[Congressional Record Volume 146, Number 137 (Friday, October 27, 2000)]
[House]
[Pages H11430-H11435]
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.
  Mr. SMITH of Michigan. Mr. Speaker, I yield to the gentleman from 
Missouri (Mr. Clay).
  Mr. CLAY. Mr. Speaker, I thank the gentleman for yielding.
  Mr. Speaker, let me say that, for those who are watching on 
television and are not familiar with the rules of the House, we had 1 
hour for this special order and it is now extending into the next hour 
that the gentleman has reserved and he has a plane to catch. So I 
certainly appreciate him allowing me just to say how overwhelmed I am 
by the expressions of support and of appreciation of kindness and the 
friendship that have been expressed on this House floor today.
  Let me say that I come from a family of seven children. My mother and 
father always taught each of us that modesty should never prevail over 
truth. So, in that vein and with that understanding, I accept all of 
the accolades that have been bestowed on me this afternoon because they 
are true. That is part of the whit that they talk about, Mr. Speaker.

[[Page H11431]]

  Let me seriously, though, thank the gentleman from South Carolina 
(Chairman Clyburn) and the members of the Congressional Black Caucus 
for sponsoring this tribute in honor of my years of service in the 
Congress.
  I also want to thank my other colleagues for their expressions of 
commendation for my work in this great body.
  In my 32 years in Congress, I can only remember a few tributes such 
as this one. The last one that stands out for me was the one for my 
good friend, Lewis Stokes, at the end of the last Congress.
  Let me also offer a special word of thanks and appreciation to my 
friend and our minority leader, the gentleman from Missouri (Mr. 
Gephardt), and the other members of the Missouri delegation for their 
support throughout the years we have served together.
  I also want to thank the members on the Committee on Education and 
Workforce who have inserted statements into the Record on behalf of my 
contribution to this Congress.
  Finally, I want to express my heartfelt appreciation to my wife and 
children for their patience, for their understanding, and for their 
acceptance and participation at every level and every phase of my 
journey.
  Once again, I thank the gentleman for yielding to me and I thank the 
gentlewoman from the Virgin Islands for handling this special order.
  Mr. Speaker, I am overwhelmed by the expressions of support and 
appreciation, kindness and friendship, so I accept accolades because 
they are true. I want to thank Chairman Clyburn and the members of the 
Congressional Black Caucus for sponsoring this tribute in honor of my 
years of service in the Congress. I also want to thank all other 
colleagues for their expressions of praise and commendation for my work 
in this great body. In my 32 years in Congress, I can only remember a 
few tributes such as this one. the last one that stands out was the one 
for my good friend, Louis Stokes at the end of the last Congress.
  Let me also offer a special word of thanks and appreciation to my 
friend and our Minority Leader Dick Gephardt and the other members of 
the Missouri delegation for their support throughout the years we have 
served together.
  Those of us in the profession of politics know that like other 
careers, we cannot be successful without support from many quarters. 
Recognizing that, I want to express my deepest appreciation to a great 
staff, to the thousands of friends and constituents for their 
continuous support, and to the voters of the 1st Congressional District 
of Missouri who 16 times went to the voting booth and elected me to 
this great office.
  Finally, I want to express my heartfelt appreciation to my wife and 
children for their patience, understanding--and for their acceptance 
and participation at every level and in every phase of my journey.
  During my tenure, there have been many highlights. Some stand out 
brighter than others. Perhaps one of the greatest was having the 
privilege of being one of the founders of the Congressional Black 
Caucus. Thirty-two years ago, Shirley Chisholm, Lou Stokes, and I came 
to Washington the same day. It was historic. Three blacks elected at 
one time. We joined six others and became the largest number of African 
Americans to serve in Congress at one time. The three of us were 
determined to seize the moment, to fight for justice, to raise issues 
too long ignored and too little debated. We were described by the media 
as militant, aggressive new leaders determined to make changes in the 
way black members of Congress had been viewed in the past. And we 
wasted no time seeking to establish a forum for articulating our 
concerns. That medium was the founding of the Congressional Black 
Caucus. It has served its purpose well.
  I am also proud of the role I have played in helping to create new 
programs to address the problems of millions of Americans. During my 
life in this institution, I have been privileged to personally 
participate in the drafting and passage of many landmark pieces of 
legislation--coal mine safety, ERISA, Black Lung Benefits Act, the 
first appropriations for sickle cell disease research, the direct 
student loan program, the civil service program, OSHA, and the 
Americans with Disabilities Act.

  I am even more proud of legislation that bears my name as primary 
sponsor or that I managed successfully on the floor of this House: 
reduction of pension vesting from 10 years to 5 years, Hatch Act 
reform, 60 days plant closing notification, the minimum wage increase 
of 1996, COBRA legislation that will continue employee health plans 
after job separation, financial assistance to enhance and preserve 
historically black colleges, the several reauthorizations of the Higher 
Education Act, enhanced support for Hispanic serving institutions, 
IDEA, class size reduction and family and medical leave.
  Thanks to many of you in this Chamber, I have been able to fashion 
and to pass the kind of legislation that has improved the standard of 
living and the quality of life for millions of our citizens.
  Serving in the United States Congress is one of the greatest honors 
that is possible to bestow upon an American citizen. In the 224 year 
history of this country, less than 10,000 American have enjoyed the 
distinction of serving in the House of Representatives.
  To those who will have the honor and privilege of being elected to 
serve in the next Congress for the first time, I would like to offer 
one small but important bit of advice--always remember the awesome 
consequences, nationally and internationally, of your decisions. We 
live in the greatest, most prosperous country in the history of the 
world. The 260 million people we represent enjoy collectively the 
highest standard of living on the face of the Earth. But, many of our 
citizens have not been able to enjoy the benefits of that great 
standard of living--many have been left out, left behind. Too many of 
our citizens suffer disproportionately the slings and arrows of 
misfortune through no fault of their own--sickness, disease, poverty--
poor and inadequate education rob them of their opportunity to fully 
participate in the American dream. Always remember when legislating 
that their destiny is inextricably tied to your destiny. Your struggle 
and their struggle are tied irrevocably one to the other.
  Once again, thanks for the opportunity to serve and to help make this 
the greatest nation on Earth. It has been a great challenge and a 
rewarding career.
  Mr. SMITH of Michigan. Mr. Speaker, the full body certainly thanks 
the gentleman from Missouri (Mr. Clay) for his service and wishes him 
good luck and Godspeed.
  Mr. Speaker, I am going to give, if you will, a short lecture on what 
I consider one of the most important topics of the day, and that is 
Social Security.
  I put the first poster up here, ``no new taxes.'' Because if we do 
nothing, then it almost mandates that we are going to yet again 
increase taxes Social Security taxes on American workers to pay for the 
benefits that we have promised.
  I entered Congress in 1993. And actually, while I was still chairman 
of the Senate Finance Committee in the State of Michigan, I wrote my 
first Social Security bill and I introduced it when I came down here. I 
have introduced a Social Security bill every session since.
  So my last three Social Security bills have been scored by the Social 
Security Administration to keep Social Security solvent for the next 75 
years without any tax increases and without any cuts in benefits for 
seniors or near-term retirees.
  I was named chairman of the Bipartisan Social Security Task Force 
from the Committee on the Budget. And so, we got some of the most 
expertise people not only in this country but throughout the world in 
trying to decide how we are going to fix a system that is going broke.

                              {time}  1715

  So, the first consideration is the fact that American workers now pay 
more in the Social Security tax than they do in the income tax. 
Seventy-eight percent of American workers pay more in the Social 
Security tax than they do the income tax.
  Okay, a brief history. When Franklin Delano Roosevelt in 1935 created 
the Social Security program, that was over six 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.
  In fact, researching the archives on the debate in 1934 and 1935, the 
Senate on two occasions voted that individual privately-owned 
investments should be an alternative to a government-run program. But 
in the final conference committee the decision was that it would be a 
government program, a pay-as-you-go program, where current workers paid 
in their Social Security tax to support current beneficiaries.
  Because at the time when the program was started the length of your 
life span was 62\1/2\ years, and still you had to be 65 to receive 
benefits, that meant most people did not live long enough to receive 
benefits. They paid in all their life, but then did not get anything 
out, and this pay-as-you-go program worked very well then. What

[[Page H11432]]

 has happened since is Social Security has fewer workers and is running 
out of money.
  So first this evening I am going to cover a little bit of the 
problem, how Social Security works, and then some of the proposed 
solutions.
  It is a system stretched to its limits. Seventy-eight million baby-
boomers begin retiring in 2008. What happens at that point in time is 
the baby-boomers are now at the top of their income level, and we 
charge Social Security tax based on the first $76,000 of income, so 
they are paying in the maximum tax. When they get out, because there is 
a direct correlation between what you paid in and your income and what 
you are going to get in retirement benefits, they go from the big 
payer-inners, if you will, to the big taker-outers in Social Security 
benefits.
  Social Security spending exceeds tax revenues in 2015. That means 
somehow government is going to have to come up with some more money at 
that point in time.
  Social Security trust funds go broke in 2037, although the crisis 
could arrive much sooner. What government has been doing, what this 
Congress, this chamber, the people on this side of the aisle and that 
side of the aisle have been doing for the last 40 years, up until the 
last 3 years, is taking any extra money coming in from Social Security, 
the Social Security surplus, and spending it on other government 
programs, so it was gone.
  So if we pay all that money back, and we will, somehow we have to 
come up with the money, then it is going to last until 2037, but we run 
out of money in 2015. So the big question, the problem that needs to be 
solved, is where does the money come from?
  I think a lot of people have said, well, you know, it is just another 
guy with a green eyeshade on, economist, making some prediction. But 
insolvency is an absolute. It is certain. We know how many people there 
are and when they are going to retire. We know that people will live 
longer in retirement, and we know how much they will pay in and how 
much they are going to take out.
  Payroll taxes will not cover benefits starting in the 2015 when we 
have less money coming in than is needed to pay benefits, and the 
shortfalls will add up to $120 trillion between 2015 and 2075. $120 
trillion. Nobody knows exactly how much money that is. Probably very 
few of us in this chamber, and I am a senior member of the Committee on 
the Budget. Comparing it a little bit, our budget this year is going to 
be $1.9 trillion. But we are going to be $120 trillion short in terms 
of what we need over and above Social Security taxes, that are at 
record high levels already, to come up with the money to pay the 
benefits that have been promised.
  Somehow we have got to change the program so that we start moving 
from a pay-as-you-go program to a program that can start earning 
revenues and use the magic of compounding interest to help make sure 
that we are not only going to cover the promised benefits, but increase 
those benefits.
  In the bipartisan Social Security task force, we agreed, Republicans 
and Democrats, on 18 findings. One of the witnesses before our hearings 
suggested that, within the next 25 years, medical technology would 
allow an individual to select, to choose, whether or not they wanted to 
live to be 100 years old.
  So back to the three-legged stool. Social Security is going to have 
even a tougher time if people are going to live that long. But if 
individuals, especially young people today, want to have the kind of 
retirement that is going to accommodate them to the kind of standards 
that they had while they were working, then there is going to have to 
be two more legs to that stool, and they are going to have to develop 
the kind of pension plans, develop the kind of savings plans, and, 
thirdly, make sure that Social Security stays solvent.

  The demographics are part of what has led us to this situation. So if 
you do a chain letter, I like the cartoon I saw in one of the papers 
where the young worker was talking to Uncle Sam, you know, with his hat 
on and his stars and stripe suit, and Uncle Sam says, well, it is 
simple. You just put your name at the bottom of this list, you send 
your money to the person at the top of the list, add your name to the 
bottom of the list, and when your name comes up, other people will be 
sending you money in your retirement.
  That is sort of what it is. It is a Ponzi game. It is a pay-as-you-go 
system that cannot survive if you start losing the names off that chain 
letter of the people at the bottom, if they do not keep paying the 
people at the top.
  Back in 1940, for example, there were 38 workers working, paying in 
their tax, to collectively add up to the benefits that were paid to 
each retiree. Today we are down to three workers paying in their Social 
Security tax to accommodate the Social Security benefits for every one 
retiree, and the estimate is, by 2025, there will be two workers paying 
in their Social Security tax for every one retiree. So they are going 
to have work long and hard enough, if we keep this current system, 
without developing some kind of a better return on investment, if we do 
not start modifying it from a pay-as-you-go program to a program that 
individuals have some ownership of those particular accounts and they 
can accrue compounded interest so we will end up better off than what 
we are under the current program.
  This just represents the problem with the red, and if this were green 
it might be a little better. But when we had the last change in Social 
Security under the Greenspan Commission in 1983, the decision then was 
to lower benefits and increase taxes. By the way, that is the same 
thing we did in 1978 when we ran into financial problems, we lowered 
benefits and increased taxes.
  So with the increased taxes, right now there is a little more money 
coming in, Mr. Speaker, than is needed to pay out benefits. That stops 
in 2015 and we run into the red. So the future deficits in tomorrow's 
dollars, tomorrow's inflated dollars, are $120 trillion.
  If you talk about the words ``unfunded liability,'' and those are the 
words that Alan Greenspan of the Federal Reserve uses, he says the 
unfunded liability is $9 trillion, which means we would have to have $9 
trillion today and put it in an investment account earning 6.7 percent 
interest to accommodate through the future years the $120 trillion we 
are going to be short. Again, the annual budget is $1.9 trillion.
  The debt, by the way, does anybody know what the debt of this country 
is? The total debt this country is $5.6 trillion. So what we have done, 
and the Constitution says the Congress has to pass a law saying that we 
are going to be allowed to increase the debt of this country, we have 
kept increasing debt, which, put in other terms seems to me, I am a 
farmer from Michigan, and what I always learned growing up on the farm 
is you try to pay off some of that mortgage so your kid might have a 
little easier time.
  What we are doing in this country and what we have been doing in this 
country is leaving a larger mortgage, a larger debt to our kids. 
Somehow, being so egotistical we think our problems today, that we 
deserve to have the extra money to solve what we consider our problems 
today, and then we will leave that mortgage, that debt, that obligation 
of increased taxes to our kids and our grandkids. That is why I put up 
the first chart that says, let us start as part of any Social Security 
proposal that we do not increase taxes.
  The economic growth will not fix Social Security. We are enjoying 
economic growth, surpluses coming in to the Federal Government, arguing 
about what we are going to do with those surpluses. Let me just mention 
three years ago I introduced a bill that said we cannot use any of the 
Social Security surplus for any other programs, because, if we did, 
under the law I introduced we would start cutting all other spending to 
make sure that we did not use any of the Social Security surplus.
  Last year we put this into a law, we passed a bill through this 
chamber, maybe a little bit gimmicky, but we called it a Social 
Security lockbox. What that did was said in effect we are not going to 
spend any of the Social Security surplus for any other government 
programs, and the only way that surplus can be used is to help save 
Social Security or use it to pay down that part of the debt held by the 
public.
  That worked. That caught on. The administration decided they had to 
go along with it, because it is so logical and the American people 
supported it.

[[Page H11433]]

  This year, let me tell you what we have done this year to try to slow 
down the growth in spending. About four weeks ago the Republican 
Conference made a decision that we were going to take 90 percent of the 
surplus coming in for this fiscal year we are now appropriating money 
for, we are going to take 90 percent of the surplus and dedicate that 
to debt reduction, dedicate that money to pay down the debt held by the 
public, and only use 10 percent of the surplus to argue with the 
President, the White House or anybody else how that money might be 
used. So, again, a pretty good start in the right direction of starting 
to reduce the mortgage that otherwise we would leave to our kids and 
our grandkids.
  On the economy, Social Security benefits are indexed to wage growth. 
That means the higher the wages now, the higher the benefits for 
everybody later on. If you have higher wages, because there is a direct 
relationship between what you pay in in taxes and that is based on what 
you are earning, your benefits are going to be higher. In other words, 
when the economy grows, workers pay more in taxes, but also they earn 
more in benefits when they retire.
  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, because it looks good.
  Four years ago, Social Security was going to run out of money in 
2011, but, because of the economic growth, because of higher wages, 
more people got jobs, extra money is coming in in Social Security taxes 
now that is going to be offset later by larger payouts, but that puts 
the date of reckoning up to 2015 now. So over the last 3 years that 
date when there is less money coming in than is needed to pay benefits 
has now moved up 4 years to 2015.
  A lot of people, as I have given maybe around 250 talks around 
Michigan, the Seventh District of Michigan, around different states of 
the United States, a lot of people feel that somehow there is an 
account with their name on it for Social Security, that they have sort 
of got a locked-in legal right to have some Social Security benefits.
  I would remind the American people, Mr. Speaker, that the Supreme 
Court in two decisions now has said that there is no entitlement to 
Social Security, regardless of how many Social Security taxes you have 
paid in. They say that the Social Security tax is simply another tax. 
The decision for any benefits is simply an entitlement law, that can be 
changed at any time by Congress, with the signature of the President.

                              {time}  1730

  So no locked-in trust funds with your name on it.
  These trust fund balances are available to finance future benefit 
payments and other trust fund expenditures but only in a bookkeeping 
sense.
  Again, before I read the rest of this, the source of this is 
President Clinton's Office of Management and Budget. The trust fund, 
what is owed to the Social Security trust fund, 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 other 
expenditures.
  Think for a moment with me. What would we do if there was no trust 
funds, but we made this commitment for Social Security benefits? Then 
we would come up with the money by increasing taxes or by cutting 
benefits so that we did not have to pay out so much, or a combination 
or borrowing more money from the public funds. That is what we would do 
if there was no Social Security trust fund.
  There is a Social Security trust fund that has IOUs, the government's 
IOUs that owes Social Security approximately $900 billion, but to come 
up with that $900 billion, the same three things have to happen: You 
either reduce benefits, increase taxes or increase public borrowing.
  In effect, if we are going to keep our commitment on Social Security, 
the paperwork, the ledger that says how much government owes Social 
Security is only as good as the way we come up with the money to pay it 
back, to make sure that we continue those Social Security benefits. We 
have to do it.
  The key is getting a better investment on some of those Social 
Security funds coming in. Here again, because after 2015 all of the 
funds, we are going to have to call on for extra money coming in to pay 
benefits after 2015.
  It is so important that we come up with a decision now of how to use 
some of this surplus in the transition to move from a fixed benefit 
program to at least part of the money coming in to a personally-owned 
savings investment account that can gain more interest income than is 
now accommodated by Social Security. I will come up with those figures 
in a minute.
  But the average retiree today receives back 1.9 percent, a real 
return of 1.9 percent of the money they and their employer pay into 
Social Security. You can do better than that with a CD. The average 
investments over the last 100 years have averaged almost a real return 
of 7 percent.
  Mr. Speaker, one of the proposals has been that let us borrow some of 
the money from the Social Security trust fund between now and 2015 and 
use those extra dollars, write an IOU to the Social Security trust 
fund, but use those extra dollars to pay down that part of the debt 
that is held by the public and not to give you the whole load of hay on 
this. But roughly of the $5.6 trillion dollar debt, there is $3.4 
trillion that is so-called Wall Street debt, the Treasury paper, the 
Treasury bonds, what Treasury does in its auction every week.
  There is $3.4 trillion there, about a trillion is owed to the Social 
Security trust fund, and then there is approximately another $1.3 
trillion that is owed to the other 120 trust funds that we borrow money 
from, that the government borrows money from, and eventually we need to 
stop that, too.
  So far we have made a decision not to borrow, not to use any more of 
those Social Security trust fund money for other government 
expenditures or to use any of the extra money coming in from Medicare 
for any other government expenditures.
  Now, back to Vice President Gore's proposal. He says his proposal 
will keep Social Security solvent until 2057. What is needed over and 
above taxes between now and 2057 is $46.6 trillion. Paying off this 
$3.4 trillion dollar debt is not going to accommodate that kind of a 
shortfall.
  We are paying about $260 billion a year interest on this $3.4 
trillion debt, $260 billion a year. If we were to say, look, from now 
on we are going to take that $260 billion a year and we are going to 
credit it to Social Security, that would be represented by this blue 
line across the bottom.
  After we hit the peak around 2015, then the $260 billion a year would 
lessen the obligation for Social Security, the width of that blue line, 
what is left is $35 trillion short of what is needed to pay those 
benefits. Talk about fuzzy math. This is fuzzy math.
  It is adding up, in effect, another giant IOU to the trust fund but 
does nothing to help figure out how we are going to come up with the 
extra money to pay this shortfall.
  This is one of this country's most important programs. I think we 
need to be very honest with the American people. And I would hope that 
any time you hear a debate or have a chance to ask questions to any 
Member running for Congress or the United States Senate or the 
candidates for President, you would say, look, what is your plan to 
keep Social Security solvent for the next 75 years as scored by the 
Social Security Administration?

  It is so easy for us politicians to say, well, we are going to put 
Social Security first. That will not do it. I mean, these are tough 
decisions. There is a lot of money to come up with. Making the 
transition from needing all the money to pay benefits to something that 
you can start investing for the future is the huge challenge.
  I mentioned $9 trillion. Social Security has a total unfunded 
liability of a little over $9 trillion. The Social Security trust fund 
contains nothing but IOUs. So when the Vice President says we are going 
to add the amount of this savings from interest savings on paying down 
the debt held by the public, its, in effect, adding another IOU to the 
ledger, but it does not accommodate how we are going to come up with 
the money to pay for it. That is the challenge. That is the problem.
  How do we come up with those dollars? To keep paying promised Social

[[Page H11434]]

Security benefits, the payroll tax will have to be increased by nearly 
50 percent or benefits will have to be cut by 30 percent if we do 
nothing to change the plan, if we do not start getting a better return 
on some of those tax dollars coming in.
  In the Social Security task force, one of the witnesses said that 
within the next 30 years with the decreased number of people working in 
relation to retirees, to cover Medicare, Medicaid and Social Security, 
the payroll tax would have to go up to 47 percent. Unconscionable.
  We cannot allow that to happen. What would happen to our kids who if 
they are asked to pay that kind of payroll tax in addition to the 
income tax to accommodate the rest of the operation of government?
  I mentioned the Social Security lockbox. It's saving Social Security 
trust fund dollars for Social Security, and it keeps Washington's big 
spenders away from that money.
  The same as our 90-10 percent proposal, where 90 percent is going to 
pay down the debt of all of the surplus now, the diminishing returns of 
your Social Security investment.
  I mentioned the 1.9 percent average return. For most workers, the 
average is 1.9 percent, but for some workers, it is a negative return. 
For example, minorities do not get back their money. If, you take a 
young black male, their average life span is 62 and a quarter years, 
and so that means they can pay in to Social Security all their life, 
but they do not get anything back and get anything out of it.
  So some parts of our population are severely disadvantaged by this 
current system. I mean, if you are in a hard, physical work job, your 
lifespan normally is a little less. So Social Security gyps you a 
little more. The average again is 1.9 percent, the average market 
return over the last 50 years has been 7 percent.
  Let me describe it in a little different way, because we have 
continually increased taxes and you are putting more into Social 
Security. If you have to retire in 1940, you work 2 months to get 
everything back you and your employer put in, and it kept going up and 
up, until 1980, you had to live 4 years after retirement to get it all 
back. If you retired in 1995, you had to live 16 years after retirement 
to get everything back, that went to 23 years in 2005.
  Anybody that retires after 2015 is going to have to live 26 years 
after retirement if we do not make some changes in this program.
  This is a picture I keep on my wall in my office and I ask myself how 
do I make the decisions on voting on any bill, because most every bill 
we vote on is a transfer of wealth, we take from somebody and we give 
it to somebody else.
  Our lack of willingness to move ahead on Social Security, I criticize 
the White House certainly for not giving us the leadership or not 
coming up with a proposal that can be scored to keep Social Security 
solvent. I think we have missed a great opportunity over the last 8 
years.
  I am hoping that the next President, whoever he might be, will be 
willing to make some of the tough politician decisions to move ahead on 
Social Security.
  Anyway, these are Bonnie's and my grandkids and they are getting 
ready for Halloween. I share these pictures with every grandparent 
hoping grandparents will be just as aggressive as you are faced with 
the temptation of somebody suggesting I am going to give you more 
benefits, the Vice President does that, he increases Social Security 
benefits, or if you are faced with how far we should go on prescription 
drug coverage under Medicare, where other taxpayers pay for those 
prescription drugs.
  We have to start looking at what are the consequences on our kids and 
our grandkids. What is going to happen to them 20 years and 30 years 
from now?
  Selena and James are in Pittsburgh right now. Henry is on my farm in 
Addison with his dad, Brad, and his mom Diane. George is a tiger. 
Claire and Nicholas and Francis and Emily. Anyway, thank you for 
letting me share my grandkids.
  Keep your own kids and grandkids in mind as Congress and politicians 
make all of these glorious promises that are going to leave a larger 
burden on our kids and our grandkids and our future.
  The other consequence is how far might we increase taxes as sort of 
the easy way to go for this gang down in Washington.
  So I'll review what has happened to tax. In 1940, the tax rate was 1 
percent for the employee and 1 percent for the employer. The base was 
on the first $3,000, so the maximum tax was $60, employer and employee 
$60. By 1960, it went up to 6 percent on a base of $4,800, maximum tax 
for both employee and employer are $288 a year, not a piece, just $144 
a piece.
  In 1980, 10.16 percent, it was upped again to cover benefits on the 
first $25,000. So the base was raised, the rate was raised. It went to 
a maximum of $2,631. Today it is 12.4 percent, Social Security tax on 
the first $76,200, that is indexed to inflation, for a maximum tax of 
$9,448 a year.
  As you saw, if we let this go, because of the reduced number of 
workers paying in their taxes in relation to the number of retirees, 
then the taxes could be phenomenal. Let us not allow that to happen.
  Let us look at a pie chart, 78 percent of families now pay more in 
the payroll taxes than income taxes; too much, especially as we make 
this transition out for those families that have been on welfare to 
work and to hit them with this kind of consequence. Tax needs to be 
reviewed if we are going to encourage those people to start moving up 
that economic ladder.
  The 6 principles of saving Social Security, these are my principles. 
They are Governor Bush's principles. They are Senator Rod Grams' 
principles. I borrowed a lot of these charts from Senator Rod Grams 
from Minnesota. Number 1, protect current and future beneficiaries; 2, 
allow freedom of choice; 3, preserve the safety net. Preserve the 
safety net, nobody has a proposal or plan that does anything to the 
insurance portion, to the roughly over a little over 2 percent of your 
Social Security tax, that is the disability insurance. That is what we 
are paying in to cover the insurance in case something might happen to 
us. So nobody has considered doing anything with that; that stays 
totally as a Federal program.
  In fact, all of our proposals are optional. If somebody wants to stay 
in the current system, they would have that option. The way it is set 
up with some suggesting that for every $4 you make in investments, you 
would lose $1 less for every $4 you make in earnings. In your 
investments, you would lose $3 of Social Security benefits.

                              {time}  1745

  It comes close to us being able to do that, and I will get into what 
kind of returns we might look at with a combination of index bonds and 
index stocks.
  We make Americans better off, not worse off. We create a fully funded 
system and no tax increase. And no cuts in benefits for retirees or 
near-term retirees.
  The personal retirement accounts, they do not come out of Social 
Security. It has bothered me a little bit when some of the Gore 
campaign people have said that Governor Bush is taking a trillion 
dollars out of Social Security and he is jeopardizing Social Security 
recipients as he starts making this transition into privately owned 
retirement accounts. They are part of that account, and like I said, 
some have said for every $7 dollars made, a recipient would lose $6 of 
benefit. What I say in my bill that I have introduced is that assuming 
a 3.7 percent return on a personal retirement account investment as a 
reduction in Social Security benefits, and anything over a 3.7 percent 
return would increase the ultimate retirement benefits.
  A worker will own his or her own retirement account. I think it is 
important simply because what I have seen this body do in the past in 
terms of reducing benefits.
  And four, limited to safe investments that will earn more than the 
1.9 percent paid by Social Security.
  I forgot I had that chart, actually, but this represents what is 
going to happen in the next 10 years, sort of representing Governor 
Bush's plan to take $1 trillion out of Social Security over the next 10 
years. The total revenues coming into Social Security are $7.8 
trillion, total benefit costs are $5.4 trillion. It leaves a surplus of 
$2.4 trillion.

[[Page H11435]]

 The governor has said let us take $1 trillion of this and start those 
private accounts. They cannot be used for anything except retirement. 
They are going to be limited to safe investments, and so in fact there 
are some insurance companies now that will guarantee a return, a 
positive return on those investments.
  Just covering a couple of the personal retirement accounts that would 
offer more retirement security than Social Security. If John Doe makes 
an average of $36,000 a year, he can expect monthly payments of $1,280 
from Social Security. If he were investing 6 percent of that earnings, 
he would get $6,514 from his personal retirement account.
  Galveston County, Texas. When we started Social Security in 1935, it 
was the option of State and counties whether or not they wanted to opt 
out of the Social Security system and have their own pension retirement 
programs. Galveston County, Texas, was one of those counties that 
exercised that option. The death benefits in Galveston County are now 
$75,000. If one dies as a worker in Social Security, it would be a 
death burial benefit of $253. On disability benefits under Social 
Security, $1,280 a month. The Galveston plan for disability benefits, 
$2,749 a month. Social Security benefits after retirement, same as 
disability, on Social Security, $1,280. The monthly payment from the 
Galveston plan is $4,790 a month.
  This is another representation of San Diego that also wanted to have 
their own plan. A 30-year-old employee earns a salary of $30,000 for 35 
years and contributing 6 percent to his PRA, personal retirement 
account, would receive $3,000 a month in retirement. Under the current 
system, he would contribute twice as much but receive only $1,077 under 
Social Security. So under the current Social Security system, he would 
contribute twice as much but receive almost two-thirds less.
  The U.S. trails other countries. I represented the United States at 
an international conference in London a few years ago and I was amazed 
how much other countries are moving into getting real returns on those 
investments. In the 18 years since Chile offered the PRAs, 95 percent 
of the Chilean workers have created accounts. Their average rate of 
return has been 11.3 percent a year. Australia, Britain and Switzerland 
offer workers PRAs.
  In Britain, here is a socialist country that is much further ahead 
than we are. Two out of three British workers enrolled in the second 
tier Social Security system choose to enroll in PRAs. British workers 
have enjoyed a 10 percent return on their pension investments over the 
past few years. The pool of personal retirement accounts in Britain now 
exceeds nearly $1.4 trillion, larger than their entire economy and 
larger than the private pensions of all other European countries.
  Based on a family income of $58,475, that is a figure that came out 
nice for the length of this bar chart, if we are to invest either 2 
percent of our payroll or 6 percent or 10 percent for 20 years, we 
would get $55,000, $165,000 or $274,000 back after 20 years. After 30 
years, if we were to invest 10 percent, which would leave the 
disability part in effect, then it goes up to $800,000. And if we were 
to go the full height and invest 10 percent over 40 years, then we 
would have at the end of 40 years, because of the magic of compound 
interest that our money grows every year and the interest on that extra 
money that is compounding all the time, would amount to $1,389,000. At 
10 percent interest, of course, that would be $138,000 a year. At 5 
percent interest, half of that, it would be $70,000 a year.

  So the question is with the fluctuation in the stock markets, is that 
a risk? Considering the fluctuations, what if somebody were forced to 
invest last year or the first of this year and take out money now? For 
short-term investments, there are ups and downs. For long-term 
investments, there has never been an average downer as low as the 1.9 
percent that Social Security pays.
  This represents the last hundred years, and so this is a real rate of 
return over and above inflation on stocks from 1901 to 1999. And we see 
they get as high as about 12 percent, averaging 12 percent, and as low 
as about 3.6 percent. But the average is 6.7 percent.
  So, the key to this kind of investment is leaving that investment in 
for longer periods of time. I think the key in my bill I gave the 
option of index stock, index bonds, index global funds. These figures 
represent an index. But as we see, nothing is low as the 1.9 percent 
return that is now accommodated by Social Security.
  I think my time is coming to a close, but I wanted to briefly go over 
the provisions of my Social Security bill. We have no tax increases, no 
transition costs. It balances the Social Security system for 75 years, 
as scored by the Social Security Administration. Newly hired State and 
local government employees would join, but it allows the private 
investment account withdrawals at age 60. What I do, instead of any 
kind of increase in retirement age, I build in an incentive. So if 
workers are 65 years old and eligible for retirement and decide to put 
it off, for every year they put it off, they would get an 8 percent 
increase in their benefits. That is actuarially sound.
  So if we keep working and keep paying in our Social Security tax, the 
benefits for every year we put off retirement, and we are living 
longer, healthier lives, we would get an 8 percent increase in those 
benefits. So it is our decision with an incentive of whether to have 
our retirement age increased, and being able for some people to retire 
even earlier when it is actuarially sound.
  Retirement age is automatically indexed to life expectancy. It 
increases retirement age 2 additional years. That is simply complying 
with current law. In 1983, they said the retirement age to get maximum 
benefits between 2002 and 2017, over that time period, would gradually 
increase from 65 to 67. So that is in current law. That is a law that 
they passed back in 1983.
  Benefit changes. The private investment accounts using the trust fund 
surpluses, it gradually reduces the increase in benefits for high 
income retirees. Couples receive a minimum of 133 percent of the higher 
of each of the couple's benefits. Right now, it is 100 percent. It 
allows additional voluntary PRAs. And for anybody that would like to 
look at the Social Security background charts or the legislation I have 
introduced, go to one of the search engines and type in ``Nick Smith'' 
and ``Social Security.'' But officially it is

www.house.gov/nicksmith/welcome.html.

  Mr. Speaker, I thank you for this time. I give the challenge to my 
colleagues to move ahead on Social Security. And most of all I give the 
challenge to Mr. Gore and Mr. Bush to make the effort and take whatever 
action is necessary to get a bipartisan agreement in this House and in 
the Senate to move ahead to make sure that we save Social Security and 
that we do it without increasing taxes and that we do it without 
reducing benefits for current or near-term retirees.

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