[Congressional Record Volume 142, Number 111 (Thursday, July 25, 1996)]
[Extensions of Remarks]
[Pages E1373-E1374]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       PROTECTING SOCIAL SECURITY: CONGRESS CANNOT AFFORD TO WAIT

                                 ______
                                 

                            HON. NICK SMITH

                              of michigan

                    in the house of representatives

                        Thursday, July 25, 1996

  Mr. SMITH of Michigan. Mr. Speaker, in 1983, Congress and President 
Reagan formed the bipartisan Greenspan Commission which agreed on 
historic legislation to save Social Security. At that time, the Social 
Security Administration actuaries warned that the system had an 
unfunded liability equal to 1.82 percent of taxable payroll. The 1983 
law was supposed to solve this problem through the middle of the next 
century. However, the actuaries now find that the unfunded liability is 
2.19 percent of taxable payroll, 20 percent worse than in 1983.
  Expressed in 1996 dollars, this liability equals approximately $4 
trillion. Put another way, under the current system every beneficiary 
for the next 75 years will have to absorb a 14 percent cut from 
baseline benefits for the system to balance. Alternatively, payroll 
taxes will have to go up by 16 percent to restore long-term solvency. 
The actuaries say even larger benefit cuts or tax increases will be 
needed the longer Congress delays.
  Traditionally, Congress waits until the last moment to solve such 
problems, using a crisis environment to convince our constituents and 
ourselves that sacrifices have to be made. But this approach is 
unconscionable when waiting until the last minute will force us to 
adopt a solution that will damage the economy and the lives of 
vulnerable workers and retirees. Under current law, there will only be 
two workers paying into the system for each retiree drawing benefits 
early in the next century. There were 42 workers for every retiree when 
Social Security was started. On May 15, former Social Security 
Commissioner Dorcas Hardy estimated Social Security could have 
insufficient funds as early as 2005. Without meaningful reform soon, 
very large benefit reductions or tax rate hikes are unavoidable. 
Fortunately, I believe we can legislate a happy ending.
  The Social Security Administration has scored my bill, the Social 
Security Solvency Act, and found that if everyone participates each 
worker could invest between 1.81 percent and 10.11 percent of his 
paycheck in a

[[Page E1374]]

personal retirement savings accounts while Social Security benefits 
continue to flow unimpeded.
  My bill may not be perfect, but it offers a way out and I believe 
Members of Congress and the President can no longer avoid working on a 
solution to save Social Security. This proposal holds harmless low and 
medium income workers and also existing retirees. Part I of the bill 
eliminates the unfunded liability by slowing the growth in benefits in 
two basic ways. Initial benefits will still rise, after inflation, but 
they won't almost double as they do under current law. It also imposes 
some modest means testing of benefits. Further, it gradually raises the 
retirement age 2 years longer than existing law. Together, these 
reforms more than eliminate the unfunded liability of the system 
according to Social Security's actuaries. Under part II, and most 
importantly, my proposal creates personal retirement savings accounts 
for working Americans that will be funded from the surplus after all 
benefits are paid.

  Over time, the assets in workers' accounts will grow very rapidly, 
producing genuine retirement security. The balances in the private 
accounts are the personal property of the workers. Worker/investors 
will still receive Social Security checks, although they will be 
smaller to reflect the amount personally invested. However, the 
benefits flowing from their personal retirement savings accounts will 
more than make up the difference. Furthermore, account balances will 
belong to workers and can be passed on to their heirs, improving the 
financial security of wives, husbands and their children. Personal 
retirement savings accounts can be ``cashed-out'' as early as age 60.
  With some safeguards, it would be up to each worker to determine how 
his funds will be invested or whether to fund a personal retirement 
savings account at all. In fact, workers may elect to remain in the 
existing system if they wish and collect only Social Security benefits. 
It will be their option alone whether to place a portion of their 
paychecks in the hands of professional money managers. However, funds 
must be invested under the legal limits of the Individual Retirement 
Accounts [IRA's]. Also, under the proposal managed investment accounts 
will have to meet some additional investment and reporting 
requirements.
  Another important benefit of this proposal is that it will stabilize 
fiscal policy. This year, Social Security will take in $64 billion more 
than it distributes. By 2002, the annual surplus will rise to $104 
billion. But in 2025 and beyond, there will be annual cash deficits of 
$330 billion and rising as far as the eye can see. Under this plan, 
cash flow in and out of the Social Security System will always be 
equal. Pressure to cut other spending or to raise taxes will not be 
required by cash flow problems. Social Security will be depoliticized--
as it should be.
  Together, we can restore the solvency of America's most popular 
program and make it even better. H.R. 3758 does that.

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