[Congressional Record Volume 144, Number 83 (Tuesday, June 23, 1998)]
[House]
[Page H4970]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page H4970]]
                            SOCIAL SECURITY

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 21, 1997, the gentleman from Michigan (Mr. Smith) is recognized 
during morning hour debates for 4 minutes.
  Mr. SMITH of Michigan. Mr. Speaker, the gentleman from Minnesota (Mr. 
Minge), a Member of Congress, and I have introduced a bill, H.R. 4033, 
that deals with some of the mistakes I think that we have been making 
regarding Social Security and how we calculate and how we treat the 
money that government borrows from Social Security, that we borrow from 
the Social Security Trust Fund, and then spend that money on other 
programs.
  The legislation accomplishes two objectives. First of all, we say 
that from now on, when the general fund or the government borrows from 
the Social Security Trust Fund, instead of the blank IOUs, in the 
future it will be required that we have marketable Treasury bills.

                              {time}  0945

  Right now what happens is when there is a surplus coming in from 
Social Security, and Social Security is a pay-as-you-go program, so 
existing workers pay in their Social Security tax, immediately that is 
sent out to existing retirees. Anytime there are more revenues coming 
in than what is paid out in benefits, it goes into what is called the 
Social Security trust fund. It is not really a trust fund, though. It 
is simply considered and treated as additional revenue for the general 
fund to spend on other social programs.
  Number one, what we say in this legislation and what we are proposing 
is that these become marketable treasury bills that the Social Security 
trustees can walk around to the corner, to the nearest bank, anyplace, 
and if they need that money to pay benefits, they can do it without 
coming and begging to Congress to pay back the money that has been 
borrowed.
  The second thing that we do in that bill is say that from now on when 
we talk about deficits and surplus, we are not going to consider the 
extra money that is coming in from Social Security, that goes into the 
Social Security trust fund and is spent on other programs, as revenue 
in terms of deciding whether we have got a deficit or surplus in this 
country. Right now we hear a lot of bragging about the fact that we are 
going to have a surplus, a surplus in the unified budget that might be 
as high as $60 billion, $70 billion this year, maybe up to $100 billion 
next year. But because we are borrowing that $70 billion to $100 
billion next year from the Social Security trust fund, it is not really 
a surplus.
  So we say from now on, when OMB and CBO scores whether or not we have 
a deficit or surplus, we are not going to consider the amount that we 
borrow from the Social Security trust fund as revenue in terms of 
pretending that we really have a surplus in this country. I think it is 
important that we be visible.
  I have got a letter from Chairman Allen Greenspan, Chairman of the 
Fed, that says, ``Look, what's important is that we have transparency, 
that there is a clear understanding of what is happening in this 
country.''
  I suggest, Mr. Speaker, and I suggest to the American people that 
there is not a clear understanding as we brag about a surplus when we 
are depending on the amount that we are borrowing from the Social 
Security trust fund as revenue to justify in our calculations that 
there really is a surplus.
  I just quote from Allen Greenspan:

       On the first issue, my basic point would be that the 
     financial markets of switching from investments in 
     nonmarketable to marketable treasuries have little or no 
     effect.

  It is important that we be transparent, it is important that we be 
honest with ourselves in the way we calculate these surpluses so that 
we can make real and honest policy decisions.

                                           Federal Reserve System,


                                           Board of Governors,

                                    Washington, DC, June 18, 1998.
     Hon. Nick Smith,
     House of Representatives, Washington, DC.
       Dear Congressman: I am pleased to respond to your request 
     for my thoughts on the bill you have drafted, H.R. 4033, 
     which would direct the investment of social security trust 
     funds to marketable securities and require that budget 
     surpluses or deficits be reported net of social security 
     flows.
       On the first issue, my basic point would be that the 
     financial market effects of switching from investments in 
     nonmarketable to marketable Treasury securities should not be 
     significant. The crux of this matter is that it is the net 
     borrowing requirements of the federal government, on a 
     consolidated basis that encompasses the trust funds, that are 
     key in terms of pressures in financial markets. If the trust 
     funds were simply to purchase marketable rather than 
     nonmarketable securities, the net borrowing from the public 
     would remain the same. Under the circumstances, the question 
     would seem to boil down to a matter of which approach is most 
     attractive in terms of dealing with the technical problems of 
     public debt management.
       The preceding remarks effectively anticipate what I would 
     have to say about the second issue regarding accounting. A 
     unified budget concept that encompasses the net flows into or 
     out of the trust funds most effectively captures the short-
     run influence of the government's fiscal activities on the 
     financial markets and the economy. From this standpoint, it 
     would not be desirable, to my mind, to suppress the unified 
     accounts. On the other hand, a budget accounting that 
     separates out social security receipts and outlays may 
     provide an insight into the longer-term financial condition 
     of the federal government that would be helpful in the 
     planning and policymaking process. As with many issues in 
     accounting, the one-size-fits-all approach is likely to be 
     suboptimal. What is important is that the relevant 
     information be presented in as transparent a fashion as 
     possible, so that eveyone can appreciate the financial 
     consequences of policy actions.
       I hope that these comments are helpful. Please let me know 
     if I can be of further assistance.
           Sincerely,
                                                   Alan Greenspan,
     Chairman.

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