[Congressional Record Volume 147, Number 21 (Wednesday, February 14, 2001)]
[House]
[Pages H380-H384]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SOCIAL SECURITY
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 3, 2001, the gentleman from Michigan (Mr. Smith) is recognized
for 60 minutes.
Mr. SMITH of Michigan. Mr. Speaker, I am a farmer from Michigan, and
I know that you are as well in your State of Florida.
Agriculture today and the plight of farmers is one of the serious
issues before Congress. Another serious issue that is sort of the
overriding consideration of where we go in the next several months is
how high should taxes be in this country and how should government
spend that tax money that comes down here to Washington as we decide on
the priorities for spending.
This first chart is a pie chart that shows the different pieces of
pie, or the percentage of spending this year that goes into several
categories. Social Security takes 20 percent of all Federal spending.
Social Security is the largest expenditure that we have in the Federal
Government. Of course, the people at risk are the young people today
that are going to be threatened with huge increases in taxes or reduced
benefits in Social Security benefits.
Out of the approximately $2 trillion that we will be spending this
year, 2001, 20 percent goes to Social Security. The next highest is 12
appropriation bills. Twelve of the appropriation bills all together,
what we spend a half a year arguing on, spending for so-called
discretionary spending, discretionary meaning what Congress has some
discretion over, is 19 percent of the budget. The other 13th
appropriation bill is defense, and that takes 17 percent.
But here is Social Security now taking much more than even defense
spending, with Medicare at 11 percent. Medicare is even growing because
we are talking now of how do we add some prescription drug coverage to
Medicare. So we are looking at the challenge of the Federal
Government's expenditure and the Federal Government getting bigger.
That means more imposition on individual rights. It is giving more
empowerment to Congress and the White House, and it is taking away
authority and authorization and power from individuals.
{time} 1645
So the first question it seems to me should be, how high should taxes
be?
Mr. Speaker, I would ask our listening audience to give us a guess in
their own mind of how many cents out of every dollar they earn goes for
taxes at the local, State, and national level, what percentage of what
you earn goes in taxes.
Well, if you are an average American taxpayer, a little over 41
percent goes in taxes, 41 cents out of every dollar you earn. When the
seniors graduate next year or when they finish college or high school
and go into the job market, on average they are going to be shelling
out 41 cents of every dollar they earn in taxes, taking the first 4
months out of every year proportionately to pay taxes.
And, of course, everybody is now considering their Federal tax bill.
They are looking at the taxes. If they have some investment in some
mutual funds, they are getting notices on their 1099s that they have a
capital gains tax to pay, even though the value of that mutual fund
might have gone down in this past year.
So the question then becomes, how do we have tax fairness? It would
be my suggestion that we make every possible effort to reduce taxes
from that 41 percent down to at least 35 percent. That is what made
this country great is the fact that you are going to get some reward
for your efforts to save and invest to try to maybe get a second job or
a second part-time job so you can take care of your family.
Well, we now have a tax system that says, look, not only are we going
to tax you at the same rate if you get a second job, we are going to
tax you at a higher rate if you start earning more money. I think there
is a lot to do on tax fairness. I think there is a lot to do on tax
simplification.
But I want to spend a little time talking about where we go on
finances, and part of that question is how large should the Government
debt be in this country.
Right now the debt today is $5.69 trillion, almost $5.7 trillion of
debt. I am a farmer, as I mentioned, and our tradition on the farm has
been to try to pay off some of that mortgage to leave your kids with a
little better chance. But what we are doing in this country right now,
in this body, and the Senate and the White House is borrowing all of
this money and we are going to leave it up to our kids and our
grandkids to pay back.
Without reform, Social Security leaves our kids a legacy of debt
larger than we have today. Right now, of the $5.7 trillion, $3.4
trillion is so-called Treasury debt, Treasury bonds, Treasury paper. It
is so-called the debt to the public, the public borrowing. The rest of
the debt is debt that we borrow from the trust fund. Roughly $1.1
trillion comes from the Social Security trust fund that the Government
has borrowed that extra money coming in from Social Security taxes and
spent it on other programs.
Yesterday we passed a bill to make sure that we do not do that this
year. And then there is $1.2 trillion that is from all of the other 119
trust funds. And so, most of what we are doing with the extra money
coming in from the trust funds, we are writing out an IOU and we are
using those dollars to pay down the public debt.
But when the baby-boomers start retiring around 2008, then we are
looking at a situation where there is not going to be enough money
coming in from Social Security taxes to pay benefits. So what do we do?
Well, what Washington has done in the past is increase taxes. I think
it is important that we deal with Social Security now so that we do not
rely on tax increases in the future.
And that is why we have this curve. As we pay down the debt held by
the public, eventually we are going to have to start borrowing again to
pay Social Security benefits and Medicare benefits, and that is going
to leave our kids with that huge debt load.
The temporary debt reduction plan does little more than borrow the
Social Security surplus to repay the debt held by the public; and when
the baby-boomers retire. Social Security surpluses disappear and
Federal debt again soars.
Again on the debt, for the whole load of hay, we see now that this is
roughly the division of that $5.7 trillion of debt. But over time, if
we keep borrowing money from the Social Security trust fund and
Medicare trust fund and other trust funds and use that money to pay
down the debt held by the public, then the debt held by the public
continues to diminish, but the Social Security trust fund debt and the
Medicare trust fund debt are still there. There is not enough money
there to pay the benefits that are going to be required after the baby-
boomers retire.
That is demonstrated in this chart. In the top left, we see a
momentary surplus in Social Security taxes coming in. Right now your
Social Security taxes are 12.4 percent of essentially everything you
make. But when the baby-boomers retire and go out of the pay-in mode to
recipients of Social Security, then the problem really hits us from
twofold, a tremendous increase in the number of retirees that are going
to be taking Social Security benefits and a reduced number of workers
that
[[Page H381]]
are paying in their taxes to cover the cost of that program and
starting.
Starting around 2012, there is going to be an insufficient amount of
Social Security taxes coming in, so we are going to have to come up
with money from someplace else.
What we have done on several occasions that I think should make every
American very concerned is that we have either increased taxes and/or
reduced benefits. We did that in 1977. We did it again in 1983 when we
revised the Social Security system.
This red, by the way, represents $9 trillion of unfunded liability.
That is why I think it is so important and I have urged this
administration and, of course, I encouraged for the last 8 years the
previous administration to move ahead with some changes in Social
Security that will keep Social Security solvent.
I mean, if we take a trillion dollars out of this total $5.6 trillion
that we are now guessing is going to be there over the next 10 years
and we use that trillion to start some real returns on some of that
money, we can save Social Security and keep it solvent for the next 75
years.
If we put it off, that means that we are going to have to be even
more drastic in the future to make these changes. In other words, the
longer we put off the solution to Social Security, the more drastic
those changes are going to have to be.
I mentioned $9 trillion in today's dollars. The unfunded liability
means that we would have to put $9 trillion into a savings account
today to earn enough money in interest to pay benefits to add to what
is going to come in in Social Security taxes to keep Social Security
solvent for the next 75 years.
When Franklin D. Roosevelt created the Social Security program over 6
decades ago, he wanted it to feature a private sector component to
build retirement incomes. Social Security was supposed to be one leg of
a three-legged stool.
I have some of those old brochures that I have looked up in the
archives where it says, look, Social Security is one-third of what
should be everybody's effort to have a secure retirement, one-third
from Social Security, one-third from your individual savings and
investment, and one-third from some kind of a pension plan that he
encouraged everybody to partake in. But right now we have almost 22
percent of our Social Security recipients that depend on Social
Security for 90 percent or more of their total retirement income.
So if there is one message in all of this talk about Social Security,
if there is one message we can drive home: it is the importance of
saving now for your retirement.
Let me tell you another reason. I chaired the Social Security Task
Force here in Congress for the last couple of years in the Committee on
the Budget, and the Social Security Task Force brought in futurist
experts on health and on medicine, and their guess was that within 20
years, anybody that wanted to live to be 100 years old would have that
option, and their estimate was that within 40 years anybody that wanted
to live to be 120 years old would have that option.
I mean, what does that mean in all of our individual lives? What does
that mean for our kids? What does that mean in terms of the importance
of making the changes now to keep Social Security solvent in the
future?
The personal retirement accounts that a lot of people have talked
about and some people have said to me, well, now is not the time to
talk about individually owned accounts because look what the stock
market has done over the last 12 years.
The fact is that an average person retiring from Social Security 5
years from now is going to get a 1.1 percent return on the money that
was paid in that they paid in and their employer paid in. Right now the
average is 1.7 percent. But as taxes go up, the percentage and the
likelihood that you are going to get that money back is going to
diminish.
And so, the question is, can we do better than getting a 1.1 percent
or even a 1.7 percent return on some of that money?
The other danger is, so, if we can put it into individual accounts
where workers of America own that account and own that money so that
when the problems in Washington make Members of Congress and the Senate
and the President feel that other spending is more important, that we
do not again cut Social Security benefits.
So there is some security in having this in individual accounts. And
we can put it in safe investments. We brought in experts into our
Social Security Task Force that said, look, we can guarantee a 4.2
percent return and guarantee that you will have at least a 4.2 percent
return on the way we are going, we can invest your money.
Some other insurance companies have higher rates. Some others have
lower rates. But the fact is that a CD at your bank, other investments
that are secure, can do a lot better than that 1.1 to 1.7 percent
return.
The fact is that the Supreme Court, on two decisions now, has said
that there is no entitlement to Social Security. On two decisions the
Supreme Court says Social Security taxes are simply another tax. Social
Security benefits are simply another law that Congress has passed, and
the President has signed to have a certain benefit structure and,
therefore, there is no entitlement or no necessary connection between
the two.
I think that should make us nervous, also.
Social Security is a system stretched to its limits. Seventy-eight
million baby-boomers will begin to retire in 2008. Of course, the baby-
boomers after World War II, the soldiers came home and there was a
tremendous increase in birth rate and at that time, of course, we had
that huge increase in population. We had problems in building our
schools and building up our education system and the kind of services
necessary to deal with that expanding population, and Social Security
worked very well as an expanded workforce, paid in those taxes, and
those taxes immediately go out to pay the benefits of existing
retirees.
{time} 1700
Social Security spending exceeds tax revenues starting technically in
2015, and that is when the problems really hit us. If there was a
Social Security trust fund, then the Social Security trust fund would
keep Social Security solvent until 2034 or 2035.
But let me spend just a couple of minutes on what the Social Security
trust fund is. You pay in currently 12.4 percent of the first roughly
$80,000 you earn in Social Security taxes. For the last almost 6 years
now, there has been quite a huge surplus on the taxes coming in as
opposed to what was needed to pay benefits.
Again it is a pay-as-you-go program. Taxes come in and by the end of
the week, they are sent out in benefits almost. We are dealing with a
situation where the government then writes an IOU, but you cannot cash
in that IOU. It is nonnegotiable. They write the IOU, and say we are
borrowing this money; and for the last 42 years, government has been
spending any surplus that came in from Social Security on other
government spending.
Starting last year, for the first time, and I introduced a bill in
the spring of 1999 that said we would have a rescission or we would cut
all spending if we started digging into the Social Security surplus,
that ended up with the lockbox bill of the gentleman from California
(Mr. Herger).
We passed that again just yesterday, a lockbox bill that says we are
not going to use the Social Security surplus for any spending. But now
there are a bunch of IOUs in a steel file box down there that
technically says the government has borrowed this money.
The question then becomes, when Social Security needs the money, how
is it going to pay it back? It is going to do one of three things. To
come up with that money to pay it back for benefits, it is either going
to reduce the cost of Social Security, in other words, lower benefits
so there is not so much to pay back or they are going to reduce other
spending or they simply borrow more money.
You remember that earlier chart, how we are going to leave our kids
this huge debt. That is because to pay Social Security benefits, we are
going to have to borrow those huge amounts of dollars. By huge, I mean
over the next 75 years, borrowing or somehow coming up with $120
trillion. Remember, our total budget this year is $2 trillion. Over the
next 75 years, coming up with
[[Page H382]]
$120 trillion in excess of what is coming in in Social Security taxes
to pay the benefits that are currently promised.
You can see now it is a huge problem. Nobody knows quite how to solve
this problem. So we keep putting it off. The danger of this legislative
body, of course, is until a crisis is almost on us, we do not react in
solving some of the tough problems. That is why it is so important, Mr.
Speaker, that the American people understand how dramatic, how
challenging the problem is of keeping Social Security solvent.
Insolvency is certain. We know how many people there are and when
they are going to retire. It is not some kind of economic projection.
The actuaries over in the Social Security Administration know
absolutely how many people there are. Their estimate of how long people
are going to live is very, very accurate; and we know how much they are
going to pay in and how much they are going to take out in Social
Security. Payroll taxes will not cover benefits starting in 2015, and
the shortfalls will add up to $120 trillion between 2015 and 2075.
This other chart shows the paying-in problem. This is the
demographics, the changing makeup of our population. Back in 1940,
there were approximately 30 people working paying in their Social
Security tax for every retiree. Today, there are just three people
working paying in their Social Security tax for every one retiree. And
over on your right, you see by 2025, the estimate is that at that time
there are only going to be two people working for each retiree. Two
people working for each retiree. A huge challenge, a huge potential to
increase those taxes on those two workers. As you increase taxes, of
course, you discourage economic development.
There is no Social Security with your name on it. As I give speeches
around the country, a lot of people think that there is somehow an
account that is in their name that entitles them to Social Security
benefits. This is a quote from the Office of Management and Budget of
the United States Government. They say: ``These trust fund balances are
available to finance future benefit payments and other trust fund
expenditures, but only in a bookkeeping sense. They are the 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.''
I thought I would throw that quote in, Mr. Speaker, to reaffirm the
point that I was just trying to make earlier, that having the Social
Security trust fund and pretending that somehow that is the solution
out there is fooling ourselves. It is fooling the American people.
The public debt versus Social Security shortfall. Some have suggested
that if we paid back the debt held by the public, now $3.4 trillion,
somehow that savings on interest is going to accommodate the $46.6
trillion shortfall between now and 2057, over the next 56 years. This
chart is simply to represent that that $3.4 trillion debt and roughly
the 5 percent interest on that debt is not going to accommodate the
huge shortfall in Social Security.
Some people have suggested, look, if we can keep the economy going
strong, that will help solve our Social Security problems. It helps
solve the Social Security problems in the short run, but because there
is a direct relationship in the Social Security benefits you receive to
the wages that you pay in, in the long term it does not help the
problem, because the more you earn and the more you pay in, eventually
the higher the benefits you are going to be entitled to. And spelling
this out, Social Security benefits are indexed to wage growth. When the
economy grows, workers pay more in taxes but also will earn more in
benefits when they retire. Growth makes the numbers look better now but
leaves a larger hole to fill later. Any administration has got to
realize that saying that we are going to pay down the public debt to
save Social Security is not going to do the job.
Helping me is a page by the name of Martha Stebbins. Martha is from
New Hampshire. I was up in New Hampshire, Martha, and bought some maple
syrup last summer. It is very good, but we make maple syrup in
Michigan, too, that is pretty good. In fact, we make some maple syrup
on my farm.
Back to business. The biggest risk is doing nothing at all. Social
Security has a total unfunded liability of over $9 trillion. 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.
Neither one should be an option of this Congress or the Senate or the
President.
How about investing the money? How big a risk is it? The diminishing
returns of your Social Security investment. Right now, this chart
represents what you might get back in terms of Social Security benefits
based on what you and your employer paid in, or if you are self-
employed, what you paid in.
The real return of Social Security is less than 2 percent for most
workers and shows a negative return for some compared to over 7 percent
for the market on the average over the last 100 years. If you look at
just the last 10 years, then we are looking at returns that exceed 14
percent. It is a negative return, by the way, for minorities.
So if a young black male today because they have a shorter life span,
they spend their life paying into Social Security, but then die and
might get a $200 death benefit, but they essentially lose all their
money. If some of this money was in their own account, then it would go
to their heirs and it would not be simply kept by the Federal
Government saying, well, this helps balance out everything else. On
average, as I mentioned, it is 1.7 percent with a market return of over
7 percent.
This is a chart, I thought to demonstrate this point, the fact that
it is not a good investment, it is not a good idea, and again let me
make sure that everybody understands, Mr. Speaker, that in all of the
proposals to solve Social Security, none of those proposals touch the
disability and survivor benefits. So that portion of the Social
Security that goes for disability, if you get hurt on the job, then you
get some benefits the rest of your life, or if you die and your spouse
or your kids need help, none of the proposals nor the three bills that
I have introduced over the last 8 years, none of the proposals dig into
that survivor disability portion of the package.
But to get back all of the money that you and your employer have paid
in is going to take anybody that retires in the next several years, it
is going to take 23 to 26 years that you are going to have to live
after retirement to break even, to get back the money you and your
employer put in. Because taxes have gone up so dramatically, that is
why this graph has gone up and you are going to have to spend more time
and live longer after you retire to break even. Of course, if you
happened to retire in 1940, it took 2 months to get back everything you
put in. In 1960, 2 years. Today it takes 23 years. You have got to live
23 years after you retire to break even and get the money back that you
and your employer paid in in Social Security taxes.
This chart represents how we have increased taxes over the years. So
people that say, well, you know, politicians that have to run for
reelection would not dare to increase taxes again because already 75
percent of working Americans pay more in the Social Security tax than
they do in the income tax. Seventy-five percent to 78 percent of
Americans today pay more in Social Security tax, 78 percent if it is
the total FICA tax, than they do in income tax.
And it is a very regressive way to tax. Yet this country has
substantially increased that tax. In 1940, we had a 2 percent rate.
That meant the employer paid 1 percent and the worker paid 1 percent on
the first $3,000. The maximum for the year for both employee and
employer were at $60 a year.
By 1960, we raised the rate to 6 percent, raised the base to $4,800;
and the maximum was $288 a year. In 1980, we raised the rate to 10.16
percent on a base that was increased to $25,900. So the maximum went up
to $2,630 a year.
Today we have a 12.4 percent tax, 6.2 for the employee and 6.2 for
the employer on, since it is indexed is now up to $79,000, on the first
$79,000, so the maximum total is about $10,000 a year.
This is our history of every time government has got into trouble
where they needed more money than was provided by the revenues and the
benefits that have been expanded, of course,
[[Page H383]]
over the years, then we ended up increasing taxes. And twice, in 1977
and in 1984, we also reduced benefits.
This is what I was mentioning in the FICA tax. So the FICA tax, 12.4
is Social Security; and the rest of the 15-odd is Medicare. So a total
of a little over 15 percent goes in your payroll tax.
Right now 78 percent of American working families pay more in the
payroll deduction in the FICA tax than they do in income tax. What I am
trying to do with that chart is shout that it would be very unfair to
again raise those taxes. But if we do not deal with Social Security now
and we say, look, we are just going to use the Social Security surplus
to pay down the debt held by the public, that $3.4 trillion to
accommodate the $50 or $60 trillion shortfall in Social Security and
pretend that somehow that is going to fix Social Security, I think it
is not fair to ourselves to say that and I think it is not fair to the
American people to think that that is going to be a possibility.
These are the six principles of my Social Security bill that I have
been introducing. I was chairman of the Senate finance committee in the
State of Michigan before I came here, and there were a couple of
considerations and concerns I had before I came to Congress, and that
was the low savings rate in the United States. We have a lower savings
rate than any of the other G-7 countries.
Our savings rate is about 5 percent of what we earn. In Japan, for
example, it is about 19 percent. In Korea, it has been as high as 35
percent of what they earn. We used to in this country save about 15
percent. Back in the 1940s and 1950s we were saving almost 15 percent
of what we earned.
{time} 1715
But now our savings rate has tremendously gone down. Part of it maybe
is the advertisements of ``Fly now, pay later.'' ``Come in and get a
new car and get $200 immediate cash to buy Christmas presents,'' or
something.
So we have encouraged debt. So there is a danger not only of the
Federal Government mounting this kind of debt, but there is a problem
with individual Americans relying more and more on those credit cards
or other credit systems to borrow and borrow more money. That does a
couple things. Number one, it disrupts economic expansion, because
savings and investment mean that that investment is what companies use
to do the research, to buy the kind of state-of-art equipment and
machinery that can accommodate international competition.
It was important to me when I came to Congress that I try to do the
kind of things to encourage savings, and one of those things was
allowing some of this large Social Security tax to be invested and to
be in the name of individuals. So that is when I started writing the
bills.
So, number one, my Social Security proposals protect current and
future beneficiaries, allow freedom of choice. In other words, if you
do not want to go with any kind of a private investment plan that will
be limited to safe investments by law and you want to stay in the
current system, you can. It preserves the safety net, because we are
not going to allow anybody to go without food or shelter in this
country. It makes Americans better off, not worse off; and it creates a
fully-funded system, and no tax increase.
Personal retirement accounts offer more retirement security.
If I have to take a drink of water, that probably means that I have
talked almost long enough, and maybe the listening audience has
listened long enough, so I am going to finish the last few slides.
Personal retirement accounts offer more retirement security. If John
Doe makes an average of $36,000 a year, he can expect monthly payments
in Social Security of $1,280, or from a personal retirement account he
can expect $6,514.
When we passed the Social Security law back in 1934, we said that
States and local governments could opt out of Social Security and
develop their own pension retirement plan. Galveston, Texas, did just
that. They decided not to go into Social Security, but to have their
own retirement plan. Right now this chart compares what those
individuals in Galveston County have as death and disability and
retirement benefits as opposed to what they would have in Social
Security.
On the death benefits, Social Security, $253; the Galveston plan,
$75,000 in death benefits. Social Security, $1,280; the Galveston plan,
with their own investments, $2,749. Monthly retirement payments,
$1,280, compared to Galveston retirees getting $4,790.
San Diego did the same option. San Diego enjoys personal retirement
accounts, PRAs, as well. A 30-year-old employee who earns a salary of
$30,000 for 35 years and contributes 6 percent to his PRA would receive
$3,000 per month in retirement. Under the current system he would
contribute twice as much in Social Security, but only receive $1,077.
The difference between San Diego's system of PRAs and Social Security
is more than the difference in a check. It is also the difference in
ownership, in knowing that politicians are not going to take that away
from you.
Even those who oppose PRAs agree they offer more retirement security.
This is a letter from Senator Barbara Boxer and Dianne Feinstein and
Ted Kennedy to President Clinton. In their letter they said, ``Millions
of our constituents will receive higher retirement benefits from their
current public pensions than they would under Social Security.''
So the question is, how can we make this more available to everybody,
to, in effect, guarantee they are going to be better off and they are
going to have an ownership of some of that retirement account?
I represented the United States in describing our pension retirement
system in an international forum in London a couple of years ago, and
it is interesting the number of countries that are ahead of us in terms
of allowing their workers to own personal retirement accounts.
In the 18 years since Chile offered the 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,
all offer worker-PRAs. The British workers chose PRAs with 10 percent
returns, and two out of three British workers enrolled in the second-
tier social security system. They are allowed to have half of their
social security taxes go into these personal retirement accounts, and
they have been getting 10 percent-a-year return. Again, that compares
to our Social Security return, currently at 1.7 percent.
This is what has happened in equity investments over the last 100
years. It is a graph of the ups and downs of the returns on equities.
Some bad years, in the early 1920s, during the Depression, 1929, a
little depression. But, on average, if you leave your money in for over
12 years, in any time period, then you did not lose any money on equity
investments. The average return over this time period was 6.7 percent.
Again, we are looking at a system, such as all Federal employees know
about the Thrift Savings Plan, so it is limited to safe investments. It
is limited to your choice of how much you want to put in equities
versus government Treasury bills versus bonds for corporations, fixed
income bonds or variable interest rate income bonds. So you balance
that in terms of minimizing risk, and in all cases the experts suggest
that it is going to be very, very easy to do much, much better than the
1.1 to 1.7 percent return you are going to get on Social Security.
Based on a family income of $58,475, the return on a personal
retirement account is even better. We divided this into three different
areas, if you invest 2 percent of your wages or 6 percent of your wages
or 10 percent of your wages. If the average working life span is, what,
if you go to work at 20, 25, and you retire at 65, 70, so on average I
suspect we are working 40 years, paying in our Social Security taxes,
so let me jump way over to the 40 years.
If you were to work 40 years and invest 2 percent of your money, then
you would end up with just a little over a quarter of a million
dollars. If you invested 10 percent of your money, you would have $1.4
million over the 40 year-period.
What we are looking at, if you just invested this money at 2 percent
for the first 20 years, you would still have $55,000 after 20 years; or
if you invested at 10 percent, you would have $274,000 over 10 years.
Again, the fact is that long-term investments, even with the
fluctuations
[[Page H384]]
for that 12-year or 15-year period, we have never had a 12- or 15-year
period in the history of the stock market, of equities, where there has
been a loss. Again, the average return on such an investment has been
6.7 percent.
Okay, let me finish up just briefly with the Social Security bill
that I have introduced. I am rewriting that bill now to make a couple
changes that I think are important.
The question is, some people argue, well, you cannot let individuals
invest the money themselves. So what I have done in this legislation is
I have limited the investment to safe investments, index stocks, index
bonds, an index of mutual funds, or an index of some of the foreign
stock investments funds. That is what we are doing in the Thrift
Savings Plan also.
My legislation allows workers to invest a portion of their Social
Security taxes in their own personal retirement savings accounts that
start at 2.5 percent of wages and gradually increase. So 2.5 percent
out of the 12.4 percent that is going in Social Security taxes you
would be allowed to have in your own account and invest it in your
selection of maybe four, maybe five, limited so-called safe
investments, and then I would leave it up to the Secretary of Treasury
to add to that any other investment potential that he thought was safe
and reasonable to add to this selection.
My proposal does not increase taxes. It repeals the Social Security
earnings test for everybody over 62 years old; it gives workers the
choice to retire as early as 59.5 years old, and as late as 70. In my
proposal, I made a suggestion that you could increase your benefits 8
percent a year for every year after 65 that you delayed taking those
benefits.
Mr. Speaker, it gives workers the choice to retire at 59\1/2\. It
gives each spouse equal share of the PRSAs. If you are a stay-at-home
mom, you get half of what your husband makes; or if you are a stay-at-
home dad, half of what your wife makes would go in your individual PRSA
account. So it is always divided equally between the two spouses. If
one spouse makes more than the other spouse, they are added together
and divided by two to represent how much would go into each account.
It also increases widow and widower benefits up to 110 percent. That
is partially to encourage retirees that might be a surviving widow or
widower to live in the same home. You cannot do it now. One cannot live
on half as much money as two. So this adds to the surviving spouse's
benefit.
It reinforces the safety net for low-income and disabled workers. It
passes the Social Security Administration's 75-year solvency test. In
other words, the actuaries over at Social Security have scored this and
said this will keep Social Security solvent for at least 75 years.
Actually, it would keep Social Security solvent forever, the way it is
written.
The bill takes a portion of on-budget surpluses over the next 10
years. That is what I would like to stress. This bill borrows $800
billion of surpluses other than the Social Security surpluses to make
the transition. Since we are taking all the money essentially now that
is coming in and paying out $400 billion a year in Social Security
benefits, how do you come up with enough money to stop paying out? You
are not going to stop paying out those benefits, so how do you make the
transition?
So the transition is made from borrowing some money from the general
fund. Now that we have this surplus coming in, now is the time to take
that step. So if we can take $1 trillion now from the other surpluses
to fix Social Security, then we are going to have Social Security
solvent; and it is not going to haunt our kids and grandkids later.
It uses capital market investments to create Social Security's rate
of return above the 1.7 percent workers are now receiving. Over time,
PRSAs grow, and Social Security fixed benefits are reduced. It indexes
future benefit increases to the cost-of-living increases instead of
wage growth.
{time} 1730
In other words, part of the problem now with Social Security is that
benefits go up faster than the economy. Benefits increase based on wage
inflation, which is higher than the CPI inflation. So one of the things
my bill does is it changes the index of how much wages are increased to
inflation. So it covers the increased cost of everything we buy, but it
does not go up faster than everything we buy, as is currently
structured under the current Social Security law.
Let me finish, Mr. Speaker, by simply saying that I think we are in
luck with this new President we have. He suggested that we leave some
of the money that taxpayers are paying in, now at an all-time high. We
are paying more taxes now, at the 41 cents out of every dollar, than we
have ever paid in the history of America in peacetime. There was one
year during World War II that it was higher than what it is today.
So the fact is that another way to say that we have a surplus is
saying that we are overtaxing somebody, someplace, somehow. So let us
make taxes more fair, but at the same time, this President has said it
is important to continue to pay down the debt so our kids and our
grandkids are not left with that huge mortgage on the way we have
operated government.
Thirdly, he said that we have to fix Social Security. So I am
encouraged. I think the challenge before this body is not sweeping this
problem of Social Security and Medicare solvency under the rug, to
leave it for future Congresses or as future problems for taxpayers that
will be our kids and our grandkids.
____________________