[Congressional Record Volume 146, Number 131 (Wednesday, October 18, 2000)]
[House]
[Pages H10233-H10238]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SOCIAL SECURITY SOLVENCY
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 6, 1999, the gentleman from Michigan (Mr. Smith) is recognized
for 60 minutes as the designee of the majority leader.
Mr. SMITH of Michigan. Mr. Speaker, I rise tonight to discuss Social
Security. It is going to be almost like a professor lecturing a class.
So everybody that is interested in Social Security should listen up.
Those that are not interested in Social Security should be because it
is America's biggest program, probably the United States Government's
most important program.
When I came to Congress in 1993, I left the Michigan Senate as
chairman of the Taxation Committee. At that time, we were looking at
the consequences of low investment and savings. I discovered that, in
the United States, we have the lowest savings of any industrialized
country in the world. And then I started looking at Social Security and
the problems that Social Security was having in terms of the
demographics in terms of financing the current promises in future
years.
When I came to Congress, what I did in 1993, I introduced my first
Social Security bill. And then 2 years later, in 1995, 1997, and 1999,
I introduced subsequent Social Security bills, all scored by the Social
Security Administration to keep Social Security solvent for the next 75
years.
I have been serving as chairman of the Bipartisan Task Force on
Social Security in the Committee on the Budget. With testimony we
received, we came up with 18 unanimous recommendations of what should
be in a Social Security bill. I incorporated those and introduced a
bipartisan bill that is now before the House.
I would suggest to everybody, current retirees, near retirees and
young workers and young people in general to start looking at Social
Security because it has the potential of developing a generational
warfare if we continue to make promises of increased Social Security
benefits and then we simply satisfy that challenge by increasing taxes
on future generations.
Let me just say that if we do nothing, if we add no more benefits to
Social Security or Medicare or Medicaid but continue under the existing
programs to keep those programs solvent, we will have to have a payroll
tax to keep Social Security and Medicaid and Medicare solvent that will
take 47 percent of our wages.
{time} 2015
Right now the FICA tax is 15 percent of wages.
The Social Security Benefit Guarantee Act. When Franklin Delano
Roosevelt created the Social Security program over 6 decades ago, he
wanted it to feature a private sector component to build retirement
income. Social Security was supposed to be one leg of a three-legged
stool to support retirees. It was supposed to go hand in hand with
personal savings and private pension plans, and it is interesting,
searching in the archives for some of the testimony back in 1935 when
we started Social Security, to see that the Senate on two different
occasions voted that it should allow private investment savings as an
alternative to the government doing it; but when the House and the
Senate went to conference, the decision was made that year to simply
have it a totally government program, and that is what it is, a pay-as-
you-go program where existing workers pay in their taxes to support
existing retirees.
The demographics, the problem of demographics, fewer workers and more
retirees, which we will get into in a moment. The system is really
stretched to its limits. Seventy-eight million baby boomers begin
retiring in 2008. These are the high-income people in general. That
means they go out of the paying-in mode, paying in their taxes,
directly related to their higher incomes, and start taking out benefits
again directly related to what their incomes have been. That is when
the problem starts. Social Security spending exceeds tax revenues
starting in 2015. We increased the Social Security taxes substantially
in 1983 so currently, temporarily, there are huge
[[Page H10234]]
surpluses coming in, and we have been spending that surplus for other
government programs.
Social Security trust funds go broke in 2037, although the crisis
could arrive much sooner. The crisis is going to arrive when we need to
start coming up with the money that we borrowed and spent for other
programs in the past, and that is the real problem. That is the real
challenge.
Insolvency is not some guess or estimate. Insolvency is certain. We
know how many people there are, and we know when they are going to
retire. We know that people will live longer in retirement, and our
estimates on how long they live have been fairly accurate over the
past. We know how much they will pay into Social Security and taxes,
and we know how much they are going to take out under the benefit
structure we have. Payroll taxes will not cover benefits starting in
2015, and the shortfalls will add up to $120 trillion of extra money
needed over and above what is coming in in taxes, $120 trillion between
2015 and 2075.
To put that in perspective, I am not sure any of us really know how
much a trillion dollars is, but our spending that we are going to end
up for this current fiscal year that we have just started is going to
be approximately $1.9 trillion. Just for Social Security over the next
75 years, we are going to need to come up with an additional $120
trillion. It is a huge problem, and it is so frustrating that we have
not paid attention to it.
We have let the last 8 years go because politicians have been afraid
that they would be demagogued in the election. We have missed an
opportunity over the last 8 years by not having the leadership in the
White House to move ahead with saving Social Security. Instead, we have
had words saying Social Security should come first but no legislation
proposed that could be scored to keep Social Security solvent over the
next 75 years.
Here is part of the demographic problems. The coming Social Security
crisis, pay-as-you-go retirement system, will not meet the challenge of
demographic change.
Workers per Social Security beneficiary. Back in 1940, here are 38
workers paying in their taxes for every one retiree. Today there are
three workers paying in their taxes for every one retiree, and the
estimate is by 2025 there are only going to be two workers paying in
their benefits that is going to cover the Social Security check for
every one retiree. So if that person's Social Security benefits end up
being whatever, $15,000, or $1,200, $1,500 a month, those two workers
are going to have to pay in that $600 or $750 a month each to cover
those benefits of that one retiree. So we would let taxes go that high.
This depicts sort of graphically the short-term surplus and the long-
term future deficits. Remember, I mentioned this red represents $120
trillion, $120 trillion that we are going to be short; that that much
more is needed over and above the Social Security taxes to accommodate
the promises that we have made in Social Security. Because we have been
raising taxes a great deal on the fewer and fewer workers, we have
ended up with a short-term surplus, and Republicans came in as a
majority in 1995 and for the first time we started not using all of the
Social Security surplus for other government program spending. For the
first time in 40 years we started saying, look, we have to stop
spending the Social Security surplus, and last year we called it a
lockbox. Whatever it is called, what we did was made a decision, and we
enforced it by saying we are not going to spend any of the Social
Security surplus on any other programs.
We talk about all of these huge surpluses. Most of the surplus coming
in is from the Social Security tax.
Let me just give three numbers in terms of what is going to happen
this current fiscal year that started the first of this month. This
year we are estimating that we are going to take in $533 billion of
Social Security taxes, $533 billion coming in. What is needed to pay
benefits this year is $367 billion. That means we have a surplus in
Social Security of $166 billion. So the $166 billion that is coming in
from the Social Security tax, where we are really at this time at least
overtaxing American workers to come up with the extra money and we are
using that extra money to pay down the debt held by the public. So what
we will do is we will write an IOU to the Social Security trust fund.
There is a box down in Maryland full of IOUs where we have spent the
money in the past, where we have borrowed it and spent it for other
things; and this current year we expect to take $166 billion for the
Social Security surplus, write an IOU for it, and use that money to pay
down the public debt.
This is Barry Pump. I do not know if the cameras see him; but Barry
Pump is from Iowa, one of our star pages. So I thank Barry very much.
Economic growth will not fix Social Security. So some have said the
economy is great, it is going to mean that we are not going to have the
Social Security problems; let us keep this economy rolling and we can
quit worrying about Social Security. Untrue.
Social Security benefits are indexed to wage growth. So the higher
one's wages, when they retire the higher their benefits.
So an increased economy means that more taxes are paid in earlier;
but later on when one eventually retires, they are going to take more
benefits out. So the growing expanding economy, the way we have Social
Security structured right now, is not going to solve the problem. I
mean, that is why 4 years ago when I introduced my bill Social Security
was estimated to go insolvent, to not have enough money coming in in
2012.
The expanding economy over the last 3 years has grown enough, a lot
of it coming in from capital gains taxes, by the way, has grown enough
that short-term, as far as the extra money coming in, means that we
will have enough money to cover benefits another extra 3 years until
2015. Growth makes the numbers look better now but leaves a larger hole
to fill later.
The administration has used these short-term advantages as an excuse
to do nothing; and I just want to emphasize that this growing economy,
though they can say, look, the Social Security trust fund is going to
be there to pay benefits until 2035, it used to be 2032, or we are not
going to have enough money coming in from the Social Security tax by
2012, now we are extended to 2015, does not solve the long-term
financial fiscal problems for Social Security because the paychecks
going out later on are going to be that much greater.
I think this is important that most Americans do not realize. Somehow
they feel that somehow they earn something with a Social Security
account, a Social Security fund. Not true. There is no Social Security
account with their name on it. These trust fund balances, and I am
quoting from the Office of Management and Budget of this
administration, these trust fund balances are available to finance
future benefit payments and other trust fund expenditures but only in
a bookkeeping sense. They are claims on the Treasury that when redeemed
will have to be financed by raising taxes, borrowing from the public,
or reducing benefits or somehow reducing other government expenditures.
Again, the source is the Office of Management and Budget. I think it
is interesting to note that the Supreme Court now in two decisions has
ruled that there is no entitlement for Social Security. Regardless of
how many years one paid into Social Security, Social Security is a tax.
The benefits are whatever Congress and the President decide those
benefits are going to be. So what we have seen in the past, when there
was a financial problem in 1977, 1983, when they were coming short of
money, they reduced benefits and increased taxes. I just stress as
vigorously as I can that it is going to be unconscionable to yet again
raise taxes on the American worker.
We will see a chart later I have, but right now 75 percent of
American workers pay more in the Social Security tax than they do in
the income tax.
This represents the public debt versus the Social Security shortfall.
Our total debt in this country, what we owe the trust funds and what we
owe in Treasury bills, is $3.4 trillion. The shortfall of Social
Security between now and 2057 is $46.6 trillion.
Vice President Gore is suggesting that if we pay off this debt by
using extra Social Security money coming in and any other surplus that
can be found, that if we pay off this debt it is going to solve this
problem and keep
[[Page H10235]]
Social Security solvent until 2057. It is like adding another giant
IOU to the trust fund. So technically if this Chamber passed a bill
saying we are going to write an IOU for $9 trillion to the Social
Security trust fund, the actuaries would say well, this will keep
Social Security solvent for the next 75 years. The fact is that the
challenge, the problem, is coming up with those dollars once we have
fewer dollars coming in on the taxes than are required for the
benefits.
I am going to portray this in another way. The blue at the bottom,
the light blue, represents the $260 billion that we are now using to
pay on financing the debt, the interest on that particular debt
approaching $300 billion. Vice President Gore is suggesting that if we
dedicate somehow this savings every year for the next 75 years to
Social Security, it will keep Social Security solvent.
So what the difference between the $46.6 trillion that is needed and
what this interest savings will be is $35 trillion. So the red part of
this graph represents the shortfall that still is going to be there
even if this Chamber and the Senate and the President has the guts, has
the intestinal fortitude, to dedicate this kind of interest rate
savings to Social Security. It is a problem that cannot be solved by
adding IOUs.
{time} 2030
The biggest risk is doing nothing at all. Social Security has a total
unfunded liability of over $9 trillion. I mentioned that over the next
75 years you need $120 trillion of future dollars, that inflated future
dollar. To raise that $120 trillion over the next 75 years, you need $9
trillion today. So Alan Greenspan, the Chairman of the Federal Reserve,
suggests that we need $9 trillion today, so put it in a real interest
bearing account that will bring in 6 to 7 percent real return in order
to accommodate the $120 trillion shortfall over the next 75 years.
Nine trillion dollars we have got to come up with today if we are
going to solve the problem and not make any changes in this program,
and not get any better return on the investment than we are getting on
Social Security now, which is less than 2 percent for the average
taxpayer.
The Social Security trust fund contains nothing but IOUs. To keep
paying promised Social Security benefits, the payroll tax will have to
be increased by nearly 50 percent, or benefits will have to be cut by
30 percent.
Everyone should start out with a prerequisite that we are not going
to increase taxes once again, and we are not going to cut benefits for
existing retirees or near term retirees. Somehow we have got to do a
better job on getting a better return on that investment.
The Social Security lockbox. A little bit of a gimmick, but it has
served us well in trying to make sure that we do not spend the Social
Security surplus. It saves the Social Security trust fund dollars for
Social Security. It keeps Washington's big spenders from using trust
fund dollars for other government spending.
I have heard the Vice President say, look, we need that lockbox for
Social Security. The House, this Chamber, has passed the lockbox
language. We have sent it to the Senate. Now the Democrats in the
Senate are filibustering that so it is not passed into a bill and sent
to the President.
If Vice President Gore really wants to implement that lockbox
provision to make sure that we do not spend the Social Security
surplus, then I think probably all he has to do is tell that particular
Chamber that they should go ahead and pass the legislation.
ANNOUNCEMENT BY THE SPEAKER PRO TEMPORE
The SPEAKER pro tempore (Mr. Shimkus). The Chair would remind the
gentleman not to cast reflections on the other Chamber, such as
characterizing Senate action or their activities.
Mr. SMITH of Michigan. Thank you, Mr. Speaker, and I would apologize
if I did that.
Mr. Speaker, this Chamber passed the bill. It has languished over in
the Senate. With the Vice President's help, I am sure we could get it
through the Senate Chamber.
The diminishing return of your Social Security investment. The
average Social Security taxpayer will receive a 1.9 percent interest
rate, real interest rate return, on what that worker and their
employer, or, if they are self-employed, what they pay into Social
Security. So the average worker is not going to live long enough, even
though our life spans are substantially increasing, to get back what
they have paid in in Social Security tax. So that is part of the
problem, is getting a better return on that investment.
The real return on Social Security is 1.9 percent for most workers,
and it shows a negative return, as you see over here, for some,
compared to over 7 percent for the marketplace. So the marketplace for
the last 120 years has averaged a return of 7 percent, a real return.
This is what this graph depicts.
You have a negative return if you happen to be a minority. The reason
is that a young black worker today, their life expectancy is about 62.5
years. That means they can work all their life, paying into Social
Security, but, on average, they die before they start taking any
benefits out, and they are substantially shortchanged. But even the
average, even the best, even the person that lives to be 105, on
average they are only going to get a return that is 1.9 percent real
return on the money, tax money, that has been sent in. And this is over
and above that amount of the Social Security tax that is used for
insurance, for disability insurance. This only counts that amount that
is put into the OSDI fund. Again, on the average, the market return is
7 percent.
Another way of depicting the problem, because it is sort of like
maybe the mechanic that knows the operation of the internal combustion
engine, so they are very careful about taking care of their automobile,
and they change the oil and they do the lubrication on a regular basis.
Well, I have been studying Social Security now for 7 years. I know
the internal workings of Social Security, and it is running out of
lubrication. The friction currently on Social Security means that there
are going to be tremendous problems in the future, and that huge
liability is going to fall on our kids and our grandkids.
I am a farmer from Michigan, and traditionally we have always tried
to pay down the farm mortgage in an effort to leave our kids a little
better off. This government, this Congress, this White House, is now
taking a course where we are jeopardizing the potential happiness and
success of our kids and our grandkids by leaving them this great huge
obligation. We have got to deal with it, we have got to change it. It
has to be more than rhetoric. It has got to be real action for written
bills that can keep Social Security solvent.
This chart, very briefly, is the number of years it takes to get back
your Social Security tax. If you were lucky enough to retire in 1940,
because of the low taxes, you could get back everything you and your
employer paid in in 2 months. By 1980, you have to live 4 years after
retirement.
If you retire in 2005, you have got to live 23 years after retirement
to break even, to get back just what you and your employer put in into
the tax. In 1983, they increased the age limit that starts this next
year, and that is why this sort of levels off up here. But by 2015 and
2025, you are going to have to live 26 years after you retire in order
to get back what you and your employer paid in. I am not sure our
medical technology is going to be that good by that time. It may be,
but a better way to do it is to make some changes now that will mean
that our kids and our grandkids are not put under this huge burden and
that they can appreciate the benefits of Social Security, as their
grandparents and their parents hopefully have.
This is a picture of my grandkids getting ready for Halloween.
Whether it is Selena or James or Henry or George, he is a real tiger,
or Emily or Clair or Francis or Nicholas. Nicholas is now 13. When he
retires, he is going to have this challenge, not to mention his younger
brothers and sisters and cousins, that they are going to have if we do
not do something on Social Security.
I put the picture of my grandkids on my office wall. As I walk out to
vote, I try to make my voting decisions on how it will affect this
country and the future generations of this country 15, 20, 30, 40 years
from now.
We have got to start looking longer range. We have got to start
dealing with the two important programs that
[[Page H10236]]
we have for seniors, Medicare and Social Security; and Medicaid with
nursing home care is another issue that we have got to start dealing
with.
We cannot keep putting it off simply because it is hard, because it
is a difficult problem, simply because somebody might criticize us for
things or portions that we do in it. Somehow Republicans and Democrats
have got to get together and seriously move ahead.
This chart represents what we have done in the past. I do not know if
the cameras still show my grandkids, but imagine them up there, because
what we are going to do with their taxes down here can be very
significant. Here is what we have done in 1940, 1960, 1980 and 2000. In
1940 the rate was 2 percent and the base was $3,000. So the total
amount of tax for the employee and the employer was $60, combined;
combined.
In 1960, it got to 6 percent, and the base was $4,800. So you, the
employee, paid 3 percent on the first $4,800, and the employer paid the
same; a maximum tax combined for the employee and the employer of $288.
It got up to 1980, and they raised the tax again; got into a little
problem, so this Chamber decided, well, an easy way to do it is load
more taxes on the American worker. So, again we increased the tax up to
10.16 on the first $25,900, total possible tax for employee and
employer combined, $2,631.
In 2000, we got up to 12.4 percent on the first $76,200, a total tax
now of $9,448.
Mr. DREIER. Mr. Speaker, if the gentleman would yield, I would like
to congratulate my friend. I just walked in, and I see the picture and
I see the headline saying ``increasing payroll taxes again is not the
answer.''
I would like to say that I could not agree with the gentleman more.
Obviously increasing the payroll taxes would be a horrible thing on
those struggling workers, certainly the middle-income wage earners.
Mr. Speaker, I would simply like to compliment my colleague on this
very interesting special order.
Mr. SMITH of Michigan. Mr. Speaker, reclaiming my time, I would
certainly thank the gentleman from California (Mr. Dreier), the
chairman of our Committee on Rules.
Mr. Speaker, just finishing the taxes, and maybe really what we have
not finished is the bottom line. If we do not get a better return on
the investment, we are in for real problems. Governor Bush has
suggested that we have some real investment that stays within Social
Security; that is not going outside of the Social Security system, but
simply allows a better return on some of the money.
We can do better. As we know, you can get a CD and do better than a
1.9 percent return. Any return that we can expand over and above 1.9
percent on average is going to mean that retirees live a better life.
My oldest grandson's name is Nick Smith. Maybe that is my immorality.
But Nick painted the fence for us this past year. He made $180, and I
said, Nick, you really need to put some of that into a Roth IRA. Then I
went through the tables year by year on the magic of compound interest.
So we went year by year and found out that by age 66, he would have
almost $70,000; and if he waited until he was 72 to take that money out
at the rate investments have been earning money over the last 100 years
on average, it would end up $140,000.
He said, well, grandpa, can I still put some money, maybe, in your
Roth IRA, but I want to save most of it to buy a car.
That is part of the problem we are facing today. Our savings and
investment in this country is still low, and that means two things. It
means we do not have the money to do the research, to put into the
companies, to expand to the best possible state-of-the-art machinery to
compete in this world, but it also means that the retirement for these
individuals is not going to be as good as it really could be.
With good investments, let me say, and I am going to show you some
examples from Texas and California, with good investments, a modest-
income worker today can retire as a rich retiree. This is one of the
problems why it is so important, I think, that we do not again raise
taxes on the working poor in this country, on the average working
family.
This pie chart represents that 78 percent of families now pay more in
the payroll tax than they do the income tax.
{time} 2045
Mr. Speaker, 78 percent of our families pay more in the FICA tax than
the payroll deduction. Actually, it drops down to 74; 74 percent pay
more in the Social Security tax than they do in the income tax.
Let us not raise taxes again. The longer we put off this decision,
the longer we put off this decision, the more drastic the changes are
going to have to be. So the bills that I introduced in 1995 and 1997
were less drastic, it did not have to make the kind of changes, but the
bill I introduced this year actually had to borrow some money from the
onbudget surplus to accommodate the transition to make the system work,
to make the system solvent, without reducing any benefits for existing
or near-term retirees and without increasing taxes. The longer we wait,
the more drastic the solution. So let us do it.
Mr. Speaker, the six principles of saving Social Security that
Governor Bush has proposed, that are consistent with the bills many of
us have introduced: protect current and future beneficiaries; allow
freedom of choice; preserve the safety net; make Americans better off,
not worse off; create a fully funded system; no tax increases.
Mr. Speaker, let us talk just for a second about personal retirement
accounts. They do not come out of Social Security. They stay in Social
Security, and they are part of your retirement. They can only be used
for retirement purposes, and the way Governor Bush has proposed, the
way I have proposed, the way the gentleman from Texas (Mr. Stenholm)
and the gentleman from Arizona (Mr. Kolbe) have all proposed is that we
have limited safe investments, that we can only invest in certain safe
investments, such as an IRA or a 401(k) or the Thrift Savings Plan that
we have for Federal employees, where you get your choice of four or
five safe investments to invest in, and then you can only use it for
retirement purposes.
They become part of your Social Security retirement benefits. A
worker will own his or her retirement account; and if you die before
you reach retirement age, it is not a case where you get zero, zip,
nothing; but it will go into your estate for your heirs and, again,
limited to safe investments that will earn more than the 1.9 percent
paid by Social Security. That is dramatic maybe, but no new taxes, no
cut in benefits for existing or near-term retirees.
Mr. Speaker, I borrowed a lot of these charts from Senator Rod Grams.
He has also introduced a Social Security bill that keeps Social
Security solvent that allows choice within safe savings accounts.
Personal retirement accounts offer more retirement security. If John
Doe makes an average of $36,000 a year, he can expect monthly pays of
$6,514 from his personal retirement account compared to Social
Security, which is $1,280. And that is because of the magic of compound
interest.
Mr. Speaker, choosing personal accounts, in our law in 1935, we gave
State and local governments the option of whether or not to go into
Social Security or set up their own retirement pension system, where
they could do their own investments for their own pension. The
Galveston County, Texas, employees reap the benefits. Employees of
Galveston County, Texas, opted out of Social Security.
This is how they faired: death benefits under Social Security $253.
You get a burial benefit. Under the Galveston plan, you get $75,000
death benefit. Disability benefits per month, Social Security $1,280,
and Galveston plan, they are ending up with $2,749.
This is disability. This is retirement. The retirement benefits per
month, retirement is the same as disability under Social Security
$1,280; but under the Galveston plan for retirement benefits, it is
$4,790 a month compared to Social Security of $1,280 a month for that
same person if they had paid into Social Security and let government
use the money the way the government administers and uses this program.
Spouses and survivors benefit under the Galveston County plan.
I use these plans to try to argue to my grandson Nick Smith why the
magic of compound interest is so important and why savings and
investment now can make a huge difference.
[[Page H10237]]
This is a quote from a young lady whose husband died, and she said,
``Thank God that some wise men privatized Social Security here. If I
had regular Social Security, I'd be broke.'' After her husband died,
Wendy Colehill used her death-benefit check of $126,000 to pay for his
funeral expenses and she entered college. Under Social Security, she
would have received a mere $255. Fairly young, so he died at an early
age, she was not eligible for all of those benefits.
How do we save Social Security? That is the question. Right now, as
chairman of the Joint Task Force on Social Security, some of the
witnesses came in making predictions with the new RD&A technology, the
new gene sequencing, where the new gene catalog and the nanotechnology
that is developing very rapidly, they were estimating that within 25
years a person would have the option of whether or not they wanted to
live to be 100 years old; and within 35 years, our technology would be
such that they could have the option of whether or not to live to be
120 years old. Tremendous policy implications, let alone the increased
argument that young people more than ever before should be as diligent
as possible to save and invest today.
You should take that money out, get it out, have it directly taken
out of your paycheck, maybe, something to add to those retirement
benefits, because you need that personal savings on top of Social
Security even at its best, even if we can solve it.
Again, San Diego enjoys the personal retirement accounts because they
opted out of Social Security. A 30-year-old employee who earns a salary
of $30,000 for 35 years and contributes 6 percent to his personal
retirement account would receive $3,000 per month in retirement. Under
the current system, he would contribute twice as much, but receive only
$1,077 in Social Security.
The difference between the San Diego system and the PRAs and the
Social Security is more than the difference in a check. It is also the
difference between ownership and depending on politicians in Washington
on what they do with your Social Security. Even those who oppose PRAs
agree they offer more retirement security.
This is interesting. It is a letter from Senator Barbara Boxer,
Senator Diane Feinstein, and Senator Ted Kennedy to President Clinton
allow the PRAs in San Diego to continue and not go into Social
Security. They said in the letter to the President, quote, ``Millions
of our constituents will receive higher retirement benefits from their
current public pensions than they would under Social Security. So let
them keep Social Security. At least that has to be an option.''
Nobody is proposing, Governor Bush is not proposing that it be a
mandate. Everybody is saying it is still an option whether you want the
potential to earn more money where it belongs to you, where it is in
your account; but if you want to stay in the existing system, you can.
The United States certainly trails other countries in saving its
retirement system. In the 18 years since Chile offered PRAs, 95 percent
of Chilean workers have created accounts. Their average rate of return
has been 11.3 percent per year. Among others, Australia, Britain,
Switzerland offer workers PRAs.
I represented this country in an international conclave, if you will,
discussing public pension retirement benefits and listening to those
other countries what they are doing to very quickly move ahead with
getting a better return on some of that investment. It made me feel
somewhat embarrassed as we lag behind, as we have been unwillingly to
step up to the plate, if you will, and make some solid decisions that
are going to save Social Security, one of our most important programs.
British workers chose PRAs with 10 percent returns. And who could
blame them compared to our 1.9 percent return we are getting? Two out
of three British workers enrolled in the second tier Social Security,
they have half of it they allow to go into the second tier. They chose
to enroll in PRAs. The British workers have enjoyed a 10 percent on
their pension investment.
Over the past few years, the pool of PRAs in Britain exceeds nearly
$1.4 trillion larger than their entire economy and larger than the
private pensions of all other European countries combined. So what we
have now is other European countries that are following the lead of
Australia, Chile, Great Britain in terms of looking at ways to get a
better return on the investment that is coming in.
Based on a family income of $58,475, the return on a PRA is even
better. If you invest 2 percent of what you earn versus 6 percent for
pink or if you are investing 10 percent, which is the dark purple, and
if you were to invest that kind of money over 20 years and 30 years and
40 years, even at the 2 percent, you see you have $55,000 at the end of
20 years. That is the magic of compound interest. In 30 years, it keeps
going up, and by 40 years, it is worth $278,000.
Look at what happens if you were to invest 10 percent and the Social
Security tax is now 12.4 percent. It takes about 2 percent for the
disability insurance program. Nobody is touching that. That insurance
has to stay in place for the disability portion; but eventually, if you
were allowed to invest 10 percent or you dig into your pocket and come
up with other investments to account for 10 percent, in 40 years that
would be worth $1,389,000; and if you have a 10 percent return on that,
you would not have to go into the base, but just the interest would be
$138,000 a year. A 5 percent return would be half of that, or about
70,000 a year.
The magic of compound interest is important. Somehow we have to allow
and provide ways for more Americans to save and invest more.
Mr. Speaker, I saved out the chart of my grandkids just to stress
with every grandparent, with every parent that might be listening
tonight, with every young student who is really the kids that are at
risk for the kind of future that we might give them, if we do nothing,
because the potential is that they are going to have to pay huge tax
obligations, Vice President Gore by suggesting that we add another IOU
and take the interest savings and apply it to other Social Security
and, therefore, the trust fund gets big enough to pay it simply demands
that sometime in the future, somebody is going to have to come up with
that money to pay off the trust fund.
To do that, what we have done in the past is increase taxes; that is
the easiest thing for this Chamber to do. It is the worst thing for our
economy. There are only three ways to come up with the money. Let me
point that out; I will put my pointer down so I can use my hands as I
conclude this last statement.
Some people have said, do not worry, there is a trust fund out there.
If we use the payback, the money from the trust fund, Social Security
will last until 2035; and for the most of us, that is long enough.
I would suggest to you that there is no difference between having a
trust fund and not having a trust fund, if we are going to keep our
commitment that we are going to provide the benefits that we promised,
because if we do not have a trust fund, the way to come up with the
money to continue paying benefits is threefold. You either borrow the
money from the public, and all the leading economists say if we were to
borrow $120 trillion over the next 75 years, it would so disrupt our
economy that it would be disastrous for the United States of America.
{time} 2100
So if we cannot borrow it, then how about the option of increasing
taxes? That is the other option, increasing taxes.
Of course, the third option is cutting benefits. What they did in
1973 and again in 1983, before I got here, was they did both, increased
taxes and cut benefits. Let us not do that again.
Those are the same alternatives we would have if we have a trust
fund. So to pay back the money that is in the trust fund, we still have
to raise taxes or cut other spending, or increase public borrowing. So,
in effect, it is the same having or not having a trust fund.
It is important to pay down the public debt. It is a good start. It
means we do not start spending the money for other government programs,
and that is the danger.
The argument between the Republicans and the Democrats is, the
Republicans say, let us get the money out
[[Page H10238]]
of town. Otherwise, we will spend it. The Democrats say, we will pay
down the debt but we have a lot of increased spending we want to do.
The challenge is not whether we cut spending or pay down the debt,
the challenge is, are we going to hold down spending in this country?
Can we get this money out of town in some way?
The first choice would be to continue to pay down the debt held by
the public with all of these surpluses that we bring in. We have
decided 2 weeks ago, our Republican majority, that we were going to
draw a line in the sand. Like last year, we drew a line in the sand
saying, here is the social security lockbox. We are not going to spend
any of the social security surplus for any government programs.
We held to it, we did it. That was good. This year we went further.
We said, of all of the social security surplus, of all of the surplus
coming into all of the other 120 trust funds, where most of the money
is coming from, of all of the surplus, on-budget and off-budget, we are
going to take 90 percent of that and use that money to pay down the
debt held by the public.
Good. Good policy. That leaves 10 percent that we are arguing about,
and that we hope to conclude this budget and this spending this year as
we argue about that remaining 10 percent. But I think we have the edge
now in the support of public opinion that we at least take 90 percent
of all that surplus and use it to pay down the public debt.
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