[Congressional Record Volume 148, Number 28 (Wednesday, March 13, 2002)]
[House]
[Pages H894-H899]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 THE PROBLEMS AND THE FUTURE OF SOCIAL SECURITY, AND THE COST OF DOING 
                                NOTHING

  The SPEAKER pro tempore (Mr. Forbes). Under the Speaker's announced 
policy of January 3, 2001, the gentleman from Michigan (Mr. Smith) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. SMITH of Michigan. Mr. Speaker, following the presentation from 
the Blue Dogs, let me just say from our side of the aisle that the Blue 
Dogs have come up with some good, thoughtful ideas in terms of fiscal 
responsibility.
  I think we have to be careful about not passing blame, and I would 
hope that as one of the three separate entities of government that our 
Founding Fathers set up, that we as a Congress would also take on some 
responsibility and not expect just that it is up to the administration 
to present us a plan of what is good for the future of this country. We 
also have that responsibility.
  It seems to me, I say to the gentleman from Texas (Mr. Stenholm), 
that if we are going to be honest with the American people, if we think 
that our problems today are so important that we have to borrow money 
that is in a sense a mortgage that our kids and our grandkids are going 
to have to pay back, then we should not do it by borrowing.
  If we think what we are spending money on today is so important, then 
we should increase taxes and not try to hoodwink the American people 
into thinking the size of this government is less costly than it really 
is by sort of off on the side borrowing more money, where it is not 
quite as visible as quickly in terms of the obligation that people have 
to eventually spend to cover what we think is more important today 
maybe than what our kids and grandkids are going to be facing 20 and 30 
years from now.
  I would just like to call on the gentleman from Texas (Mr. Stenholm) 
as we get into the Social Security debate, because he has been one of 
the leaders.
  Before I do that, Mr. Speaker, I want to remind everybody what we did 
in 1998. At that time, we promised that there was going to be a 
balanced budget by 2002, and we did that predicated on an estimate that 
revenues in 2002 would be $1.4 trillion. Now, what happens to revenues, 
just in the most recent projections this year and 2002, are that 
revenues are going to be almost $2 trillion, so $600 billion more than 
we anticipated in 1998 when we promised to have a balanced budget.
  Even if we take $40 billion out for the tax cuts and another $30 
billion out for the war on terrorism, there is still $530 billion that 
was increased spending rather than lost revenues.

[[Page H895]]

  So part of the danger that we need to face up to is the propensity 
for Members of Congress and the administration to start new programs, 
to spend more money, because it tends to make us a little more popular. 
If we take the pork barrel projects home, we would probably get on 
television cutting the ribbons, et cetera.
  I think the challenge is huge. I think we have to face up to both 
Social Security and Medicare. But tonight I want to concentrate on a 
discussion of what the problem is in Social Security, where we might 
go, and the cost of doing nothing.
  Mr. Speaker, I yield to the gentleman from Texas (Mr. Stenholm), who 
has been a leader in terms of trying to come up with a bipartisan 
effort to solve the Social Security problems. I would ask him to give 
us his best guess of what we should do to get both sides of the aisle 
together to help solve this problem.
  Mr. STENHOLM. Mr. Speaker, I thank the gentleman from Michigan for 
yielding to me. I wish I had the answer to that question tonight. But 
certainly we cannot blame it on the gentleman and I, because it has 
been a pleasure for me to work with the gentleman, and with the 
gentleman from Arizona (Mr. Kolbe) and with our friend, the gentleman 
from Florida (Mr. Boyd), who has been a cosponsor of our bill, the 
proposal of which we believe should be seriously considered in fixing 
Social Security.
  One of the things that we know is necessary is that any proposed fix 
has to be bipartisan. That is why I appreciate the fact that about 4 
years ago, when the gentleman and I were joined together at that time 
in proposing some solutions, the gentleman's opponent attacked him and 
my opponent attacked me. I appreciate the letter to the editor the 
gentleman sent to my district saying, get off his back, because he is 
trying to fix a problem; and I did the same for the gentleman.
  That is the spirit in which we have tried to operate. We hope we will 
get a few more folks beginning to acknowledge the fact, and this is a 
fact, no one disagrees that Social Security in its current form is not 
sustainable for our children and grandchildren. There is no problem 
with those on it today, but there is a problem for our children and 
grandchildren; and the longer we wait and the longer we wait, it makes 
it that much more difficult.
  I know when I first got here in the Congress in 1979, 2011 was so far 
away we did not worry about it; but tonight, 2011 is 9 years away. That 
is why the gentleman and I have been trying to at least get the 
relevant committees to begin in a bipartisan way acknowledging some 
proposed solutions.
  Mr. SMITH of Michigan. Reclaiming my time, Mr. Speaker, from the 
gentleman from Texas, do I understand correctly that between us we have 
12 grandchildren? I have 10.
  Mr. STENHOLM. If the gentleman will yield further, I have two.
  Mr. SMITH of Michigan. Mr. Speaker, I have heard the gentleman say 
many times that, look, 40 years from now or 50 years from now or 
however long we might live, to have those kids come to us and say, look 
at the increased tax burden that you have put on us because you did not 
do anything back in 2002 and 2003, that should make every Member here 
feel a little bit more conscious of the obligations that we are passing 
on to those kids if we do not stand up to some of the tough decisions 
and correct the problems now.
  I think that it is an easy issue to demagogue. Republicans say, well, 
maybe that Democrat would be vulnerable because there are so many 
seniors that are so dependent on Social Security, so if we can suggest 
that the gentleman from Texas (Mr. Stenholm) is bad and might mess up 
the program because he is looking for a solution. And, of course, vice 
versa, Democrats could demagogue and say, well, Republicans are going 
to ruin our Social Security benefits. And with seniors, so many of our 
seniors that are so dependent on Social Security, we can understand 
their emotional concern even at the suggestion.

  I do not know quite how we are going to stop the demagoguery. It will 
probably go on at least one more election. But somehow, the key is a 
better effort of informing the American people of what the situation 
really is.
  Mr. STENHOLM. Mr. Speaker, if the gentleman will continue to yield, 
in the gentleman's opening remarks concerning our Blue Dog Special 
Order just before this, the gentleman seemed to have taken the opinion 
that we were beating up on the administration. That certainly was not 
my intent, but it was to consider the administration equally with the 
Congress in coming up with a solution. That is what we were trying to 
do.
  In the case of Social Security, this is one Democrat who agrees with 
my President, what he proposed in the campaign and what I am ready to 
work with him on, on an individual account approach. I happen to agree 
with that. That is something that the gentleman from Arizona (Mr. 
Kolbe) and I share, and the gentleman from Michigan has joined with us 
in cosponsoring our one area. The gentleman has some different views, 
and I respect those, and the gentleman has some great ideas that need 
to be considered in this endeavor.

                              {time}  1930

  I think it is important for the American public to realize that we 
can have differences of opinion, but we do not have to be disagreeable 
about it. Because I do not pretend for a moment that the bill that the 
gentleman from Arizona (Mr. Kolbe) and I put together is the solution, 
but we have been scored to do that which we all agree needs to be done, 
and that is to fix the problem, the unfunded liability of $22 trillion. 
We take care of $19 trillion of that, not a small amount of money in 
this body, but the main thing is to start a dialogue; and that is why I 
appreciate my colleague inviting me to be part of his dialogue tonight, 
and I hope we can get more of this. We seemingly cannot get it done in 
the committees of jurisdiction.
  Mr. SMITH. Mr. Speaker, titles often sell a book and they often sell 
an idea, but they also sell demagoguery. The word ``privatizing'' 
Social Security has not been my colleagues' intention in their bill. It 
has not been the intention in any of the four Social Security bills 
that I have introduced. The American people need to know that there is 
nobody suggesting privatization. There is a safety net in every 
legislation. In fact, in most of the legislation there is a promise of 
at least as much, if not more, of Social Security retirement benefits.
  We just need to look at history, that every time Social Security has 
gotten into a problem, the tendency has been for the administration and 
Congress to increase taxes and/or reduce benefits, and of course, in 
1983 we did both.
  Mr. STENHOLM. Mr. Speaker, there are other solutions to the problem, 
and that is why I appreciate the opportunity to join with my colleague 
tonight in talking about some of these other solutions.
  I think it is awfully important at this stage, and my colleague 
probably ought to do this and I am going to have to leave in a moment, 
but about every 10 or 15 minutes when we start talking about Social 
Security, we are not talking about those who are on it today. We are 
not talking about those about to be on it, i.e., 55 years of age and 
older. They are safe.
  We are talking about our children and grandchildren. That needs to be 
over and over emphasized, and we have got a plan which tonight I will 
not go into all of it. The gentleman is going to talk about his, and I 
happen to agree with most of what he is doing, particularly with 
addressing the problem. It has been so difficult, so seemingly 
impossible, for this body to address it.
  The Blue Dogs, a moment ago, what we said last year is, before we get 
into any new budget, any new tax cuts, any new anything, the first 
thing we should have done was sit down and fix Social Security. The 
gentleman from Michigan would agree with that, but that is not to be. 
That is water under the bridge. That is gone.
  Now we find ourselves here it is 2002. Now, then, we are being told, 
and rightfully so, this being an election year, no one is going to 
address Social Security this year in a meaningful way, i.e., a chance 
to get a bill through the House and the Senate and the President 
signing it. So that means we are postponing it until 2003.
  The next thing we are going to hear is, we cannot do it in 2003 
because the next elections are in 2004. That is why I am so 
disappointed that we did not have an opportunity to show bipartisan 
support for what our President has had

[[Page H896]]

the courage to do in the campaign, and I am so sorry that we have not 
been able to take the Commission on Social Security that made 
recommendations, that we have not had a serious opportunity to discuss 
those recommendations, pluses and minuses, and pursue the legislative 
process of a solution.
  The gentleman from Michigan and I are not controlling that process.
  Mr. SMITH. Mr. Speaker, also, our former President came close, 
several meetings, several efforts. I think both my colleague and I were 
encouraged 5 years ago when we had the White House meetings, when we 
started moving ahead, when there was more talk on Social Security.
  The fact is, the solutions are not easy. There is a little pain in 
all of the solutions simply because of the statistics where the 
demographics mean that there are fewer people paying into the Social 
Security tax and people are living longer. So when we have a program 
that takes current workers' taxes and uses that money to pay for 
current retirees and we have a situation where people are living longer 
to increase the senior population and the number of people working is 
reduced in terms of their portion of the senior population, it becomes 
a situation where insolvency is inevitable, and the solutions are 
tough.
  There are a lot of solutions. We are going to talk about them, but 
tonight I am sort of going to start from scratch of what the background 
and the solutions are. So, again, I congratulate the gentleman from 
Texas (Mr. Stenholm) on his effort, and hopefully we will prevail next 
year.
  Mr. STENHOLM. Mr. Speaker, I thank the gentleman from Michigan for 
sharing his time, and I want to keep on plugging, because he has been a 
valuable resource to this body, to those who bother to stop and listen; 
and some of the areas he will be talking about now are something that 
colleagues on both sides of the aisle, and I am going to do my best to 
make sure that folks on my side listen; and if they are going to 
complain or if they are going to talk negatively about what the 
gentleman is talking about, my answer is, okay, what is the solution?
  At least the gentleman has got a solution, and for that I commend the 
gentleman and thank him for yielding some time to me tonight.
  Mr. SMITH. Mr. Speaker, well, here it is, Social Security is taking a 
big hunk out of the total Federal budget. Twenty percent of the total 
Federal budget goes into Social Security. We match defense, the 
domestic discretionary; it is one of the largest expenditures we have. 
Medicare is smaller than Social Security, but the cost of Medicare is 
growing very rapidly.
  Right now, if we include Medicaid, Medicare and Social Security, it 
represents a little over 7 percent of the total economy of the United 
States, a little over 7 percent of GDP; and see the projection over the 
next 30 years, it is going to double as a percentage of GDP.
  So it eats up that much more of the total finances that are available 
to the Federal Government, and it should be easy to project the fact 
that to accommodate that doubling of cost, of Social Security and 
Medicare and Medicaid, we are going to either have to substantially 
increase taxes or we are going to have to substantially increase 
borrowing. My guess is that we are not going to be able to reduce the 
expenditures of Federal Government to accommodate anywhere near that 
kind of increase in these programs eating up those revenues.
  It is a system stretched to its limits. Seventy-eight million baby 
boomers begin retiring in 2008. Social Security spending exceeds tax 
revenues in 2015 and the Social Security trust fund goes broke in 2037, 
although the crisis is going to arrive much sooner. In 2015 or 2016 
there is going to be less coming in from the Social Security tax than 
is required to pay promised benefits. So we have a trust fund that we 
call a Social Security trust fund, but all that is in that trust fund, 
in those steel boxes is IOUs. I mean, there are no dollars there.
  So how do we come up with the money to pay back Social Security what 
we owe it? Again, it is the same action that would take place if there 
was no Social Security trust fund, because we are going to keep our 
promises, we are going to pay those Social Security benefits, but to do 
it, we have got to either increase taxes or increase borrowing, and 
that is what is going to happen unless we face up to the problem today. 
We use some of the surpluses that are coming into Social Security over 
and above the cost of the program, and we start getting real dollar 
returns on those invested funds.
  I think we need to make it very clear that insolvency is certain. We 
hear people talking about, well, if the economy gets better that will 
solve the Social Security problem. It will not. 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.
  The auto industry and Xerox came before the Social Security task 
force that I chaired. I chaired the bipartisan Social Security task 
force last session, and the medical futurists were suggesting that 
within 20 years anybody that wanted to live to be 100 years old, 
because of the tremendous increase in our medical technology, would 
have that option, to live to be 100 years old. So think what that is 
going to do not only to Social Security but to every pension plan, to 
every personal savings plan, if someone is going to live 15 years 
longer than expected back in 2002.

  We know how much they will pay in, these workers, and we know how 
much they will take out. Payroll taxes will not cover benefits starting 
in 2015, and the shortfalls will add up to $120 trillion between 2015 
and 2075. Let me say that again. The unfunded liability today in 
today's dollars is $9 trillion, but in tomorrow's dollars over that 75-
year period, it is $120 trillion that Congress, and our annual budget 
is $2 trillion, that somehow Congress and the administration are going 
to have to come up with borrowing or increasing taxes to pay promised 
Social Security benefits.
  Let me just comment on the demographics. Our pay as you go retirement 
system will not meet the challenge of demographic change. This chart 
represents the number of workers per Social Security benefit. Back in 
1940 there were thirty-eight people working for every one retiree. So 
thirty-eight people paid in their Social Security tax to cover the 
benefits of one retiree.
  A year and a half ago there were three people working. Now it is just 
slightly less than three, three people working to pay in their taxes to 
cover each one retiree, and by 2025 the projection is that there will 
only be two individuals working, paying in that much more tax per 
individual to cover every retiree.
  So at the same time that there are less workers for seniors, and that 
is because seniors are living longer, and after the baby boomers, there 
was a relative decline in the birth population. So fewer workers trying 
to cover the existence in Social Security of a larger number of 
retirees per worker.
  The red chart simply represents trying to dramatically display the 
future deficits of Social Security. We have a little blip up here. On 
the top left is a little blip of surpluses. That is because in 1983 
when they last changed the Social Security system, they actually made a 
mistake. They calculated taxes that were higher than they needed to pay 
Social Security benefits.
  So what has happened since 1983 is, there has been a surplus, more 
taxes coming in from workers of the United States than were needed to 
pay benefits, and so that was the extra surplus. And so what government 
did, they said, Well, we will just borrow that extra money and spend it 
for other government services and write an IOU out to the Social 
Security trust fund for the last couple of years.
  We came up with this idea; it approaches gimmickry. We called it the 
Social Security lockbox, but it was an effort to try to have some 
discipline within this Chamber and the Senate and the administration to 
at least pay down some of the other debt held by the public instead of 
spending this money for increased programs, which tend to perpetuate 
themselves.
  Anyway, the long-term deficit, again, in today's dollars, $9 
trillion. Over the next 75 years, $120 trillion in addition to the 
amount of dollars and money that is coming in from the Social Security 
tax to pay current promised benefits.

[[Page H897]]

  There is no Social Security account with an individual name on it, 
and as I make speeches back in Jackson and Hillsdale and Adrian and 
Battle Creek and up in Eaton County, Charlotte next to Lansing, most 
people think that somehow there is an account that they are entitled 
to. Not so. The Supreme Court now on two decisions has said that the 
taxes someone pays in are simply a tax and the benefits that they might 
get from Social Security are a benefit passed by Congress and signed by 
the President that can be changed anytime. That is why there is some 
advantage, some merit, to having an account with someone's name on it 
that politicians in Washington cannot mess around with.

                              {time}  1945

  So if you have your private account, and we can mandate how the 
investment is made in that account to make sure that it is a safe 
investment, but it is going to be in that individual worker's name so 
he has possession. So if he dies, he or she dies, before they are 62 or 
65, then it goes into their estate rather than going back into the 
system with maybe a $240 death benefit. These trust fund balances are 
available to finance future benefit payments and other trust fund 
expenditures, but only in a bookkeeping sense.
  Now, read this with me. There are claims on the Treasury that, when 
redeemed, will have to be financed by either raising taxes, borrowing 
from the public, or reducing benefits, or reducing some other 
expenditures. And this is what the Office of Management and Budget said 
a year and a half ago.
  Some have said, well, if the economy gets strong, and we are 
underestimating how strong the economy is going to grow, an expanding 
economy with higher wages will fix the problem of Social Security. Not 
so. Because of the fact that Social Security benefits are directly 
related to your earnings and how much Social Security tax you pay in, 
the more you earn eventually, the higher your Social Security benefits 
are going to be. Social Security benefits are indexed to wage growth. 
And 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 in the short run, but leaves a larger hole to fill later.
  The administration has used these short-term advantages, I think, as 
an excuse to put off Social Security; and now we are in an extremely 
challenging time when we are trying to fight terrorists in our war on 
terror. And I think rightfully so it is reasonable to finance the war 
on terror to the extent necessary to make sure we win; but at the same 
time, we have to look at the long-term challenges. And as we saw in an 
earlier chart, the long-term financial challenges of this country, of 
this Congress, of the Presidency of the United States is Social 
Security and Medicare and Medicaid, all of which are using up more and 
more money, especially not only in the increased cost of medical care 
but as more and more seniors live to be an older age.
  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, and to keep paying promised Social Security 
benefits, the payroll tax will either have to be increased by nearly 50 
percent or benefits will have to be cut by 30 percent.
  There was an article in the Detroit News recently that said, well, 
the Social Security problem is not as bleak as some say because you 
will still get 75 percent of your benefits in 2032. But I say that is 
pretty bleak, especially to the large number of seniors that depend on 
Social Security for 90 percent or more of their total retirement 
income. And to reduce that benefit from $800 to $600 in today's dollars 
is going to be pretty dramatic for those individuals that depend on 
that Social Security check for so much of their retirement existence.
  Social Security was one of the issues that I first dealt with when I 
first came to Congress. I have now introduced four Social Security 
bills. In the next couple of weeks I will introduce the next one. But I 
think an interesting point, as I have written these Social Security 
bills that have been scored by the Social Security actuaries to make 
Social Security solvent, every 2 years, 2-year session, that I have 
introduced a bill, it is that much harder to figure out ways to solve 
the Social Security problem. The longer we put it off, the more drastic 
the solution is going to have to be. And that is because what we are 
doing is not using the current Social Security surplus, the extra 
amount that comes in over and above what we are paying out in benefits; 
we are not using that to help in a transition to get some real return 
on the extra money that is coming in, to get some real return on 
individuals.
  This chart shows the diminishing return of your Social Security 
investment. The real return of Social Security is about, this says less 
than 2 percent, but it is about 1.7 percent for most workers, and shows 
a negative return for some compared to over 7 percent for the market as 
a whole. Now, if you look at the little chart, you see minorities 
actually lose out, and that is because minorities tend to die at an 
earlier age. So a young minority worker can work all of their life and 
die before they reach the age of 62, and that means that they end up 
getting a negative return from the money that they have paid into the 
Social Security System. It helps everybody else, but it does not help 
that individual. And that is one thing that, it seems to me, is 
reasonable for us to correct, and I do that in my Social Security bill.
  The average, as I mentioned, is a 1.7 percent return. But here is a 
marketplace over the last 100 years that has given us a return of 7 
percent. And so if there is a way to increase some of the real return 
on that money, and you can do this in a way that is going to minimize, 
if not do away with, all risk, it is to have indexed stocks and indexed 
bonds and have a system where it is shared. So the return over a 30-
year period is going to be what your benefits and returns are going to 
be based on.

  I am going to be showing you a chart that shows the returns on 30-
year averages, but just now let us go back to how long you are going to 
have to live after you retire to break even with the money that you and 
your employer paid into Social Security. See, it was a good deal back 
in 1940. You worked 2 months, paid in your taxes for 2 months, and it 
only took the first 2 months of retirement to get everything back that 
you put into it. But as we have increased taxes over the years, and as 
we have, as individuals, lived longer, there is less money to spend on 
all individuals. You can see that by 2005 you are going to have to live 
23 years after retirement to break even, and that goes to 26 years by 
2015. So it is not a good investment. Social Security is not a good 
investment.
  And I want to point out that nobody is suggesting doing anything with 
the disability portion of Social Security. So, roughly, the 2.4 percent 
of your taxes that covers disability and survivor benefits, nobody, in 
none of these bills that have been presented, none of this legislation 
is suggesting that we make any changes in that insurance portion of 
Social Security for disability benefits and survivor benefits.
  I think this is an interesting chart. Seventy-eight percent of 
families now pay more in payroll taxes than income taxes. So the Social 
Security tax of 12.4 percent has become the major tax for most American 
workers.
  The six principles of saving Social Security that I have come up 
with: protect current and future beneficiaries; allow freedom of 
choice; preserve the safety net; make Americans better off not worse 
off; and create a fully funded system; and, with 75 percent of the 
people now paying more in the Social Security tax than they do in the 
income tax, let us not again raise taxes, the FICA taxes, for Social 
Security.
  The personal retirement accounts. Number one, they do not come out of 
Social Security. Two, they become part of your Social Security 
benefits. And, three, a worker will own his or her own retirement 
account. What I do with these retirement accounts in my legislation, 
for women, some who might be staying home with the young kids, some who 
might have gone into the job market later, I add the husband's 
eligibility for private investments and the wife's eligibility for 
private investments and divide by two, so that each, husband and wife, 
have the identical amount of dollars going into their retirement 
savings plan, their personal retirement investment savings plan in 
their own name. So in case there is a

[[Page H898]]

divorce, it is already divided. We divide it every year.
  And while I am talking about women, a couple other things that I 
thought were important in restructuring Social Security is taking away 
the penalty that we now put on mothers that stay home with their 
children. So in my legislation I, for a mother who is staying home with 
a child under 3 years old, I allow those years to be figured in the 
calculation of their retirement benefits, assuming that those years had 
the highest earning of any earning year that that mother might have 
had. So it does not penalize the mother that stays home with her young 
kids.
  The other thing I do is I increase the benefits for a surviving 
spouse from the existing 100 percent to 110 percent. And that is to 
encourage more people to stay in their own homes rather than going to a 
very expensive nursing home. The 110 percent helps accommodate that.

  The last blip that I have not mentioned yet is that it is limited to 
safe investments in the personal retirement account. Safe investments 
that will earn more than the 1.9 percent paid by Social Security.
  I was in Europe representing the United States and our Social 
Security plan and talking with a lot of other countries. Many countries 
in the world have now gone from a fixed benefit plan to a fixed 
contribution plan. So they, like almost every State in the United 
States, has made that change to accommodate for what everybody knows is 
going to be a demographic problem, with more seniors and fewer workers. 
We need to make the transition, and we can still have the kind of 
safety net that is going to guarantee that future retirees are going to 
have as much or more benefits than they do now.
  My grandson, who is named Nick Smith, sort of my immortality maybe, 
my grandson was painting on a fence and he had $160 coming to him. I 
said, let us put this in a Roth IRA, because look what the magic of 
compounding interest can do, and I figured this out based on the last 
20 years return on indexed stocks. So I calculated this out and I said, 
okay, now, look, by the age of 64, you are going to have about $70,000 
if you put this all in a Roth IRA right now. He says, gosh, though, 
grandpa, I sort of wanted to save it to buy a car when I turn 16. Well, 
wait a minute, if you wait just another 7 years, until you are 71, then 
it will double again and it will be $140,000. Well, he finally agreed 
that maybe he could put $20 in a Roth IRA.
  But the point I sort of make is that it is hard to convince people 
that saving now can be so valuable in retirement simply because of the 
magic of compound interest. It is so much easier to say, well, I need 
to spend this on these things today. But if everybody in the United 
States could save a little more and put it in a savings investment 
account, then the average income worker could retire as a very wealthy 
retiree simply because of the magic of compound interest.
  So my legislation goes farther than just fixing Social Security. It 
increases and encourages additional savings above and beyond Social 
Security so that today's workers that have a modest income can retire, 
even if they live to be 100 years old, in much more wealth than they 
are having today, if they are willing to sacrifice and save a little 
today.
  The U.S. trails other countries. When I went to Europe, it was 
interesting that in the 18 years since Chile offered PRAs, 95 percent 
of the Chilean workers have created accounts and their average rate of 
return has been 11.3 percent per year. Again, this compares to the 1.7 
percent that the retiree depending on Social Security is going to get.

                              {time}  2000

  Among others, Australia, Britain, Switzerland offer workers a 
personal retirement savings account that is in their name, that the 
politicians cannot mess with.
  Let me say again, every time that we have come up against not having 
enough money to pay Social Security benefits, Congress and the 
administration has either increased taxes and/or reduced benefits. That 
is what we did in 1983 under the Greenspan Commission, we reduced 
benefits and substantially increased taxes.
  The British workers chose PRAs with 10 percent returns. You cannot 
blame them. Two out of three British workers enrolled in what they call 
the ``second tier social security system'' chose to enroll in the 
personal retirement accounts. The British workers have enjoyed a 10 
percent return on their pension investments 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.
  Here it is. Mr. Speaker, this chart is a rolling 30-year average of 
the returns in stocks between 1901 and, I take it, up to 2001. A 30-
year return. We see some downs on this. But the average is 6.7 percent.
  Some people say, ``Don't put it in any kind of stocks because it is 
too risky.'' Let me just suggest that if this country does not continue 
to grow, then whether it is the current system with no changes or 
whether it is any system that depends on revenues coming in and the 
economy of the United States, the money is not going to be there. We 
need to look at the kind of decisions that are going to stimulate 
economic expansion.
  I am getting off on a footnote here, but I just want to say, we need 
to continue our investments in basic research, we need to continue our 
priorities like this administration has to improve education, because 
that human capital investment and that capital investment is what is 
the strength of economic growth in this country in the past, and it has 
got to be that way in the future.
  Here again, we see ups and downs, even over the last year on the far-
down blip, but on a rolling 30-year average, not much of a downer in 
terms of average returns on investment.
  Okay. Here is the return. Here is what I was talking about earlier, 
when we have problems, we increase taxes. If we do not deal with this 
problem, Mr. Speaker, the temptation is going to be to yet again 
increase taxes on workers.
  In 1940, the rate was 2 percent. This program started in 1934, by the 
way. By 1940, the rate got up to 2 percent on the first $3,000. That is 
$60 a year maximum. By 1960, 6 percent, 6 percent on the first $4,800. 
That was a maximum per year of $288. In 1980, it went to 10.16. In 
2000, it is up to 12.4 percent, and we are now at 12.4 percent of the 
first $86,000 of payroll.
  We are increasing the base every year. If we put it off, the tax will 
again go up.
  Here are, in summary, some provisions that I thought was sort of the 
basis of the legislation that I have introduced. First of all, it 
allows workers to only invest a portion of their Social Security taxes. 
I limit the investments to indexed stocks, indexed bonds. Some people 
say, well, this is going to be a bankroll for Wall Street. The cost of 
administering an indexed fund is approximately .004 percent, so our 
Thrift Savings account that so many Members of Congress are familiar 
with, you would invest in indexed funds that have very low 
administrative costs.
  PRSAs, personal retirement savings account investments, in my 
legislation, start at 2.5 percent out of the 12.4 percent. Then it 
gradually increases over the next 40 years to get up to 8 percent that 
would be in your private investment account. The PRSAs are limited to a 
variety of safe investments. I think that is important.
  But what I think is even more important is that the individual worker 
owns that account, controls that account; nobody can take that account 
away from him because it is in his or her name. If he or she happens to 
die before they start collecting Social Security benefits, then it goes 
into their estate and their heirs rather than, like our current Social 
Security system, simply going back into the Social Security system.
  It uses surpluses to finance the PRSAs. Right now we are still in 
this time period up to 2015 or 2016 when there are surpluses coming 
into Social Security. There is no increase in taxes or government 
borrowing in my bill.
  PRSA account withdrawals may begin at 59\1/2\, while the eligibility 
age for fixed benefits is indexed to life expectancy. So here again, if 
you have the kind of savings that will pay for an annuity to give you 
the same benefits as Social Security would, then you can retire as 
early as 59\1/2\.
  What we have also done in our legislation is say that if you do not 
retire at

[[Page H899]]

65 but you decide to keep working and not start taking those Social 
Security benefits, your Social Security benefits will increase by 8 
percent a year for every year you delay taking Social Security benefits 
after 65. A lot of us are very healthy and want to keep working a few 
more years. If you wait 4 years and increase your benefits by 25 
percent, if you are optimistic about your life span, then it becomes a 
good deal.

  But the point is, if you retire earlier, then actuarially you are 
going to get less, but still have the option of retiring earlier. If 
you wait to retire, then you are going to actuarially have more 
benefits, but it is going to not cost anybody anything simply because, 
on the average, it is going to be actuarially sound.
  PRSA account withdrawals may begin at 59\1/2\, as I mentioned. There 
are tax incentives for workers to invest an additional $2,000 each year 
so that you have the same tax advantages as you would in a Roth savings 
account, or an IRA, to encourage that additional investment, especially 
for low-income workers where government would add to that investment in 
those retirement accounts.
  It gradually slows down benefit increases for high-income retirees by 
changing benefit indexation from wage growth to inflation. Right now, 
we have a system where future benefits are indexed to wage growth which 
goes up much faster than the CPI, than inflation. So this changes that 
index.
  Generally what I do to pay for this system is, I slow down the 
increase in benefits for high-income workers and increase them for low-
income workers. But that is what helps pay for the transition into some 
private ownership accounts. We divide the PRSAs, like I mentioned, 
between couples. Widow's or widower's benefits increase to 110 percent. 
It repeals the Social Security earnings test, it is scored by the 
Social Security Administration to keep Social Security solvent, and it 
maintains the trust fund reserves. Some people have said, we need the 
trust fund reserves there, so I keep the reserves there as an 
additional safety net.
  Right now, the average retiree gets about 30 percent of their last 
year's earnings. The current retiree gets, on the average, 30 percent 
of their last year's earnings. What we are suggesting is that we have 
the kind of guarantee that if an individual that is 20 years old today 
ends up getting, whatever, 50 percent of their last year's earnings, or 
as we have experienced in some counties down in Texas that decided to 
have private investments rather than the Social Security, they are 
receiving three and four and five times as much as Social Security 
would pay.
  So if we say to the 55-year-old worker that, look, you go into the 
system, he comes up with funds in his personal savings retirement 
account that would accommodate, say, 20 percent of what he would have 
of his last year's earnings, then Social Security and government would 
add the additional 17 percent to guarantee what he would have gotten 
under the old Social Security system. We can have the kind of safety 
net, because over the long term we can get a lot better return than the 
1.7 percent of the average retiree.
  Again, in closing, Mr. Speaker, let me just suggest to all of my 
colleagues, to everyone that might be listening to this presentation, 
that the longer we put off solving Social Security, the more drastic 
the solution is going to be. I think we cannot afford the imposition on 
current workers or we cannot afford to put the burden on future wage 
earners by not facing up and dealing with the Social Security problem.

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