[Congressional Record Volume 144, Number 14 (Tuesday, February 24, 1998)]
[House]
[Pages H556-H558]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     SOCIAL SECURITY'S BLEAK FUTURE

  The SPEAKER pro tempore (Ms. Northup). Under the Speaker's announced 
policy of January 7, 1997, the gentleman from Michigan (Mr. Smith) is 
recognized for 60 minutes.
  Mr. SMITH of Michigan. Mr. Speaker, I would ask everybody to hold 
onto their hats. I am going to spend the next 30 minutes talking about 
Social Security. And maybe the question should be, why should anybody 
be interested in what the situation is in this country with Social 
Security?
  I suggest seniors that are now retired should be very concerned, 
because Social Security is going to have less money coming in in 
payroll taxes than is going to be required to meet the benefits as 
early as 2002.
  I would suggest that young people should be very interested in 
Congress and the President facing up to the real issue of starting to 
solve the Social Security problem, because when they retire, their 
retirement is going to be at risk unless we do something.
  I would certainly suggest that my grandkids, and Bonnie and I have 
seven grandkids, should be very concerned, because if we do nothing, 
they are going to be asked to pay huge amounts of their taxes, up to 85 
percent of what they earn, just to cover the Social Security benefits. 
So something has to be done.
  I wanted to start tonight with the President's budget. I think we 
start by getting rid of some misconceptions, if you will, hoodwinking 
of the American people, on the balanced budget. I think the American 
people know this. What we are doing is borrowing from Social Security 
to balance the budget.
  If you take a look at the historical tables on the President's 
budget, and you were to turn to page 111, you would see that the 
national debt increases every year for the next 5 years. If the 
national debt increases, how can the budget be balanced? It is not. We 
are borrowing from Social Security.
  I put this chart together very quickly, so please excuse the 
patchwork quilt here.
  As you go down the fiscal years, starting in 1998, the national debt 
is

[[Page H557]]

$5.5 trillion. That is an increase, by the way, of $174 billion over 
the previous year. In 1999, the national debt increases to $5.7 
trillion. In the year 2000, it increases to $5.9 trillion. In the year 
2001, the national debt increases to $6 trillion. In the year 2002, the 
national debt increases to $6.2 trillion, an increase of between $175 
billion and $174 billion a year.
  How can this be, you say, if the President of the United States and 
Congress is saying, well, we are reaching a balanced budget? Here is 
why. We are borrowing from the Social Security trust fund. That is the 
major borrowing that is allowing us to pretend that the budget is 
balanced. But what it is doing in the process is depriving Social 
Security of being solvent in the future years.
  I have introduced the only bill in the United States Congress that is 
scored by the Social Security Administration to keep Social Security 
solvent for the next 75 years. I introduced my first bill when I first 
came to Congress in 1993. I introduced my second bill last session, and 
I introduced a bill this session.
  That legislation says, for part of the solution, let individual 
workers have the option of taking part of their Social Security tax, 
and it would still be sent in to the government and still be deducted 
at the rate of 12.4 percent of taxable payroll, but they would have the 
option of investing that in certain safe investments. Safe investments 
in my bill are indexed stocks, indexed bonds, indexed global funds, 
indexed cap funds, and any other safe investment as determined by the 
Secretary of Treasury.

  Okay. So here is the situation. We have got a system that was devised 
in 1935 to allow senior citizens money to make sure that they were 
socially stable, socially secure. It was a system in 1935 that was 
designed to use existing taxpayers' money to pay for existing benefits, 
sort of a pay-as-you-go program.
  As we look at this bleak future for Social Security, what I was 
discussing on how much the Federal Government is borrowing from the 
Social Security trust fund to pretend that we have a balanced budget is 
the little amount in blue that goes from this year, 1997, over to about 
2011. So every year because we raised taxes so high on workers in 1983, 
there is more tax revenues coming in than is required to pay out 
existing benefits. Remember, this is a pay-as-you-go program, where 
existing taxes pay for existing benefits. So as government borrows this 
money and spends it for other uses, as government borrows this money 
and uses it for other purposes, what we do is further jeopardize the 
solvency of Social Security.
  This chart, because we have increased taxes so much on existing 
workers, this chart represents how many years a person is going to have 
to live after they retire simply to break even and get back what they 
and their employers paid into Social Security. So because it is sort of 
a chain letter, a Ponzi game, a pay-as-you-go system, if you retired 
early, then you were very, very well off and Social Security was very, 
very solvent.
  If you happened to retire in 1940 it took 2 months to get everything 
back that you and your employer put in plus compounded interest. If you 
retired in 1960, it took 2 years. Going across the chart you see 
anybody that retires after the year 2005 is going to have to live 24 to 
26 years after they retire simply to break even and get back what they 
and their employer put into Social Security.
  Not a good investment. Not a good savings. The National Tax 
Foundation estimates that the average person retiring after the year 
2000 will get a negative return on the amount of money that the 
employer and the employee put into Social Security. The employee now 
puts 6.2 percent. The employer puts 6.2 percent.
  Really what we are talking about is a situation where it all comes 
out of the employee's pocket, because the employer would give that 
money to the employee. Obviously they are willing to pay that much. So 
it is really a tax on the employee, the whole 12.4 percent.
  The National Tax Foundation says that you are going to get a negative 
one-half to a negative one and a half percent return on your money. So 
that is why everybody is suggesting let us use a little bit of private 
investment to allow workers to take some of this money and invest it in 
the stock market or the bond market so that they can realize the 
increase in wealth.
  A lot of people suggest that there is a danger in allowing people to 
invest their own money because they might lose it all. Number one, it 
is optional. Number two, we are suggesting in our pilot program that 
you would only have a reduction in Social Security benefits if you make 
money on your private investment. In other words, for every $2 you make 
on the private investment, you would lose $1. $1 would be offset in the 
traditional Social Security benefits.
  And that is going to help solve the whole Social Security problem. 
Because if your index stocks are average of what has happened over the 
last 90 years in this country, there is a 9 percent per year return on 
those index stocks, 9 percent per year. Remember, this compares to a 
negative one-half, to a negative one and a half return on your Social 
Security money.
  Social Security is a bad investment. Stocks are continually going up. 
Even the economists suggest that even the 10 years surrounding one of 
our worst depressions around 1928, 1929, if you take any 10-year period 
around that depression, you still have a positive return that is going 
to be much better than what Social Security is going to give you.
  So the point is we need to make some changes in Social Security. It 
is a bad investment. Let us look at other ways. Let us at least start a 
pilot program.
  I am introducing a bill that is going to be a pilot program that will 
allow 18-year-olds to 30-year-olds to invest 2.5 percent of their 
payroll. This money will be sent in. That individual will have the 
option of saying I want this much in index stocks, this much in index 
bonds. There will be an offset; for every $2 you make, a $1 offset in 
your fixed benefits. Then you have the option at 10 years to say, look, 
I have decided I want to go back to the old fixed benefit plan.
  I think it is so important that we allow American working families to 
experience the creation of wealth. We have taxed everybody so much in 
this country. You now pay 40 cents out of every dollar you make in 
taxes at the local, state, and national level. We have taxed so many 
people so much that it has taken away the ability to start saving and 
creating wealth.
  Part of the wealth creation is the fact that, at 9 percent interest, 
I think your money doubles something like every 7 years. So that means, 
if you start with a dollar, 7 years from now, you will have two. And 14 
years, you will have four.
  That compounding, that magic of compounding interest is why the 
economists suggest that you are going to be so much better off if you 
have some private investment rather than a fixed benefit plan that is 
now going broke.
  Look at this next chart. The number of seniors is increasing very 
dramatically. We see over the next 28 years, 29 years, there is going 
to be an increase of 4.7 percent for those people under 20 years old. 
For those people in the age of 20 to 64 years, there is going to be an 
increase in numbers of 20.6 percent. But look what happens to seniors. 
The senior population, over 65 population, is increasing at 79.5 
percent, almost 80 percent.
  When we started Social Security, the average life-span for an 
individual was 61 years old. That means most people never lived long 
enough to collect any Social Security. So the Social Security system 
worked very well then. It went spinning along very nicely.
  We got into the late 1940s. We ran a little short of money. We 
increased taxes. In the 1950s, we increased taxes again. We kept 
increasing taxes on workers to keep the program solvent. And that is 
why it is going to be impossible for most workers in the future, unless 
we make some changes, to ever get back even what they and their 
employer put into Social Security.

                              {time}  2045

  Before I get to this next chart, if we were to look at the number of 
people working paying in their taxes to fund every single beneficiary, 
in 1942, there were 40 workers paying in their Social Security tax for 
every retiree. By 1950, that got down to 17 people working for each 
retiree. Today, there are three

[[Page H558]]

people working, three people working for every retiree paying in that 
large increased number of tax.
  This chart shows how we have increased taxes over the years on those 
workers. In fact, we have increased taxes 36 times since 1971. More 
often than once a year we have increased taxes on the American workers 
and there are people now suggesting the way to fix Social Security is 
to increase taxes again on those workers.
  Look at this pie chart right now: 78 percent of Americans pay more in 
the FICA tax than they do in the income tax. That is because of Social 
Security taxes that have kept going up. Okay. That is the problem. Like 
I mentioned, in 1961, the average life span was 61 years old. In 1936, 
the average life span was 61 years old. Today, the average life span 
for a female is 76 years old; for a male it is 74 years old.
  But if we live to 65, ready for retirement, then on the average we 
are going to live another 20 years. That is why the senior population 
is going up so dramatically. And after the baby boomers, after World 
War II, the birth rate went way down. So our birth rate is slow in 
relation to the number of seniors that need to be supported by those 
existing taxes.
  There has got to be a way, there has got to be a system that will 
help us save Social Security. I want to suggest that I have got one 
proposal. I want to run it up the flag pole. But instead of burying our 
heads in the sand, let us face up to the fact that there is a problem. 
Let us face up to the fact that we do not want to cut benefits for any 
existing retirees or any of those individuals close to retiring and we 
want to have a system that is available for working families today and 
for our grandkids tomorrow.
  Mr. Speaker, every proposal that the President's Advisory Commission 
came up with included as part of the solution private investment, and 
that is what I am suggesting. But I am suggesting we start very 
gradually. That we start taking some of this surplus, this blue area, 
some of the $100 billion that the general fund is borrowing from the 
Social Security trust fund in the 1999 budget that we have just started 
working on, $100 billion that we are borrowing from the Social Security 
trust fund to balance this budget. Let us start taking some of that 
money and allowing some personal investment for some of these young 
people.
  Of course, with the magic of compound interest, that means the 
doubling of that money is going to happen more often. If we can wait 
until one more doubling, then we are going to have benefits that are 
far in excess of what we ever can expect to get out of Social Security.
  This blue portion means that we are going to continue to have more 
tax revenues coming in than is required for Social Security benefits. 
So in my proposal, in the pilot program proposal, we are suggesting 
that we allow that certain group of individuals to have the option to 
start seeing the creation of wealth, the magic of compounding interest, 
and to prove to the world that the American people are pretty smart.
  We have now had the experience of going out and shopping for a car or 
a home; the experience of investing our own 401(k) plans or our Thrift 
Savings Plans or the IRAs that we are allowed to invest. People are 
going to invest that money and they are going to talk, they are going 
to study. It is going to mean increased investments that is going to 
help our economy. It means that we are going to have a Social Security 
system that can last forever, because we are starting to wisely have a 
fixed investment portion rather than a fixed revenue portion.
  Now, where do we go from here? Number one, I invite all of my 
colleagues to join me in sponsoring a bill to use some of those 
surpluses, quote-unquote surpluses that we are going to have this year, 
for personal investment for some of these young workers in our country. 
And then we are hopefully going to expand that to more and more 
workers.
  Mr. Speaker, we always have the option of saying well, I want to stay 
with the old system. I do not want to privately invest. Let me give a 
couple of examples of what has happened in some counties in Texas. 
County government has the option that their employees can have other 
pension investment plans rather than Social Security. In Texas, some of 
those counties took that option and now the retirees of those counties 
are receiving many times more than their counterparts that are 
receiving Social Security benefits. The Social Security system, the way 
it is designed now, shortchanges everybody.
  Let me tell particularly who it shortchanges. Those people who have a 
life span that is less than some other individuals' life span. What was 
called to my attention is that the average life span at birth for a 
black male is go 63 years old. That means that they paid all of their 
lives into Social Security, subsidizing those individuals that might 
live a longer time. If a person dies before they start collecting 
Social Security, then other than for some burial funds that might be 
available, they lose all of that money that they and their employer 
have ever put into Social Security. It is gone.
  Whereas on the private investment, if they die at 30 years old, or 40 
years old, or 50 years old, it becomes part of their estate. It is 
their property. It is their private retirement savings plan. I think 
there should be a ground swell of support from working men and women 
around this country that says: Look, quit gypping us, United States 
Congress and Mr. President, on what you are doing for Social Security. 
Quit saying that Social Security is first and let us really make Social 
Security first. Let us use some of these surpluses to start saving the 
Social Security system.

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