2004, Social Security helped cut the poverty rate among seniors 
by more than two thirds, from 35 percent to 10 percent.
    Social Security beneficiaries earn their benefits by paying 
into a system throughout their time at work. We must strengthen 
Social Security, but we must take time to get it right. Social 
Security is a sound system that can meet 100 percent of its 
obligations. Someone told me a story about the potential 
realities of privatization and giving authority to individuals 
to manage their own account. Ownership is a very fine dream. I 
wish for America homeownership throughout the Nation. When you 
talk about managing your own private savings account or 
privatization, you talk about the burden--of burdening 
individuals of responsibility of competing with the minds of 
Wall Street. Frankly, I believe that the best approach is to 
create that sure safe safety net that is there whenever someone 
needs it.
    When I met and had a meeting with my senior citizens, they 
asked a question about the generational gap. In fact, some were 
concerned that their grandchildren were sitting at the table 
sort of pointedly saying, you have got the old system, we want 
the new system. That generational schism should not be. 
Frankly, right now grandparents are taking care of children, 
teenagers, and young adults, allowing them to go to college 
with their Social Security benefits. Again, it is a Social 
Security safety net.
    Under privatization, the average worker would lose $152,000 
in guaranteed benefits. Guaranteed benefits would be cut by 40 
percent even for workers who don't choose to have it 
privatized. For workers who do choose privatized accounts, the 
government would take back 70 cents in Social Security benefits 
for every one dollar in their accounts. That is on top of the 
40-percent guaranteed benefit cut. The Bush privatization 
proposal creates a false depiction of Social Security's future 
and solvency, and threatens to replace Social Security with 
very risky private investment.
    Let me close by simply saying that 60 percent of all Social 
Security beneficiaries 65 and over are women. As well, Social 
Security provides 90 percent or more of the total income for 44 
percent of unmarried women 65 older, 66 percent of unmarried 
Hispanic women 65 and older, 74 percent of unmarried African 
American women 65 and older, and 35 percent of all unmarried 
men, 65 and older. Women are the dominant recipients.
    With the income of women still not equal, I would say to my 
colleagues here today, let us be very careful when we begin to 
undermine the social safety net, or Social Security. I hope we 
can do this in a bipartisan way. I simply close by saying to 
you this: so many of us understand the story of the Good 
Samaritan, someone who refused to ignore someone broken and 
battered along life's highway and journey. I would ask that we 
look to that broken and battered person as those needing Social 
Security and the safety net. Let us not ignore them. Let us 
join in a bipartisan way to ignore the entreaty of 
privatization and grab hold of the slam dunk, and that is the 
safety net of Social Security for all Americans.
    Chairman. MCCRERY. Thank you, Ms. Jackson-Lee.
    [The prepared statement of Ms. Jackson-Lee follows:]
  Statement of The Honorable Sheila Jackson-Lee, a Representative in 
                    Congress from the State of Texas
      Social Security provides a guaranteed income each year 
for more than 47 million retirees, family members of workers who died 
and people with disabilities. About 30 percent of Social Security 
beneficiaries receive survivor or disability benefits.
      Nearly two-thirds of retirees count on Social Security 
for most of their retirement incomes.
      Social Security is a safety net that keeps retirees out 
of poverty. Between 1960 and 2004, Social Security helped cut the 
poverty rate among seniors by more than two-thirds, from 35 percent to 
10 percent.
      Social Security beneficiaries earn their benefits by 
paying into the system throughout their time at work.
      We must strengthen Social Security, but we must take the 
time to get it right. Social Security is a sound system that can meet 
100 percent of its obligations until 2042 (some projections say 2052). 
After 2042, if no changes are made, funds from Social Security payroll 
taxes will be sufficient to finance nearly 70 percent of the payments 
to beneficiaries.
      Administrative costs for Social Security are less than 1 
cent per dollar paid out in benefits. This is much lower than the 
average administrative costs of 12 to 14 percent for private insurers.

    Privatization backers are trying to scare Americans into believing 
Social Security faces a crisis so they can sell privatization. But 
while Social Security does face problems that must be addressed, 
privatization will make the situation worse, not better.
    In fact, under privatization proposals:

    The average worker would lose $152,000 in guaranteed retirement 
    benefits.  Guaranteed benefits would be cut by 40 percent 
even for workers who don't choose to have a privatized account.
      For workers who do choose privatized accounts, the 
government will take back 70 cents in Social Security benefits for 
every $1 in their accounts. That's on top of the 40 percent guaranteed 
benefit cut.
      The Bush privatization proposal creates a false depiction 
of Social Security's future solvency and threatens to replace Social 
Security with very risky private investment accounts.

    In closing, the private accounts that would be created under this 
proposal are a premature and drastic way of addressing a problem that 
is predicted for 40 to 50 years into the future. Furthermore, the 
damage that will be caused for the millions of seniors whose benefits 
will be severely cut under this plan is not worth the speculation that 
is necessarily required with investments.

                                 

    Chairman. MCCRERY. Last but not least, another gentleman 
from New York. Texas, I think gets the sweeps today for the 
number of Members testifying. Florida gets second. I think New 
York ties for third. Mr. Fossella, thank you very much for 
joining us. You may proceed as you wish. If you have written 
testimony, you may submit it. If not, it will be transcribed 
and included in the record.

 STATEMENT OF THE HONORABLE VITO FOSSELLA, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. FOSSELLA. Thank you, Mr. Chairman, thank you and the 
Ranking Member and all my colleagues here for holding, I think, 
one of the most important hearings in the country. I also want 
to commend Chairman Thomas as Chairman of the Committee on Ways 
and Means for his leadership in trying to develop a plan to 
guarantee the long-term solvency of Social Security. The 
President has dedicated the past 6 months to educating the 
American people on the structural problems of Social Security 
and the need to improve the system so that the promise of this 
Federal covenant is renewed in this century.
    Speaking of great grandfathers, my great grandfather, 
Congressman James O'Leary represented Staten Island in the 
thirties. He voted to create Social Security. Today I am 
prepared to carry on his work by working with Democrats and 
Republicans to find common ground that will allow our 
generation to renew the sacred covenant. Since this debate 
began, I have held a series of meetings in my office and 
elsewhere, with residents, civic groups, businesspeople, labor 
unions to solicit their opinions on Social Security and gain 
feedback on ways we can improve the system. While the opinions 
I have heard span a wide range, there has been one consistent 
message: Social Security faces a long-term funding crisis that 
cannot be ignored.
    The politicization of this issue frankly has been 
disappointing to me. While I can appreciate legitimate 
criticism of different proposals, I find it untenable when 
criticism is coupled with obstruction with no ideas at all. 
Even today, James Hoffa, the President of the Teamsters Union 
who opposed President Bush last year remarked, ``Social 
Security is a major problem in this country. We have to make 
sure that it is preserved for those that come after us.'' I 
applaud him for that statement because I think it is true.
    I believe we can find a bipartisan solution to 
strengthening Social Security if politics is cast aside and the 
best interest of the American people take priority. I enter 
this debate with certain fundamental principles: I will not 
support any real reduction in benefits for today's seniors and 
baby boomers, and I also do not believe massive tax increases 
are the solution to fixing Social Security's long-term 
financial problems. I remain skeptical about aspects of the 
progressive indexing proposal. While I too believe we need to 
take action to protect our most vulnerable seniors, I do not 
believe that progressive indexing plan I have seen so far is in 
the best interest of the people I represent in Staten Island 
and Brooklyn. It is not a proposal right now I am inclined to 
support.
    The issue of personal accounts has generated the greatest 
amount of controversy. I believe that Congress's priority is to 
ensure the long-term solvency of Social Security. Therefore, I 
believe we need to focus on issues of solvency ahead of all 
other issues related to Social Security, including personal 
accounts. As I have said many times before, I can support a 
reform plan with or without personal accounts, provided it is 
the right plan to restore Social Security to firm financial 
footing, and protects the people of Staten Island and Brooklyn, 
and, of course, all Americans.
    At this time, I am watching the fine work of this Committee 
and Subcommittee, and I commend you for doing this again--
awaiting the opportunity to review all the plans put forward 
and look at which plan, if any, guarantees Social Security will 
be solvent today, 50 years from today, and 100 years from today 
if possible. I strongly commend the Committee for its attention 
to issues of retirement security, an area I too am exploring in 
great detail. I believe Social Security reform must include 
enhancements to other savings vehicles, such as increasing 
contribution levels to IRAs, 401Ks, and look forward to working 
with you, Mr. Chairman, Chairman Thomas, and all Members of 
Congress, Democrats and Republicans, to ensure that the 
American people are secure in their retirement. With that, I 
thank you very much.
    Chairman MCCRERY. Thank you, Mr. Fossella. Mr. Levin, I 
know you join me in thanking all of our colleagues who came 
forward today with thoughts and ideas. Frankly, many of the 
thoughts we had were in opposition to the President's proposals 
and in opposition to perceived proposals of some Republicans. 
Despite what some may consider to be negative comments that 
were made, I consider them to be constructive. I am certainly 
listening and I know Chairman Thomas and my other Republican 
colleagues are listening. The gentleman from New York, who just 
spoke, is a Republican and also expressed some concerns. I can 
assure you, we are listening, and we hope to address many if 
not all of those concerns. Mr. Spratt talked from a fiscal 
standpoint and made some excellent points. I hope that we can 
address some of the points that he made as well as we go 
forward.
    It would be nice if we could get together at some point and 
talk constructively about how we answer those concerns, and I 
am looking forward to that. I thought today's hearing was very 
good, and I appreciate very much so many Members coming forward 
and sharing with us their thoughts. Mr. Levin?
    Mr. LEVIN. I don't really have much to add. I think it was 
a very useful afternoon. I just urge that everybody take note 
not only of the quantity of feeling but the intensity of 
feeling. When we say that the President's insistence on private 
accounts stands in the way of getting down to business on a 
bipartisan basis, that isn't political, it is what we believe 
in. We would believe in it if the public did not agree with us. 
It does. When we go home, the more we learn from our 
constituents, the stronger we feel. So, I appreciate your 
words, Mr. Chairman, and I would hope we would have indeed not 
only listened today but learned. Thank you very much.
    Chairman MCCRERY. Well, in fact I did listen. Thankfully, 
some of the witnesses who objected to personal accounts 
actually went into some detail about why they objected to 
personal accounts. It is those notes that I made and hope to 
consider as we go forward in trying to construct a plan. So, I 
thought it was very helpful. Thank you. The hearing is 
adjourned.
    [Whereupon, at 5:14 p.m., the Subcommittee was adjourned.]
    [Submissions for the record follow:]
             Statement of Donald Anderson, Harpswell, Maine
Stealing my Social Security
    For years I received notices from Social Security that I would 
receive a certain pension amount from SS. I used this info in my 
retirement planning.
    About three years before I retired, I learned at a state retirement 
seminar that that was not true. Not true if I were to receive a state 
pension. I was told SS would reduce my SS amount by about 60%. Of 
course, I learned nothing about this from SS!
    Because of this shortfall, I continued working past my 65th 
birthday, though that was not my original plan. When I turned 65, I 
applied to start my SS pension and got the small amount of about $407/
month.
    I am now retired. SS has reduced my monthly payment by 56% because 
I am ``double dipping''--their word.
    My word--STEALING. I earned that money. If I had a pension from a 
private employer, SS wouldn't reduce my SS pension. As I said, I was 
depending on that money for my retirement. I find it difficulty to pay 
my bills without that money.
    This is most unfair. It angers me. The government is reducing my 
pension so it has money to give to the top 5% for tax cuts. Or to fund 
that illegal Iraqi war.
    SS is a safety net for tens of millions. By subjecting me to the 
unfair GPO/WEP provisions, Congress has cut a hole in my safety net.
    I expect Congress to quickly repeal the GPO/WEP provisions.

                                 

          Statement of David S. Cluley, Grand Rapids, Michigan
    The current discussions regarding Social Security reform are timely 
and necessary. However, many of the ideas currently being circulated 
are more complicated than they need be.
    When originally conceived, Social Security was intended to provide 
a safety net for those unable to provide for their own retirement. 
Social Security benefits were never intended to be paid to those who 
had adequate resources to support them in their retirement.
    Social Security needs to be brought back to its roots and serve as 
a supplemental or full retirement benefit for those unable to 
adequately provide for their own retirement. Those who are able to 
provide for their own retirement should not receive any retirement 
benefit from Social Security unless their income falls below a 
stipulated threshold.
    To this end, the President is correct to be talking about private 
accounts. Private accounts will provide retirement funding for those 
able to save for their retirement.
    These private accounts already exist. They are 401(k)'s, TSA's, 
HSA's, and all forms of IRA's. From my perspective, there is no need to 
create additional private accounts. Some adjustments of the tax code 
may be all that is needed to permit these accounts to achieve the ends 
desired under Social Security reform.
    The following steps are proposed to reform Social Security:

    1)  Eliminate the cap on earnings. Tax all earnings equally, no 
matter how large an individual's income may be.
    2)  Reduce the payroll tax rate by 25%, and cap employer 
contributions for employees at the $250,000 income level.
    3)  Means test payment of retirement benefits.

    These three simple steps will produce the following benefits:

    1)  Removing the earnings cap will increase the revenue available 
to Social Security.
    2)  Reducing the payroll tax rate will sweeten an otherwise bitter 
pill for the wealthy and provide a tax break that will free up funds 
for current payroll tax payers. The income produced by this tax break 
will spur additional spending in the economy and/or provide funds that 
people can use to fund the private accounts that already exist; namely, 
IRA's, 401(k)'s, TSA's, and HSA's. No new private accounts need be 
created. This will avoid having to address the transition costs and 
their attendant impact on the deficit. Also, employers will have 
additional dollars for capital expenditures or employee salaries and 
benefits.
    3)  Applying a means test for benefits will ensure that benefits 
are paid only to those who truly need them. This was the original 
purpose of Social Security. It was never intended to provide a benefit 
to all retirees, but only to those who were unable to provide for 
themselves.

    Means testing will conserve funds for those who truly need them 
both now and well into the future. The precedent for means testing has 
been established in the Medicare Prescription Drug and Modernization 
Act for the Part B Medicare premiums.
    In addition, means testing will obviate the earnings limitations 
currently placed upon retirees until they reach age 70. People could 
earn as much or as little as they please without jeopardizing their 
Social Security benefit.
    It is recommended a phase out of retirement benefit eligibility be 
implemented that is based upon adjusted gross income similar to the tax 
deductibility phase out for tax deductible IRA contributions.  In 
this manner, individual eligibility would ebb and flow each year and 
benefits would be triggered based upon financial status for the 
previous year as demonstrated by the individual's or couple's income 
tax returns.
    If implemented, these changes should guarantee the future solvency 
of Social Security indefinitely. The Survivor's and Disability portions 
of the program will also be assured. In addition, there may be 
sufficient reserves to help fund the Medicare program without 
jeopardizing the future of Social Security. As a result, it may be 
possible to eliminate the Medicare tax as well.
    Chairman Thomas, these three steps are simple to implement and will 
achieve the desired results. I urge you and your committee to give them 
serious consideration.

                                 

         Statement of Joyce R. Elia, Mission Viejo, California
BRIEFING PAPER RE HR 147 and S 619
SOCIAL SECURITY FAIRNESS ACT
    On December 16, 1773, early settlers to this country staged a Tea 
Party in Boston to demonstrate their unwillingness to be unfairly 
taxed. It was a fairly small protest. 232 years later, a much larger 
group of American voters (public workers and teachers, active and 
retired) wishes to clearly and emphatically send a message to the 
President and Congress, that THEY are unwilling to continue to be 
unfairly taxed.
    MYTH #1: The myth is that this is unearned double dipping.
    TRUTH: The Windfall Elimination Provision (WEP) and Government 
Pension Offset (GPO) laws prevent public workers and teachers from 
receiving their justly earned retirement benefits. The two laws cause 
public workers and teachers to DOUBLE PAY but receive single benefits. 
The various pension funds of public workers and teachers are primarily 
self-funded with very little in the way of outside contributions. The 
outside contributions come from LOCAL not FEDERAL monies--no relation 
to Social Security monies.
    EXAMPLE: A working person is required by law to hold two insurance 
policies. After a number of years of paying the premiums, one of the 
insurance companies notifies the worker that he will no longer be 
covered under the policy, but will be compelled by law to continue 
paying for it.
    On December 27, 2002, Fox Channel Headline News reported that the 
Social Security Administration currently has agreements with 20 
countries, which permit foreign nationals who pay into retirement 
systems in their home countries and the United States, to collect 
benefits from both sources. The story reported there is currently 
discussion to extend this practice to Mexican nationals as well.
    The Federal government should recognize naturally born American 
citizens who work as teachers and public employees as well as foreign 
nationals.
    MYTH #2: It is a myth that over the long-term the federal 
government saves money by denying public employees and teachers earned 
Social Security benefits.
    TRUTH: It is true that the National Education Association reports 
that affected recipients lose an average of $3,600 a year due to the 
GPO--an amount that can place a recipient below the poverty level. When 
individuals do not have adequate dollars to meet their most basic 
needs, they stop seeking preventative medical care, are unable to fill 
needed prescription drugs, have inadequate nutrition and often are 
forced to live in less than sanitary and unsafe conditions. All of 
these workers have paid for benefits that these two laws prevent them 
from receiving. Many of these workers are single parents or women who 
need their paid-for Social Security benefits to meet basic expenses.
    RESULT: There is no monetary savings. The government will need to 
provide financial assistance to these individuals through more 
expensive government programs (welfare, food stamps, medical plans, 
long-term care and housing assistance). It is better to remove 
discriminatory prohibitions to earned benefits so that seniors can 
avoid seeking emergency care for catastrophic illness. The added 
dollars will be put back into the economy and the discriminatory effect 
of these statutes would be eliminated.
    FACT: Workers have not been informed of this legislation by 
government employers and teaching associations and are misled by Social 
Security estimate statements which do not reflect these offsets. Most 
employees are unaware that they have relinquished their entitlement to 
earned or spousal Social Security dollars until they are within a few 
years of retirement and attend a retirement planning session. At that 
time they are devastated to learn that they will not be receiving their 
anticipated Social Security funds. These are workers who have 
faithfully paid their full contributions to a system that takes their 
money and provides no benefits.
    REALITY: Americans have been told for decades by government experts 
that it is an individual's responsibility not to rely solely on Social 
Security for their retirement incomes. Often, when children leave the 
nest, the wife/mother will seek outside employment to assist her 
husband in building their retirement. When these individuals choose to 
become public employees or return to the teaching profession, they are 
not told by their employers (through non-disclosure of the impacts of 
the GPO and WEP) that the monies they contribute to separate pension 
plans will not be returned to them in addition to earned Social 
Security benefits.
    Private sector individuals may collect multiple pensions (many 
through employer-only contributions) PLUS earned Social Security 
benefits....why the distinction for public workers and teachers?
    RESULT: As more and more public workers and qualified teachers 
become aware of the impact of this unfair and discriminatory 
legislation, they will be less inclined to apply for jobs in those 
areas. This country already faces a critical shortage of skilled 
teachers. The condition is certain to worsen. Fewer teachers will chose 
to return to their classrooms after extended leaves to raise their 
children, while young people will be less inclined to consider a 
teaching career. States, counties and cities will find smaller and 
smaller pools of willing/skilled applicants to staff government 
offices, courts, libraries, airports, divisions of Motor Vehicles, 
transportation departments, etc.
    Non-partisan issue. Goes beyond politics. Voters of all political 
affiliations are affected. (This is a national problem--there are 
affected people in ALL states. The number of people impacted across the 
country is growing every day as more and more people reach retirement 
age.) This is the same group of voters (baby boom) that were willing to 
stage protests in the 1960's to bring their Acauses to the street to 
effect change by gaining national attention for unfair government 
practices. As more voters become aware of these unjust laws and their 
impacts, they will be angry and seek to blame elected officials.
    Most Americans are unaware that promised Social Security benefits 
are not legally guaranteed. They expect adequate Social Security 
benefits and assume government will pay all monies due because 
government has faithfully collected their Acontributions. Especially 
when it is widely known that the federal government extends Social 
Security benefits to people who have NEVER paid into the system.
    These laws are not understood. It makes retirement Aplanning 
inaccurate. (Many workers rely on misleading Social Security 
Administration statements that fail to take into account the GPO and 
WEP when projecting benefits.) It makes the SSA information statements 
a lie because workers are led to believe they will receive these funds 
because the government is or has taken their money. This is, in 
essence, a government Abait and switch tactic.
    Severely impacts women. Women receive only one-half the average 
pension benefits received by men. When they attempt to collect 
anticipated, earned Social Security benefits and discover that their 
benefits are substantially reduced, they find themselves below the 
poverty level, after a lifetime of work.
    Working wives should have the same rights to their spouse's full 
benefits as non-working wives. (The GPO/WEP causes affected employees 
to lose up to 60% of the benefits they earned themselves)
    Widows should receive full Social Security spousal benefits. The 
deceased spouse worked his entire life to provide for his widow. His 
benefits are her benefits.
    Laws are arbitrary and selective. The burden falls squarely on 
pocketbooks/wallets of certain public employees and teachers. (9 out of 
10 public employees affected by the GPO/WEP lose their entire spousal 
benefit, even though their spouse paid Social Security taxes for many 
years while non-affected workers who have paid into multiple private 
retirement systems are not affected by these laws. The discrimination 
exists only for those who work in the public's interest.)
    These laws are discriminatory, punitive and create a climate of bad 
faith. They have caused an unjust and unfair inequity between public 
and private pension recipients. The laws diminish the value of a public 
employee's or teacher's contribution to this country in relation to the 
value placed on the contributions of workers in the private sector . . 
. for what reason?
    REQUEST: We want the law applied equally to all employees. The only 
way for this to be accomplished is for these two statutes to be 
repealed. We urge your support and the support of all of Congress and 
the President for passage of HR 147 and S 619.
    President Bush has claimed that he wants to bring fairness to the 
taxation of the American people. Support of HR 147 and S 619 is a 
perfect place for him to right a wrong and bring equity to an 
unrepresented and growing body of unfairly taxed voters.
                                 ______
                                 
    As the Committee reviews the multitude of issues associated with 
Social Security, I ask members to consider correcting a ``fix'' that 
was initiated in 1983, and, to also not make similar mistakes this time 
around (such as privatization which will line the pockets of Wall 
Street and cost billions of dollars to implement). Congress has made 
the same mistake as many corporations recently in the news--they have 
``spent'' the hard-earned pension funds of workers during the stock 
market's heyday and have now been ``caught short''. Workers in this 
country have had enough of the corporate greed and fiscal 
irresponsibility of government. We are tired of ``paying'' for 
everyone's mistakes, while the corporate CEOs continue to live the 
``good life'' with no understanding, and with a complete lack of 
conscience, of how the ``real'' people in this country live.
    The private sector continues to follow the government's lead in 
cheating employees out of their retirement benefits (United Airlines, 
possibly General Motors, to name a few), with the government's 
blessing. At the same time, like Congress, the retirements for the 
``chosen few'' are preserved. The hardworking, tax-paying individuals 
of this country deserve better and we expect you to act responsibly. 
President Bush espouses a Christian ethic. There is absolutely nothing 
``Christian'' about defrauding American workers with high taxes and 
erosion of their pensions.
    As a current government (court) employee and former private sector 
employee, I am seeking your support of HR 147, ``Social Security 
Fairness Act,'' to eliminate the Government Pension Offset (GPO) and 
Windfall Elimination Provision (WEP) to Social Security. This 
legislation was enacted in 1983, during a period when Congress was 
looking for ways to reduce the cost of Social Security. Their decision 
to place that burden on the backs of government workers and teachers 
has created a fraudulent and discriminatory solution which wrecks 
financial havoc on the lives of affected individuals.
    The GPO and WEP will greatly affect mine and millions of other 
Americans' ability to collect the full Social Security benefits that 
they have earned and to which they are entitled. This is a non-partisan 
issue that transcends politics and affects voters of all parties.
    Three years ago, a co-worker returned from her ``retirement 
planning session'' crestfallen to learn that the small pension which 
she had earned working for the Orange County Superior Court was going 
to dramatically impact the receipt of her earned (as well as her 
ability to collect her husband's earned) social security benefits. Her 
situation will become worse, should her spouse predecease her. She will 
not be eligible for any spousal benefits, which he worked a lifetime to 
earn in his effort to provide for his wife. At the time, I was totally 
unaware of these two laws and their impacts. I had worked in the 
private sector for many years before ``retiring'' to raise a family.
    When I returned to the workforce in 1994, to work as a Senior 
Administrative Assistant to the CEO of the South Orange County 
Municipal Court (unified to Superior Court in 1998), I was not informed 
by the County/Court that paying into the County retirement system would 
negatively impact my ability to collect mine and/or my husband's hard-
earned Social Security benefits. The County retirement plan is 
predominantly self-funded by employees, with only a small portion of 
the contribution coming from LOCAL (not Federal) taxes. I erroneously 
assumed that any pension I earned would supplement my earned Social 
Security benefits. These laws force me to either leave my job, friends 
and an important part of my life prior to ten years of service 
(vesting) or relinquish my own and my spousal rights to Social 
Security. It punishes me for doing what the government told me to do--
plan for the future. (I would have been better off staying at home and 
letting the government subsidize me.) The outcome is discriminatory and 
dishonest, as well as disheartening, to a loyal hard-working employee.
    The laws are arbitrary and selective--being particularly 
discriminatory to women. Women receive only half the average pension 
benefits received by men and these laws further reduce that small sum.
    Please preserve teachers' and government workers' retirement 
benefits that they have paid for and deserve by passing HR147, which 
will repeal legislation which in actuality is ``legalized fraud,'' 
(i.e., the government has taken, or in many cases, continues to take 
monies via social security taxation, which it has no intention of 
returning by way of future benefits). Numerous teachers and public 
workers (many of whom are single Moms), have part-time employment to 
make ends meet. From those private-sector checks, social security is 
being deducted . . . when under current laws, that money will never be 
returned. If private companies acted in such a manner, they would be 
charged with FRAUD.
    I have included a briefing paper which expands on the legislation's 
impacts.
    I urge Congress' support and passage of this important legislation. 
I also urge Congress to look into other areas for savings: reduction/
restructuring of Congressional retirement benefits; reduction in 
foreign national benefits, fairer taxation, to name but a few.
    I do not support private accounts OR melding government/teacher 
pensions into Social Security. This practice would place yet another 
undue burden on this class of individuals. Their pensions should be 
treated in the same manner as private sector retirement plans--separate 
and apart from Social Security.
    Additionally, Congress makes it increasingly difficult for 
individuals and families to save for their retirement, especially when 
the interest on SAVINGS accounts are taxed.

                                 

           Statement of Victor T. Krolik, Orange, California
    I retired from Orange County in 1995 and the GPO/WEP law greatly 
affected the dollar benefit amount in my Social Security pension. Even 
though I had my units in prior to this employ, because I elected to 
receive the government (County) pension, I was `punished' with a 
reduction of my social security benefit amount by $350.+ a month. As 
you know, this amount of money over the ten year period of retirement 
would have been very helpful to my wife and I with the high cost of 
living, medical and prescription costs, and so forth that are so 
cumbersome in one's senior years.
    I urge you to support McKeon's bill H.R.147 and ask you to please 
urge your constituents to appeal the GPO/WEP law by supporting the H.R. 
147 bill passage.
     My wife and I and our parents before us and our siblings worked 
all our lives as good citizens and taxpayers of this country. It is 
difficult to comprehend how others enter the country and receive so 
many benefits from our government and we are `left out in the cold'
    Thank you for your kind attention in this matter.

                                 

           Statement of Steve Pluta, Walnut Creek, California
    I am opposed to President Bush's proposal for social security 
private accounts.
    Increasing private ownership of retirement assets can be 
accomplished better outside of social security by adding incentives to 
the tax code, and by increasing the incentives for and flexibility of 
IRA's and 401K's, and similar or new retirement savings vehicles.
    I am also opposed to President Bush's proposal to transfer social 
security benefits from middle class wage earners to lower income 
workers.
    Should it be necessary to redistribute wealth, then increasing the 
cap on wages subject to social security would be a more fair and 
progressive approach.
    I support increasing the retirement age as this recognizes the 
increase in life expectancies.
    President Bush has said that those near retirement would not be 
affected by his proposed social security changes, and I believe I fall 
into that class. For the record I am 58 years of age.
    Thank you for this opportunity to contribute to your Committee 
hearings.

                                 

          Statement of Larrabee M. Smith, Holmdel, New Jersey
    I offer the following comments on the proposals for changing Social 
Security (SS) and the claimed need for a change. I was motivated to 
write these comments by a press conference your Chairman, Congressman 
Thomas, held after the President's Press Conference last April 28. I 
was very disturbed by both. I have tried to send copies of these 
comments (this has been clean up a little) to all members of the House 
Ways and Means Committee but I don't believe I was successful. I 
believe I demonstrate that Private Accounts will make any financial 
problem with SS (if one exists) worse and adversely impact our economy. 
I further explain why, at this time, there is no reasonable basis for 
concluding that SS is headed for bankruptcy.
    1) Private account option will make any shortfall worse: In the 
long term, the private account option just makes the shortfall, if one 
really exists, worse. Clearly, it will be the more fortunate that 
choose the private account option and therefore, because the benefits 
are disproportionately larger for the less fortunate, the revenue 
stream to support those on the present system will be adversely 
impacted. There will a disproportionate reduction in the revenue stream 
for SS.
    2) Means test will increase any shortfall: The Presidents proposal 
to introduce a Means Test algorithm would just add additionally to any 
shortfall in revenues. It would increase the disproportional 
distribution of benefits. And, in addition, It would motivate more of 
our more fortunate to opt for a private account. This would increase 
any shortfall both by the disproportional increase in benefits to be 
paid and the disproportionate reduction in revenues for SS. It is clear 
that the President's motivation for proposing the means test gimmick 
was to increase the number of young voters supporting his private 
account proposal.
    3) Cost of a transition to saving plan prohibitive: While a saving-
for-pension plan might be superior to our present pay-as-you-go plan, 
unless benefits are reduced for those continuing to receive them, the 
transition cost would be prohibitive even if you spread the transition 
over 200 years. In addition, Goldman Sachs has estimated that, by 2050, 
the private accounts under the Administrations proposal would 
constitute 25 percent of the total value of all stocks in the market. 
Imagine what a complete switch to a saving-for-pension plan would mean. 
I can't imagine it being in our interest for our Government to have any 
control over such a large part of our markets. In any event, before 
considering a change in the plan that would increase debt, our debt 
must be reduced.
    4) Money for Private accounts must be borrowed from the public: 
Every dollar that is put into a private account prior to 2042 or so 
will have to be replaced by a dollar borrowed from the public, unless 
you do not provide for meeting our obligation to the Baby Boomers (BB) 
and cut their benefits. The adequacy of the Trust Fund balance to cover 
the benefits of the BBs depends upon the surplus revenue stream being 
maintained and the interest on the Special Treasuries in the Fund being 
paid until the Trust Fund balance is depleted and the BBs have 
essentially all passed away. A delay in providing the surplus revenues 
or interest payments would reduce the interest and the fund balance. 
Therefore, it is necessary to replace any drain in tax revenues with 
simultaneous injection of money from the Treasury and this means 
borrowing from the public.
    If you want to play games with private accounts, you should 
acknowledge that you are borrowing the funds from the public to give to 
those who choose the private account option in exchange for an 
understanding that their benefits, when they retire, will be 
correspondingly reduced. You should leave their contributions to SS 
alone until about 2050, when the BBs have passed on, and be honest 
about what you are doing. Do you really believe that borrowing from the 
public to invest in our markets is viable way to build our economy? 
Hell No!!! Of course, the burden of debt you incur will have to be 
borne by everyone, not just those who opt for the private accounts. It 
is no wonder that some of our younger citizens look upon the option 
favorably. There are a lot of sick and greedy people but I find it hard 
to believe that the majority would support the option if they 
understood how the accounts will be financed.
    In addition, I would add that DEFICITS DO COUNT!
    Increased borrowing means an increase in the supply of treasuries 
and an increase in supply means and increase in interest rates will be 
required to find buyers. This will have a negative impact on our 
economy and increase deficits and so on. Among its undesirable impacts 
will be its negative impact on the retirement savings of everyone.
    5) Private accounts will be negative for some: The argument that 
private accounts will reward all of those who opt for them is total 
nonsense. And, if we don't soon do something about our rapidly 
increasing debt, we will find that investments in the markets fall to 
lows not seen in the last 30 years or worse. .I spent 40 years working 
with some of the smartest people in the world at a top communications 
research and development company. Many colleagues invested in the 
markets. Further, I live in an area with many Wall Streeters. I'm very 
aware of what happens to money invested in the markets. Some people are 
lucky and some are not. The median gain on investments is probably less 
than zero. Claims that everyone will benefit neglect the impact of real 
inflation and assume that average growth and costs from the past. Few 
of you may remember, but consider what happened during the 70s to those 
who retired in the 60s and had their retirement savings in bond funds.
    And, the worst of the claims concerning private accounts is that 
they will permit owners to leave what's left to their children. Sure, 
they could. But who knows how long he or she is going to live when they 
retire. Unless they are rich and their SS benefit is of no consequence, 
they will put what they have into a vehicle that will pay them as long 
as they live, a vehicle that operates like a pension fund which depends 
on some passing one early to provide for those who don't. And you can 
be sure that some of these will be managed like the United Airlines 
Fund or worse and go bankrupt. The financial world is full of chuck 
holes and the less fortunate among us hit them more often than not. SS 
was suppose to provide a safety net and you have an obligation to 
assure that it does.
    6) Projections of a SS revenue short fall are rank speculation: The 
SS Trustees' long-range projections for SS's financial condition and 
those of the CBO are, at best, pure speculation and of the same quality 
as the CBO's projections, of a few years ago, that we would have budget 
indefinitely. No one should accept the projection of the SS actuary as 
fact; though our President and Congressman Thomas seem to accept it 
without question. Think about who the BBs are and what they represent. 
They represent a bubble in birth rate resulting from the Depression of 
the 30s and the War. A rational person would recognize that the birth 
rate would drop to lower normal level after 1964, the last year for 
births of the BB generation. Yet, the assumptions on which the 
projections are based treat this reduction as though it is a trend that 
will continue The 1960 census data indicates the end of bubble but 
doesn't support the assumption without a biased eye. A Table of key 
numbers from the census is available at: http://factfinder.census.gov/
servlet/QTTable?_bm=y&-geo_id=D&-
qr_name=DEC_2000_SF1_U_QTP1&-ds_name=D&-_lang=en.
    The following is from the latest SS Trustees Report: ``The primary 
reason that the OASDI cost rate will increase rapidly between 2010 and 
2030 is that, as the large BB generation born in the years 1946 through 
1964 retires, the number of beneficiaries will increase much more 
rapidly than the number of workers. The estimated number of workers per 
beneficiary is shown in figure II.D3. In 2004, there were about 3.3 
workers for every OASDI beneficiary. The BB generation will have 
largely retired by 2030, and the projected ratio of workers to 
beneficiaries will be only 2.2 at that time. Thereafter, the number of 
workers per beneficiary will slowly decline, and the OASDI cost rate 
will continue to increase.''
    Why hasn't someone observed that the BB bubble is responsible for 
the reduction in the ratio? Why is this a problem since it was the 
reason for the increases, during the Reagan and Bush Sr. 
Administrations, in the tax rate? Why hasn't someone asked why the 
relative number of retirees increases when the Baby Boomers (BBs) start 
to retire but doesn't decrease after they have passed away? The BBs 
represent a bubble in birth rate. Please ask why this bubble has a 
beginning but no ending in its impact on number of retirees? Why do 
they project a lower birthrate after the BBs but do not reflect it in 
the numbers of retirees? There should be at least a dip. Yes, I'm aware 
that we are living longer but this doesn't justify the assumption that 
the bubble doesn't have an end. And, if our living longer creates a 
serious imbalance between SS revenues and the cost of benefits, a 
further increase in the retirement age would appear to be appropriate.
    The last sentence of the quotation is just plain wrong. It should 
increase. In addition, if you look further into the report you see that 
the Trustees demonstrate that a small change in assumptions results in 
a projection suggesting that there will not be a shortfall at all. Why 
do you treat the median estimate of the Trustee like it is reality? The 
projections are, at best, crude guesstimates and appear to be biased to 
prove a conclusion written before the analysis was undertaken.
    You must be aware that many people are now concerned that English 
will be replaced by Spanish as our national language because of the 
rapid growth of our Latino population. The concern is not only about 
immigration but the higher birth rate of Latinos. I don't know what the 
birth rate will be in 2050 and neither does anyone else but the SS's 
actuary's assumption of a lowering birth rate makes no sense at all. 
(It is also disturbing that most of those who are expressing grave 
concern about the issue are among the loudest supporters of private 
accounts.)
    The estimates also depend in part on the economic conditions in the 
future. We all know how good the CBO is at such projections--REALLY 
BAD!! Please use some common sense and recognize that the projections 
are crude guesstimates at best.
    7) A failure to honor the Special Treasuries in the SS Trust Fund 
would be stealing: To suggest, as the President did in his remarks on 
28th of April, that the SS Trust Fund is full of worthless IOUs is 
criminal. Allen Abelson , in the following week's Barron's dealt with 
this issue better than I could. He wrote: ``You don't have to be a 
woebegone Democrat (sorry for the redundancy) to feel the president is 
indulging the politician's habit, as some wise soul once put it, of 
being economical with the truth when he implies that Uncle Sam's 
promissory notes--the surplus accumulating in Social Security's 
coffers--are not worth the paper they're written on. If so, that would 
seemingly also describe the value of the trillions--or maybe zillions--
of Treasury obligations held by our other creditors, humble and grand, 
individuals and institutions, the globe over.
    And if he really believes those IOUs are just a stack of paper, it 
seems more than a little paradoxical for Mr. Bush to seek to reassure 
the legions of doubters among the citizenry about their own investing 
capabilities, as he did in his prime-time remarks Thursday, by 
emphasizing that one of the choices for participants in his proposed 
private accounts would ``consist entirely of Treasury bonds.'' Through 
some peculiar form of alchemy, what's dross in the figurative vaults of 
Social Security becomes gilt-edged in the hands of Social Security's 
beneficiaries.''
    8) The balance in the Trust Fund is largely BBs savings: The SS tax 
rate increases of the Reagan and Bush Sr. years were intended to create 
a surplus that would assure that there were funds to pay the benefits 
of the BBs. The Baby Boomers contributed to the surplus as have many of 
us who are fathers of BBs as well as some children of BBs. When we and 
they paid the increased taxes, we understood that we were providing 
savings that would be used to help pay the benefits of the BBs when 
they retire. Therefore, the present SS Trust Fund (TF) balance is 
largely savings of and for the BBs. The increases were largely the 
result of the work of the Greenspan Commission of which your Chairman, 
Congressman Thomas, was apparently a member. The projection of both the 
SS Trustees and the CBO indicate that the surplus is adequate to cover 
all of the BBs benefits. And, while neither projection is an absolute, 
there is no reason, at this time, to doubt this conclusion. To change 
their benefits at this time would be the worst sell-out fraud of our 
time. How can such an action even be considered? The youngest are a 
long way from 55 today. BBs range in age from 41 through 60. What kind 
of subhuman would deny any of them their benefits?
    Any action that fails to provide full benefits to all Baby Boomers 
(BBs) would be the worst of crimes. It would be stealing. Stealing the 
savings of the BBs would be legalized theft, the worst kind of theft. 
To reduce the revenue flow such that the surplus doesn't grow as it 
should, would be another form of stealing from the BBs. It would also 
be stealing from their children because the system would fail sooner 
(if it is going to fail) and impact benefits they should receive. Since 
I paid, with the thought that I was helping to provide savings for the 
BBs to help with their retirement, the increased SS tax for a 
significant number of years before I retired, you would also be 
stealing from me and other fathers of BBs like me.
    Your Chairman had to know, as a member of the Greenspan Commission, 
that the surplus would be invested in Special Treasuries and that it 
would have to be redeemed to pay benefits. To, at this time, act as 
though something terrible is going to happen in 2017 or so, when 
redemptions are projected to start, is downright deceitful and 
dishonest. Obviously, I haven't seen the material from the meetings of 
the Commission but it must have anticipated the day when redemptions 
would start.
    9) Keying benefits to CPI: What does the Administration mean when 
it speaks of keying benefits to the CPI because it doesn't rise as fast 
as earnings? It is continually mentioned by the media. What are they 
going to do that is different than is done today?. They seem to be 
talking about keying the initial level of the benefit that a retiree 
receives to the CPI. This doesn't make any sense.
    It is bad enough that the CPI is manipulated to minimize the 
adjustments in SS benefits for those already retired. If the CPI were 
not manipulated by hedonic adjustments and mistreating the cost of 
housing, the CPI would probably rise essentially as fast as earnings, 
at least as fast as my cost of living. With the starting level of 
benefits keyed to the CPI and revenues keyed to earnings, it appears 
likely that any short fall should become a surplus. I'm sure many of 
you are aware that Bill Gross, the head of PIMCO, has estimated that 
manipulation of the CPI has reduced benefits for those who retired in 
1980 by more than 40 percent already. (It has also made our GDP numbers 
look better than reality.) I'm also aware that, during the past few 
years, the CPI has risen faster than wages; particularly for the least 
fortunate among us; so it is possible that keying benefits (starting) 
to the CPI may backfire on the Administration and actually help the 
least fortunate, which would be desirable.
    10) Unified Budget is the problem: If you wanted to do something 
constructive about our Governments commitments to spend, you should 
start by eliminating the Unified Budget. Once the public really 
understood how it hides the real deficit, they would make sure that 
anyone supporting it is run out of town.
    I have never heard of any of you complaining about the fraudulent 
Unified Budget nor have I heard of any of you mentioning that the real 
deficit is not the Unified Deficit but rather a number much larger. If 
you subtract the surplus payroll tax revenues and add the interest paid 
on the debt in the associated Trust Funds, the real deficit in 2004 was 
over 650 billion and it will be larger in 2005. It is becoming clear 
that the Administration is aware of the growing deficits and believes 
that the way to deal with them is to inflate away the debt. The 
Treasury is now considering reinstituting the 30-year bond. It is 
apparent that they need it to prevent the interest on the debt from 
growing with every refinancing as interest rates increase. Please clear 
the air and work to eliminate the Unified Budget before messing with 
SS. The former is a problem today but latter may never become a 
problem. If we could reduce our debt, we might get into a position 
where we could actually afford to move to a savings-for-pension plan.

                                 

           Statement of Matthew Swarthout, Livonia, Michigan
    Please consider a change in the payroll tax; that part of the 
social security tax that businesses must pay, and the additional social 
security tax that self employed individuals must pay. And to offset the 
lost revenues please consider a national retail sales tax.
    I'm trying to start a new business, but expenses are greater and 
revenue is less than anticipated. Help is needed, and a reduction in 
the 12.4% social security tax for self employed individuals would help 
my business and others like mine, in getting started. Also, I believe 
elimination of the payroll tax would improve employment and, for global 
enterprises, improve the global competitiveness of American businesses.
    My suggestion to introduce the national sales tax to offset roughly 
$400 billion in lost revenue would, I believe, be good for American 
businesses and the U.S. economy. The sales tax could be excluded for 
essentials such as food, health care, rent/home, and second-hand 
purchases. And even with those exclusions the tax may be only 8%.
    Thank you for your consideration.

                                 
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