[Congressional Record Volume 143, Number 36 (Wednesday, March 19, 1997)]
[Extensions of Remarks]
[Page E517]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      PRIVATIZING SOCIAL SECURITY

                                 ______
                                 

                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Wednesday, March 19, 1997

  Mr. CRANE. Mr. Speaker, the Social Security system in the United 
States is headed toward bankruptcy. Neglecting to discuss fundamental 
reforms of this program, will only lead to last minute band-aid 
solutions, which means Congress will be back dealing with the issue 
again, sooner rather than later. Instead of deciding how best to extend 
Social Security's solvency, past arguments in Congress have sadly 
focused on blame shifting between political parties--more about who is 
trying to cut Social Security and less about how to save Social 
Security.
  I am inserting an article in the Record which was published in the 
Wall Street Journal, that includes several ideas for privatizing our 
Social Security System. While some may be unsure that privatization is 
the long-term solution to Social Security, I submit this article in the 
hope it will generate discussions on this issue. I hope my colleagues 
have a few minutes to review this article, and will look at fundamental 
reform of Social Security as the only way to truly address the issue at 
stake:

             [From the Wall Street Journal, Jan. 16, 1997]

                 Social Security Privatization Is Here

                            (By E.J. Myers)

       The report issued last week by President Clinton's Advisory 
     Committee on Social Security has confused more than a few 
     concerned citizens--not just because of its heavy dosage of 
     technical jargon, but also because the committee itself was 
     incapable of reaching a clear consensus on what to do about 
     Social Security. And now there are serious questions about 
     whether the technical jargon spun out by the committee is 
     even worth the graph paper it's printed on. It appears that 
     the old adage about a camel being a horse put together by a 
     committee was right on target. And when that committee is 
     based in Washington, the camel is likely to end up with three 
     humps.
       While Washington may be incapable of putting together a 
     solution for a problem of its own making, the rest of us 
     don't have to give up on Social Security reform. In fact, 
     from Thomas Jefferson to Howard Jarvis, Americans have a long 
     tradition of trumping central government dictates with local 
     solutions that work. And in south Texas, along the windswept 
     Gulf Coast, there are three history-filled counties--
     Galveston, Brazoria and Matagorda--that years ago put into 
     effect Social Security privatization plans that Washington 
     policy wonks still haven't even conceived of.


                          Beautiful Simplicity

       Until the early 1980s, state and local governments had the 
     right to opt out of Social Security and establish their own 
     retirement systems for public employees. This option was 
     provided by the Social Security Act, passed in the 1930s.
       Galveston County looked into this idea in 1979. Then-County 
     Attorney Bill Decker asked Don Kebodeaux, president of First 
     Financial Capital Corp. of Houston, to devise a plan for the 
     county's employees to opt out of Social Security. Mr. 
     Kebodeaux and First Financial's Rick Gornto designed a 
     retirement plan that was many times better than Social 
     Security program. In 1980 they presented their plan to former 
     Galveston County Judge Ray Holbrook, County Attorney Bill 
     Decker and the Commissioners Court, the county's 
     administrative body.
       The first beauty of the plan was its simplicity. The 6.13% 
     payroll tax that the federal government had been taking from 
     county employees for Social Security would now go into the 
     employees' pension fund and would be matched by the county 
     with an additional 6.13%. The new plan included the same 
     employee benefits Social Security did: pensions and life and 
     disability insurance. In recent years the county has 
     increased its participation to 7.65%, which covered the 
     payments of all premiums for life and disability insurance. 
     The life insurance benefit for those under age 70 is 300% of 
     one's annual earnings; the minimum benefit is $50,000 and the 
     maximum $150,000.
       The local unions fought the idea at first, and several 
     Galveston County officials also opposed the action. Many 
     spirited debates between Social Security representatives and 
     the men from First Financial were held throughout the county; 
     county employees listened carefully and made sure they got 
     answers to all their questions. Voting on the question was 
     held in 1981. By a resounding margin of 78% to 22%, the 
     Galveston County employees endorsed the idea and the county 
     opted out of Social Security.
       Years later, a retired Mr. Decker told the story of how a 
     number of unionized county workers thanked him for his wisdom 
     and guidance. They said that at first they had serious doubts 
     about giving up Social Security's guarantee of fixed income, 
     but that now that they were getting ready to retire with 
     significantly higher benefits, they were very happy they did.
       ``Of all the things I accomplished while county judge, 
     setting up this retirement system for Galveston County 
     employees is one of my proudest achievements,'' says Judge 
     Holbrook, who retired in 1994. He points out that after just 
     12 years of service under the alternate plan he is now 
     receiving twice as much as he would have under Social 
     Security.
       Seeing the tremendous potential in a plan like Galveston's, 
     in 1982 Brazoria County opted out of Social Security in favor 
     of a similar plan. A year later Matagorda County did, too. 
     Both of these counties made their employees' contributions 
     6.7%, improving a great retirement plan by providing for even 
     greater returns.
       Tolbert Newman, the First Financial fund manager who 
     oversees the retirement plans for these three counties, cites 
     the following example of the growth that can be achieved in 
     such an alternate pension fund. If an individual begins 
     working at 25 years old and makes a $2,000 annual 
     contribution for just 10 years, assuming an 8% interest rate, 
     he will have $314,870 when he retires at age 65. If an 
     employee works continuously for 40 years, depending on 
     contributions, his portion of the pension fund could be more 
     than $1 million.
       Galveston's once-fledgling employee benefit plan has stood 
     the test of time, showing that it can and does outperform 
     Social Security. Today, with more than 5,000 employees from 
     these three counties, First Financial has grown a very 
     healthy and sizable portfolio. Those who retire after 20 
     years of service will receive three to four times the monthly 
     benefit they would have under Social Security.
       This plan is not just an isolated act by a group of 
     extraordinarily responsible and dedicated Texans. In 1937 the 
     Houston Fire Department set up its own retirement system, 
     which now has more than $1 billion in assets. Retired 
     firefighters receive more than three times the amount Social 
     Security pensioners do. There are countless other examples of 
     other local and state governments showing the same 
     responsibility and initiative. Five states have opted out of 
     Social Security and have their own plans: California, Nevada, 
     Maine, Ohio and Colorado.
       Congress knows that privatization will succeed--or it 
     should know. In 1984 it set up the Thrift Savings Plan, for 
     government employees only, whose ``C'' Fund is administered 
     entirely by Wells Fargo Funds and has succeeded well beyond 
     anyone's imagination. The plan's three funds today total more 
     than $28 billion. Under the Thrift Savings Plan, if an 
     employee making $35,000 per year invests 10% of his pay each 
     year, after 30 years he will have more than $1.2 million in 
     the retirement fund.
       In August 1996 Frost Bank of San Antonio published a survey 
     on Social Security in which 40% of its respondents strongly 
     supported retirement accounts consisting of stocks and bonds 
     and 55% opposed raising payroll taxes.
       If Social Security were privatized for all Americans, those 
     who work in the private sector, including the self-employed, 
     would benefit as never before. Phasing out the employer's 
     share of the Social Security tax would, over time, return to 
     the business community more than $169.2 billion per year. 
     Freedom from these payroll taxes would be a tremendous boon 
     to the economy, allowing the creation of countless new jobs 
     in every sector.


                          a winner for decades

       ``We currently pay over $1.3 million in matching Social 
     Security taxes annually,'' says Larry N. Forehand, president 
     of the Texas Restaurant Association and founder of Casa Ole 
     Mexican Restaurants, a fast growing Texas restaurant chain. 
     ``If our company had that $1.3 million a year to invest in 
     new locations, we could build six additional restaurants, 
     employ an additional 450 people and add $7.2 million to the 
     economy every year. It is estimated that all the restaurants 
     in Texas will save $1.2 billion per year.''
       Privatization has been a winner for decades for various 
     government entities. It's time to extend the benefits to all.

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