[Congressional Record Volume 143, Number 42 (Thursday, April 10, 1997)]
[House]
[Pages H1431-H1434]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     HOW BIG SHOULD GOVERNMENT BE?

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 7, 1997, the gentleman from Michigan, [Mr. Smith] is recognized 
for 60 minutes.

[[Page H1432]]

  Mr. SMITH of Michigan. Mr. Speaker, I think since tax filing date to 
pay our income taxes in the United States is next Tuesday, April 15, it 
is an appropriate time to talk about how big do the American people and 
the American workers think Government should be and how much of their 
money that they have earned do they think should go to pay for 
government.
  In the last several years, I have been concerned about Republican 
candidates and Democrat candidates running for Congress, running for 
the Presidency, that suggest somehow that Government can do great 
things for us; that Government can increase our standard of living; 
that Government can give us better jobs.
  I would suggest, Mr. Speaker, that Government and what it can do to 
increase our wages and increase our standard of living is much 
overbloated from the mouths of politicians. If Government could 
actually pass laws or do something to increase wages, increase the 
standard of living, would not every Government in the world pass those 
     kind of laws?  The fact is that what we have and what we 
can get, and the amount we earn and the kind of community we live in, 
is pretty much up to our individual selves and collectively within that 
community, and it is dependent on whether or not we can produce a 
product that other people want to buy around the world and we can 
produce it at a competitive price. So we are looking to produce a 
quality product at a competitive price that other people in the world 
and in this country want to purchase.

  Let me suggest two mistakes I think we have been making to accomplish 
that kind of goal in order to increase our take-home pay and have more 
time to spend with our families and do a better job in our competitive 
relation with other countries around the world. Let me give what I 
consider bad news over the last 10 years. The productivity; that is, 
the efficiency of the way we produce products, the productivity in the 
United States has been increasing at a slower rate than other 
industrialized countries around the world.
  Part of the reason is that we discourage savings and investment. So 
at this tax time of year, I would humbly suggest that one thing we want 
to do is change our Tax Code not only to make it simpler and more fair, 
but we have to do that because the special interest lobbyists have 
really ruined our current Tax Code and given too much favoritism to 
their clients. What we want to do is encourage investment, encourage 
savings, reward the people that are trying, that are working instead of 
what we do now.
  Let me give a couple of examples. Our penalty on a business that buys 
a new piece of equipment or new machinery to increase the efficiency 
and productivity in that particular job site, we penalize it in our Tax 
Code more than any of the other G-7 countries.
  I think a lot of people do not think about it, but what we do to a 
business is we say, look, if you are going to buy the more efficient 
equipment and the more efficient machinery to increase the productivity 
of your workers, to increase their pay, this is how we penalize you. We 
say that you have to put it on a depreciation schedule and we make them 
depreciate it over the next 3, 5, 10, 15 years.
  What happens when they buy that equipment and have to wait that long 
to deduct it as a business expense on their taxes is inflation eats up 
the value of that deduction.
  So a lot of us have been trying to change that. And it seems to me on 
the Neutral Cost Recovery bill that I have introduced is that we simply 
should say to a business, look, if you are willing to go out on the 
limb and put better tools, better equipment, put a better facility 
there for the people that work in your company and you make that 
purchase, you can deduct it as a business expense or, at the very 
least, what you do not deduct as an expense in the year of purchase you 
can add an inflation factor to it so when you do depreciate it on that 
depreciation schedule it is adjusted for inflation in the time value of 
money.
  If I were to take a vote in this auditorium, Mr. Speaker, of how much 
individuals thought they should pay in taxes, how many cents out of 
every dollar they earn they believe is reasonable to pay in taxes, my 
guess is most people would come up with around 25 percent of what I 
earn is reasonable. Well, the average in the United States is a little 
over 41 cents. On the average, the average worker in the United States 
now pays 41 cents out of every dollar they earn in taxes at the local, 
State, and national level.
  I would just suggest that during this time of year, when we are 
concerned about how much taxes we are paying, everybody should look at 
their end of the week or end of every 2-week check and look at the 
deductions on that check.

                              {time}  1545

  When you fill out your 1040 and your tax forms, look at that bottom 
line. We do not pay much attention to it because most of us have it 
automatically withheld from our paychecks, and so we never see it. And 
so there are a lot of people that have said, ``Jeez, I got a tax 
refund.'' But I think we need to remind ourselves that we are paying 
thousands and thousands of dollars in to run government. When you pay 
that money in, how do you make sure you are getting your buck's worth? 
How do we make sure we are getting our bang for the buck? Let me tell 
you a dangerous situation that I have seen happening in my last 16 
years in politics, this is my 5th year in the U.S. Congress, and I am 
concerned because I see Members of Congress tend to increase their 
chances to get reelected if they promise more pork-barrel projects, if 
they go home and promise more social programs, if they promise to do 
more things for the American people and the people in their particular 
congressional district, or U.S. Senate district in their State. They 
get on television if they take home those pork-barrel projects, cutting 
the yellow ribbon and people say, ``Boy, this guy is really good, he's 
bringing me something.'' Let me tell you something about pork-barrel 
projects. If you take home as a Member of Congress pork to your 
district, you can bet your life that you are also voting for everybody 
else's pork. That is one of the problems of us running deeper and 
deeper into debt and taxing more and spending more. Those individuals 
that promise to do more social programs for people. The problem is, is 
that you are paying for it. Jefferson said that it is one of the 
greatest dangers of a democracy to have people that can vote themselves 
more benefits. But the problem is, Government has no money. The only 
way we come up with money is to tax the American people and reach into 
their pockets, reach into what their hard-earned dollar is, to take it 
and to decide down here in Washington what we want to spend. Right now, 
the annual deficit is what we overspend, the amount that we overspend 
in any 1 year above and beyond the revenue coming into the Federal 
Government is called the deficit. If you add all those deficits up year 
to year, then you end up with the Federal debt. The Federal debt is now 
about $5.2 trillion. A lot of money. Let me tell you, though, what 
overpromising has done. Overpromising on Medicare, the economists, the 
actuaries, now estimate that the unfunded liability, the actuarial debt 
of Medicare is approximately $9 trillion. That means you would have to 
take $9 trillion and put it into the Medicare pot right now if it was 
going to support that program and keep it solvent for the next 75 
years.
  Let me talk about Social Security, and I am going to talk about 
Social Security a little more with the rest of my time, Mr. Speaker, 
because I think that is something that is really coming down very 
quickly, is becoming insolvent. Social Security now has an unfunded 
liability of approximately $7 trillion. In other words, we have 
promised more than we can deliver in Social Security.
  Let me run through some charts. This first chart shows the pie of the 
expenditures of the United States. The piece of pie up in front of that 
chart represents Social Security. That takes 22 percent of the Federal 
budget. Social Security, Medicare, other entitlement programs, the 
welfare program, the food stamp program, the 15 percent of the budget 
that goes to pay the interest on the public debt and the other 
entitlements use up essentially all of the Federal spending budget 
except for the discretionary programs. The only pursestrings that 
Congress now controls are those discretionary spending. If you take 
defense out, defense uses 17 percent of the total budget. What is 
interesting, the hawks and the doves, the

[[Page H1433]]

Republicans and Democrats, conservatives and liberals, almost never 
disagree more than a plus or minus 8 percent on what should go into 
defense spending. So that leaves 12 appropriation bills that this body, 
the U.S. House of Representatives, has control of, along with the U.S. 
Senate and those are the 12 appropriation bills that use up the other 
17 percent of this total budget pie. That is all we have control of.
  What Republicans did 2 years ago is said, look, as leverage to try to 
reduce the rest of this spending pie, we are going to add language on 
to these appropriation bills that essentially run Government, language 
that says, look, if we are going to ever achieve a balanced budget and 
live within our means and to stop spending the money that our kids have 
not even earned yet, that is what I call borrowing is, when the Federal 
Government borrows, what we are doing is spending the money that our 
kids and our grandkids have not even earned yet, we have no idea how we 
are ever going to pay it back. There is no plan by anybody on how to 
start paying this back so we just keep borrowing and say, ``Well, let 
the young people worry about it in the future. Maybe their problems 
will be less.'' No. 1, I know I am getting on a long footnote here, but 
is it not terribly egotistical for this generation to think that the 
problems today are so great that it justifies borrowing this money from 
our kids and our grandkids, driving their debt even deeper, making 
their chances of success even greater by simply going in and 
overspending?
  That is why I think it is so terribly important that every American, 
Mr. Speaker, when Members run for Congress, when Members run for the 
U.S. Senate, when people run for the Presidency, they say, ``Look, 
candidate, what are you going to do about this overspending?'' And so 
the candidates say, ``Well, we're going to deal with it. That's 
important.''
  I think it is coming to a very serious point where we cannot allow 
Members of Congress to be elected that are going to continue the tax 
and spend and borrowing as usual.
  Let me just take a few minutes looking at the problems on Social 
Security. The average retired couple now on Social Security has already 
gotten back 4 times what they and their employer put into Social 
Security taxes. They have gotten back 4 times what they ever put into 
it, plus compounded interest.
  This chart shows that if you happened to retire in 1980, it took 2 
years of retirement to get everything back that you put into Social 
Security in taxes plus what the employer put in. If you retired in 
1980, it took 4 years to get everything back that you and your employer 
contributed in taxes to Social Security plus compounded interest from 
day one. However, if you retire 10, 15 years from now, it is going to 
take 26 years of living after you retire just to break even and get 
back what you and your employer put in, in taxes, in the Social 
Security taxes.
  Social Security started out with a tax of 2 percent on the first 
$3,500. Every time we have gotten into problems with Social Security 
and having less money than was needed to pay existing benefits, we have 
simply raised taxes. The system today is sort of a Ponzi game. It is a 
pay-as-you-go program, Social Security is. We take the existing taxes 
and we immediately send out those taxes to the existing current 
retirees. That is the way it is today. That is the way it always has 
been since 1935. And so when you end up with a problem of fewer and 
fewer workers  supporting a larger number of retirees, then you run 
into problems. The problem so far has been solved by the age-old 
tradition in this country of simply saying, ``Let's just raise taxes 
again.'' So this chart shows how much taxes have been raised.

  I am sure if you were guessing how many times we have increased taxes 
since 1971 on Social Security, very few people would guess 36 times. 
But we have increased the Social Security tax on young working 
families, the working men and women of this country 36 times since 
1971. That is why I am suggesting that the Social Security problem, to 
make it solvent, does not have any tax increase.
  This next chart shows what is happening in the demographics of the 
increased population. The increased senior population is going to grow 
108 percent between now and 2040 where the working people population is 
only going to increase about 24 percent, is the new estimate between 
now and 2040. So we have more and more retirees and fewer and fewer 
workers. One reason for that situation is people are living longer. 
When Social Security started in 1935, the average age of death was 61 
years old. On the average, people lived to 61 years old. And the 
retirement age then was still 65. That is what it was. So that meant 
most people never collected Social Security. They died first. And so it 
was easy to keep a program solvent when we said pay taxes all your life 
and then you are unlikely to ever collect anything. And so what 
happened is as people live longer, there are more senior citizens. 
Right now the average age of death at birth is 74 years old. However, 
if you reach age 65, then the experts predict for those people that 
reach 65 years old, the age that you can start collecting Social 
Security today, that on the average you are going to live to be 84 
years old. Some are guessing that by the year 2040, half of the people 
in the United States could even live to be 100 years old. And so as you 
increase the number that are receiving the benefits from existing 
workers, it makes it tougher on those existing workers, especially if 
there are fewer of those existing workers.
  Let me get to these workers charts here. In 1947, there were 42 
people working paying in their Social Security tax for every retiree. 
By 1950 it got down to 17 people working paying in their Social 
Security tax for every retiree. Today 3 people are working paying in 
their Social Security tax supporting the Social Security benefits for 
every Social Security recipient that is now collecting benefits. The 
guess is that by 2029 we are going to be down to 2 workers. It is a 
serious problem. There are no good fixes. But I think the solution 
pretty much boils down to one of two things or a combination. You have 
either got to increase revenues or you decrease outgo, or it is a 
combination.
  That is all there is. And so I have come up with a suggestion that 
says, at least for everybody over 57 years old, that you are going to 
continue to get the same benefits that you have expected all your life 
and these politicians have promised you. But for people younger than 
that age, we do a couple of things. We slow down the increase in 
benefits for the higher wage earners. In other words, if you are making 
lots of money, your benefit increase over the years is going to go up 
slower than it otherwise would. The benefits for those very lower wage 
people will actually go up faster than it would under existing law. I 
am suggesting we add a year to the retirement age. People are living 
longer, so I have suggested we add 1 more year to that retirement age 
before you are eligible for full retirement.
  Here is the other exciting thing that is in my bill, though. I am 
suggesting that part of the money be allowed to be used for private 
investment. Do you know why the President's advisory commission, Mr. 
Speaker, every one of the three suggestions from that commission 
included private investment? Here is why. The Department of Treasury 
only pays a real interest rate return of 2.3 percent. So anybody that 
can invest that money anyplace else for a greater real return is going 
to end up being better off. And so I am suggesting that the surpluses 
now coming into the Social Security trust fund, because after the 1983 
huge tax increases, we are ending up with a little surplus coming in 
every year. In other words, there is a little more tax money coming in 
than is required for those benefits, that goes into the Social Security 
trust fund, I am suggesting we keep Government from using that extra 
money to spend on other programs. I think that is an important first 
step, is that we keep that Social Security trust fund money from being 
used and being spent for other programs, because the problem is even 
though Government, quote-unquote, Government writes an IOU and says we 
are using this money for other programs and we intend to pay it back, 
there is no way for Government to pay that back without going out and 
borrowing more money and going out and increasing taxes to come up with 
the money to pay it back. So let us keep the Government's

[[Page H1434]]

hands off that extra trust fund money to start with.
  What I do in my proposal is I allow the individual workers to use 
that amount of money for private investments. It starts out at about 
2.3 percent. Right now the Social Security tax is 12.4 percent. This 
says we will start out at 2.3 percent to be allowed for the private 
investment. That private investment, by the way, even though I increase 
the retirement age by 1 year, I say you can take out your private 
investment money as early as age 60, trying to offset the negatives of 
adding 1 year to the retirement.
  If individuals were allowed to have private investments back in 1935 
and if we simply said in the law, look, you have the option of going 
into the Government program or you can have your own private 
investments as long as you invest the same percentage, you cannot take 
it out until age 65, with those kind of requirements, we would have 
almost 10 times the return on investment as the so-called investment 
into Social Security taxes during those years.

                              {time}  1600

  Here is what is interesting researching the records of the arguments 
between the House and the Senate. In 1935, when they passed the bill, 
the Senate insisted on two votes in the Senate, that that personal 
investment be an option to the Government program, and that is the way 
the Senate passed the bill. But in conference committee the House 
talked the Senate out of the provision, and it became a total 
Government program.
  Some people say, ``Well, can you trust the American people to invest 
their own money?'' Is that not a sad state of affairs?
  I say, yes, we can. I say part of the problem is we have taxed the 
American people so much that they have very little opportunity to 
invest because we take it away, all of it away from them, in taxes. But 
look, the American people that can go out and dicker for a car, the 
American family that can go out and buy a home and come up with a 
reasonable price for that home, a family and individuals that can 
invest IRA money can end up investing their own money.
  I set certain parameters in my bill on where the money is invested. I 
start out by saying, look, individuals are going--the firms that take 
that money to invest it are going to have to give a quarterly report 
back to those individual workers because I think that is important, I 
think that is the trend. And if you start out at just 2.3 percent, I 
think you can learn very quickly to weed out the Wall Street snake oil 
salesmen.
  But I set in the parameters also of the 401(k) program, and the 
thrift savings plan is what we call our sort of 401(k) for all Federal 
Government employees; I included that language by reference in my bill 
so if an individual--so Social Security Administration would go out and 
find reliable investors, and if the individual worker could choose what 
percentage of their investment they wanted in indexed stocks, how much 
they wanted in index bonds, how much they wanted in Treasury bills, a 
certain percentage in mutual funds.
  Look the American people need to be able to invest their own money, 
and we need to start reducing taxes today to allow them to invest their 
own money, and we need to expand IRA's to encourage that investment, 
with some tax breaks to encourage savings and investment because if we 
are going to get back to our goals, if we are going to get back to our 
goals of having an America that is a better place to work and to live 
and to raise our families, then we are going to have to make some 
changes. Investments in tool and machinery, that capital investment is 
one thing.
  And let me just finish up my comments by saying what I think the 
importance of the human investment is, the human investment in 
education. The President this year suggested we spend another $50 
billion of Federal Government money on education. But you know what I 
think is the most important thing we can do for education? It is to 
have a strong family unit where those parents are encouraging those 
kids to get a good education.
  I mean as I talked to teachers and as I talked to youth group 
leaders, they say the most important thing that can happen is parents 
that are interested in their kid's education, parents that are 
interested in their kid's school. So part of the solution to a sound 
future in this country is going to have to be policies that encourage 
investment in savings for capital investment on the one hand and 
policies that encourage the traditional family units so that we can 
have better educated, better motivated youth on the second hand.
  Mr. Speaker, I appreciate this opportunity to talk on this subject. I 
think that Members of Congress, members of the administration need to 
take their heads out of the sand, need to start dealing with really 
some of the very tough issues of Medicare, of Social Security, of 
annual government overspending, and I would just ask an American that 
pays taxes to spend a few moments thinking about the absurdity of our 
tax code in this country.
  You know we talk about immigration, we talk about the problems of 
illegal immigrants coming in, but you know there is about 12,000 
immigration employees that the Federal Government has. I think the 
number is now up to 120,000 IRS employees, 120,000 checking your taxes. 
Our Tax Code is unfair, it is complicated, the special interests 
lobbyists have gotten too much favoritism for their clients. I think it 
is time that we had a new beginning and I think that is what we are 
going to do. God bless you all.

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