[Congressional Record Volume 149, Number 41 (Thursday, March 13, 2003)]
[House]
[Pages H1885-H1888]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 FINANCIAL CHALLENGES FACING THE NATION

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 7, 2003, the gentleman from Michigan (Mr. Smith) is recognized 
for 60 minutes as the designee of the majority leader.
  Mr. SMITH of Michigan. Madam Speaker, with this early session today 
it seemed like an appropriate time to talk about what I think are maybe 
three of the greatest problems that we are facing in the United States 
Congress in America outside of our economic security and our physical 
security with the wars going on in Iraq, with the challenge from the 
terrorists around the world. However, the financial problems that we 
are facing in Congress are also very serious, and I think we must 
reverse the rapid descent that we have been taking into extra deficits 
and overspending. So today I will talk about three areas: One, 
spending; two, the resulting debt; and, three, some of the financial 
challenges that face this Nation in the future.
  The first chart I have is the a chart representing the last 10 years 
of spending; and discretionary spending has increased an average of 6.3 
percent, 6.3 percent each year since 1996, and 7.7 percent each year 
since 1999. So it is somewhat flat. It starts going up in 1996 and then 
it really takes off from 1998, 1999 averaging 7.7 percent a year. That 
is two, three, depending on the year, sometimes almost four times the 
rate of inflation. So you can imagine if you project that on in this 
kind of growths of costs, government is going to be eating up more of 
our income, more of our gross domestic product in the years ahead.

                              {time}  1645

  Why is this? How can we control ourselves from the overzealousness 
and the attractiveness to spend more money? Of course, politicians in 
this Chamber get elected every 2 years. The politicians in the other 
Chamber get elected every 6 years, and the tendency has been when a 
Member of Congress takes home more pork barrel projects, when they are 
doing something to solve some of the problems that we face in this 
country, then they get on television. They get on the front page of the 
paper. They become popular, especially with those people that need 
those services, and there is a greater propensity that they are going 
to get reelected.
  So the tendency has been to spend more and more money, and we have 
changed our income tax system so that most of the people in the United 
States do not pay much of any income tax. It is the top 14 percent of 
taxpayers that pay something like 90 percent of the total income tax, 
and the bottom 50 percent of income taxpayers only pay about 1 percent 
of the income tax. So it is easy to understand that that bottom 50 
percent is not outraged by increased taxes and increased spending and 
increased borrowing, and this is the next issue I wanted to talk about 
is borrowing.
  Three years ago, in the year 2000, we had a budget surplus of $236 
billion. This year we are approaching a $500 billion deficit. So over 
$700 billion changed from surplus to deficit in a total Federal 
spending budget that we are looking at this year of $2.1 to $2.2 
trillion. Huge points, and again, that is because of the 
overzealousness to spend.
  Let us look at what has happened as a result of that spending, and I 
think it is good to remind ourselves of the definitions. When we say 
``deficit'' that means a year in which we are spending more money than 
the Federal Government has in revenues coming into the Federal 
Government, and ``debt'' is the accumulation of that annual 
overspending. So what does government do? We borrow more money.
  As a safeguard to try to hold the line on borrowing, what we did 
many, many years ago is said, look, we cannot borrow, in fact, the 
Constitution prescribes it, we cannot borrow any extra indebtedness for 
this country unless it is a law passed by the Senate, the House and 
signed by the President, to try to put some restraints on the 
temptation to simply borrow more and more money and spend more and more 
of that money, and of course, this chart is an explanation, as best as 
we could portray it, in a blue line, a green line and a purple line, if 
you will, on the gross Federal debt and its components.
  As we look at the bottom purple line, this is the debt held by 
government accounts. It is the money that we ask workers in this 
country to pay into the FICA tax, into the Social Security tax, 
designed in 1934, to be a forced saving so that while we are working, 
some of that money is taken out. FDR, Franklin Delano Roosevelt, said 
instead of having to go over the hill to the poor house, we are going 
to have mandatory savings during those years when a person is working, 
and then when they retire they will have more security, more Social 
Security. They will not have to go over the hill to the poor house.
  So we came up with a Social Security system, and when we started, it 
was a situation where current workers paid in their taxes to pay for 
the benefit of current retirees. That is the same today.
  Also, the extra money that is paid in by all Federal workers for 
their retirement programs, the money for the pensions of the military, 
our armed service members who pay in part of their wages for their 
retirement, that is all accounts held by the government, and what we 
assume in this Chamber, in the Senate and the White House, is that it 
is okay simply to write out an IOU and spend that money for other 
government services, but it technically is part of the debt, and as we 
see over the years, this debt held by government services continues to 
go up, at

[[Page H1886]]

least past into the future, as far as we can see almost.
  The green line in the middle is the debt held by the public, the 
Treasury auctions that we have, the so-called Wall Street debt, the 
debt that is held by retirement funds, insurance companies, banks, 
anybody that wants to buy those Treasury bills. That is the debt that 
is held by the public.
  We saw a period in 2001 and 2002 and 1999 where we were having a 
little surplus in terms of paying down some of that debt held by the 
public, and so, to me, I think it was a little bit misleading, maybe a 
little bit of hoodwinking in terms of telling people we were paying 
down the Federal debt at a time when actually the total debt of the 
country continued to go up. The total debt never went down during our 
brag sessions of having a lock box, that we are going to take and pay 
down the public debt of this country.
  Yet what was happening is we were to pay down that debt, we were 
taking extra money coming in from Social Security and the other trust 
funds and using that money to pay down some of the public debt. So, 
therefore, as my colleagues can see and as we have tried to portray by 
this chart, the debt has never really decreased.
  Why is this bad policy? Why is it unfair to our kids and our 
grandkids and future generations to keep piling up this debt?
  If we will, sort of pretending that our debt and our problems today 
are greater than maybe the needs of our kids and our grandkids, 
probably not so. They are going to have to somehow come up with the 
extra tax effort to pay off this debt but absolutely to pay the cost of 
servicing this debt.
  Right now we have got a downturn and a sluggish economy, and so, 
therefore, there are less revenues coming in. The demand for extra 
money is not out there in the private sector, and so the effect of 
extra government borrowing does not hurt the economy so much, but when 
it is going to start to hurt is when we have this economic recovery. 
When individuals say it is time, I want to buy a new car, what is the 
interest rate; it is time I want to buy my house and my home for my 
family, how much is it going to cost me; and a business that decides to 
employ more and expand and buy the equipment and the facilities they 
need for expansion and business, and then they find out that who is at 
that marketplace, buying up available money, is the Federal Government.

  The Department of Treasury has auctions every week, and based on the 
total indebtedness and how much extra we are spending over and above 
what is being brought into the Federal Government, it is a situation 
where government says, well, look, whatever it costs we are going to 
have our money. If we have to bid up the interest rate to make sure 
that we get the money we need, we are going to do that, and of course 
that results in the potential for higher interest rates and that is 
what is going to happen.
  When the economy recovers, interest rates are going to go up. 
Interest rates right now are a little over 3 percent. So government can 
borrow money at about 3 percent, and yet even with that low interest 
rate, the servicing that debt, the interest that government pays on 
that borrowing represents 11.4 percent of our total Federal spending 
budget.
  What would happen if we hit interest rates that were in existence in 
the late seventies and early eighties when we saw interest rates go as 
high as 17 percent, sometimes higher than 17 percent? Then that 11.4 
percent becomes five times greater, and 60 percent of our budget would 
be used paying interest, and that is just the situation with the 
current debt today.
  What if we project ourselves to the debt that is going to happen if 
we are not able to have the intestinal fortitude, if you will the guts, 
to stand up and say no, we are going to slow down spending, we are 
going to prioritize some of the Federal spending, government cannot be 
responsible to all of the problems of the country and we go back to the 
basics of our United States Constitution?
  When Republicans took the majority in this Chamber in 1994 and 
starting in 1995, Newt Gingrich, the then Speaker of the House, asked 
me if I would be chairman of the Debt Limit Task Force, and so we got 
what I considered some of the really good thinkers in terms of trying 
to come together to analyze how do we start having a balanced budget, 
how do we start living within our means, how do we start convincing 
Members of Congress and the country that government cannot solve all 
the problems and that it is unconscionable just to keep spending more 
and more money, and of course, politically it is not wise to increase 
taxes to cover those expenditures, because people reach in and they 
feel their billfold and they feel the money going out of that billfold 
to pay the income tax but not so with borrowing. So the tendency has 
been to increase more and more borrowing.
  What if interest rates, and they will, what if interest rates simply 
are forced up by 2 percent because of the extra demand that government 
has for borrowing? A person goes out and buys a $28,000 car and they 
amortize it over 5 years, pay it off in 5 years, it is going to cost 
them $3,000 more to buy that vehicle because government has pushed up 
interest rates in the marketplace.
  What if they want a home, what if they are going to go out and buy an 
$80,000 to $100,000 home, amortized, let us say, over 25 years? Then 
they are going to end up paying $13- or $14,000 more for that home 
because government is in the marketplace bidding for available funds 
and driving up the bid on what that interest rate is going to be. So it 
is going to affect each one of us individually eventually if we are not 
able to hold the line on spending.
  Our debt today amounts to about $24,000 per individual in this 
country. The total debt is $6.4 trillion.
  Let me tell my colleagues another safeguard that our task force on 
holding the line on debt did. We said that there was a rule in this 
House, it was called the Gephardt rule, and the Gephardt rule stated in 
the rules of this Chamber that every time we passed a budget, if that 
budget spent more money than what was coming in in revenues, then 
automatically, without another vote, the debt limit of this country 
would be raised in legislation that would automatically be passed and 
sent on to the Senate. Why was that? That was so this Chamber was not 
embarrassed by having to take a vote and a debate on should we increase 
the debt for our kids and our grandkids.
  I am a farmer from Michigan, and it has been our goal to pay off the 
mortgage, to give our kids a little better chance, but that is not what 
we are doing in this Chamber. That is not what we are doing across the 
hall at the Senate. It is not what we are doing at the White House. We 
are saying our problems must be so great that it justifies us making 
the wages and earnings of our kids and our grandkids and our great-
grandkids to pay off that debt. That is sort of the spending part of 
the problem on debt.
  Another task force that I have been chairing is a bipartisan task 
force made up of Republicans that sit on this side of the aisle, 
Democrats that sit on that side. So it was a task force on Social 
Security, and after we studied the problem and challenge of Social 
Security, we pretty much all agreed, Democrats and Republicans, that 
something has to be done because Social Security is going broke, and 
just let me review a couple of charts that I have on why Social 
Security is going to grow.
  The coming Social Security crisis, and it is coming very quickly, our 
pay-as-you-go retirement system will not meet the challenge of 
demographic change. Pay-as-you-go is back to where it was. It is the 
same as when it started in 1934, existing workers pay in their Social 
Security tax. That money immediately goes out to current or existing 
retirees.

                              {time}  1700

  So there is no savings account. Nothing is being saved up for your 
retirement. It is simply a situation where whenever there were not 
enough workers and enough revenue coming in for the Social Security to 
cover promised benefits, then what did government do? And I am sure you 
can guess what government did. They either raised the tax, Social 
Security tax, and/or they cut benefits. And most often, throughout the 
years since 1934, they have done both, raised taxes and cut benefits.
  That is why when we looked at the chart on how much debt held by the 
government accounts kept going up, it is because in 1983, on Social 
Security, the Greenspan Commission raised taxes

[[Page H1887]]

so high that ever since that law was enacted, there has been more money 
coming in to Social Security than was needed to pay out Social Security 
benefits. And like I said, government said, this is a good deal. We are 
going to take this money, write an IOU, and we are going to use the 
Social Security money to pay for other government programs.
  That is why some of us said, look, we need something. We need private 
accounts. We need some way to get it out of the hands of spenders in 
Congress that would like to take that extra money and instead of saving 
it, somehow investing it. Every year, Congress has simply spent that 
money.
  So what is in the Social Security trust fund? It is a nice name, but 
it is a misnomer because there is no real trust fund. There is no money 
there. So young people are at risk of trying to figure out ways on how 
they are going to do maybe without Social Security, or with much less 
Social Security; but more importantly, during their working life, they 
are going to probably be asked to pay more towards current benefits of 
retirees.
  Look at this chart a minute with me. Demographics is the word. That 
is the problem. When we started this pay-as-you-go program, it worked 
very well. The working population was growing in relation to the number 
of retirees. In fact, back when we started the program, there were 36 
workers working, paying in their taxes, for every one retiree. By 1940, 
it got down to 24 workers working, paying in their taxes, for every 
retiree. By the year 2000, three workers. Three workers paying in their 
taxes for every retiree. So their taxes, of course, had to go up. And 
what the actuaries at the Social Security Administration are predicting 
is that by 2025 there are only going to be two workers for every one 
retiree in this country.
  And why is that? That is the demographics. The baby boomers. The 
increase in the birthrate has always been sufficient to keep an 
increased number of workers in relation to retirees. But now, after the 
baby boomers, those born after World War II, and the big increase in 
workers in this country, we are seeing a reduced birthrate; and at the 
same time we are seeing older people living longer. So where the 
average age of death when we started this program was 62 years old, 
which meant most people never got to 65 and collected Social Security 
benefits, now the average age of death is 86 years old, and it is going 
up.
  Let me conclude by pointing out what we know about Social Security. 
Insolvency is certain. We know how many people there are, and we know 
when they are going to retire. We know that people will live longer in 
retirement. We know how much they will pay in and how much they will 
take out, and we know the results. The fact is payroll taxes will not 
cover benefits starting in 2015 and that the shortfalls will add up to, 
and listen to this, $120 trillion between 2015 and 2075. Our annual 
budget is only $2.1 trillion; but over those years, in excess of the 
tax money from Social Security coming in, we are going to need an 
additional $120 trillion.
  That is why it is so important that we deal with this; that we step 
up to the plate; that we deal with this problem now instead of putting 
it off. Because we have a surplus now coming in from Social Security. 
If we can use that surplus, it is going to help.
  The bipartisan task force on Social Security came to the conclusion 
that there has to be a better investment for that extra Social Security 
revenue coming in to the Federal Government. Private accounts are good, 
for a twofold reason. One, you take it out of the hands and you get it 
off the table in terms of having it available to be spent by Congress. 
So it is an assurance that that money is in the name of the American 
worker and they can depend on it. If they happen to die before age 65, 
then it goes into their estate.
  Now, some have argued, well, we cannot let the individual decide how 
to invest that money. I say if it is a compromise, fine, let us do it 
the same as the government's Thrift Savings Plan, where there is a 
government manager with indexed funds and that you have the choice of 
some of those safe index funds and you invest in that variety of funds 
as you might choose. But, still, it is government saying these are the 
safe funds where you are going to be least likely to lose any of that 
money. And so somehow it is a good idea.
  Because let me tell you, the Supreme Court, on two occasions now, has 
said that there is no entitlement to Social Security money. I mean, if 
you work all your life, you pay in all those Social Security taxes, the 
Supreme Court, on a couple of cases, has said, look, Social Security 
tax, the FICA tax, is simply a tax and your entitlement to get benefits 
is simply legislation that has been passed by Congress and signed by 
the President.
  In conclusion, let me say that the biggest risk is doing nothing at 
all; to do nothing to set aside the Social Security trust fund money 
and to not use it. And the lockbox that we heard about 3 years ago was 
a farce. It did not do anything to save Social Security. It was just 
sort of rhetoric that became politically popular. That money really 
needs to be invested in some fashion, in such a way to make sure that 
it is not available to the rest of government to spend as they might 
choose in other areas.
  Social Security has a total unfunded liability of over $9 trillion. 
Now, the $9 trillion is what we need to come up with today if we are 
going to keep Social Security solvent. The $120 trillion that I 
mentioned is future-years money with inflation, et cetera. So between 
the years 2015 and 2075 we are going to need that extra $120 trillion 
over and above the Social Security tax that is coming in from payroll.
  And I need to mention that right now 75 percent of American workers 
pay more in the FICA tax, the payroll tax, than they do in the income 
tax. And it would be, I think, extremely unfair to increase that tax 
again. Over the years, we have done it dozens of times. It started out 
at 1.5 percent tax on your income, and that included the employer's 
share; and now it is up to 12.4 percent.
  The Social Security trust funds contain nothing but IOUs. So if we do 
nothing, somehow government is going to have to raise taxes someplace 
or increase borrowing or cut down on other government expenses to 
accommodate what we promised in Social Security. 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. Too much. It would be bad. It would be terrible. With so many 
seniors that depend on Social Security for over 90 percent of their 
total income in their old age, it would be inconceivable to make those 
kinds of cuts.
  So I ask my colleagues, Madam Speaker, to stand up to this great 
challenge. Even in the midst of the tremendous challenges that we have 
with the terrorists, the challenge of what we do with Saddam Hussein in 
Iraq, we have to stand up and make some hard decisions to make sure 
that we save Social Security and we do not keep putting it off until it 
becomes a crisis. And that crisis is rapidly approaching, because 
sometime between the year 2015 and 2017 there is not going to be enough 
money coming in from the Social Security tax to pay benefits.
  So back to my three areas that I thought were very important. One is 
spending. We cannot continue to spend. And there will be a lot of 
criticism on this budget that came out, because we are cutting back on 
spending. For the first time since I have been here, and I came in in 
1993, the budget resolution that we are going to be looking at over the 
next couple of weeks actually says in the discretionary part of 
spending, which represents less than half of the total spending, but in 
some discretionary spending, in some entitlement spending we are going 
to have to cut back because we want to hold the total spending of this 
Congress down.
  And you know what I think? I think even a lot of grandpas and 
grandmas, if they knew that it just meant extra borrowing to 
accommodate some of their needs, even to the extent of prescription 
drugs, they would say, look, if it is going to be borrowing that my 
grandkids have to pay back, hold off a little while. Try to hold the 
line on spending, because that is going to result in holding the line 
on the total debt that we are passing on to our grandkids.
  Mr. BOYD. Madam Speaker, will the gentleman yield?
  Mr. SMITH of Michigan. I yield to the gentleman from Florida.
  Mr. BOYD. Madam Speaker, I thank the gentleman for yielding. I have 
been

[[Page H1888]]

watching from my office, and I came to the floor to tell him that I 
agree with everything he has said. And as a matter of fact, I and some 
others have control of the second hour, but I know the gentleman has 
some time left so I thought maybe before they get here he and I could 
talk.
  Mr. SMITH of Michigan. Let us solve the Social Security problem. Let 
us solve the spending problem.
  Mr. BOYD. I hope we can do that. Because the Social Security and the 
spending problems are the major problems that face our children and our 
grandchildren. We are hanging an albatross around their necks.
  But I wanted to say to the gentleman from Michigan how pleased I was 
to hear the points that he has made. I did not realize he was a farmer 
from Michigan. I happen to be a farmer from Florida, as the gentleman 
may know; and I was very interested to hear the gentleman talk about 
the fact that as a farmer he knows that at the end of the day his 
revenues have to match his expenditures or he does not stay in 
business. I think all of the farmers around the country know that, and 
all of our small business people and even all of our constituents know 
that.
  At the end of the day they have to have enough revenue to match their 
expenditures. And if they do not do that, they are bankrupt.
  Mr. SMITH of Michigan. Reclaiming my time for just a moment, before 
the gentleman says it, I say if we cannot hold the line on spending, 
then we should not have a tax cut. And I yield to the gentleman.
  Mr. BOYD. And I thank the gentleman for yielding. I could not agree 
with him more. I think that is why the gentleman will see, when the 
Blue Dogs, who are going to be here in the next hour to talk to the 
Nation, that the gentleman will find that our plan is to reduce 
spending too and to hold the line and defer the tax cuts until we get a 
handle on this thing.
  But I just wanted to say that our constituents understand that if 
they cannot hold their spending down to a level that matches their 
revenue, that they are bankrupt. And they go to a court and they ask 
the court for relief. And the court will say, well, do you have a 
reorganization plan? And if they do not have a reorganization plan, the 
judge will require them to sell their house and their car and that new 
piece of property they bought, their stocks and so forth. And I think 
that is the situation we find ourselves in.
  Mr. SMITH of Michigan. Madam Speaker, what I am a little nervous 
about on this reorganization plan that government might have is what 
some might call monetizing the debt, just printing more money, causing 
inflation, so it is easier to pay back. That would be terrible.
  Mr. BOYD. That would be. That would be terrible. We have to figure 
out how to discipline ourselves, to quench our thirst for having 
programs that we are not willing to pay for in our generation.
  So I just want to commend the gentleman for his coming to the floor 
on his own, by himself, and saying what he has said. I think there is a 
lot of opportunity here for us to work together, and I hope that we can 
to solve this long-term fiscal problem.
  Mr. SMITH of Michigan. Well, Madam Speaker, the rumor is the 
gentleman might be going to the Senate before we get this worked out. I 
do not know if he wants to tell the 5 million listeners that we have 
tonight about that.
  Mr. BOYD. Well, wherever we are, we need to work on it together.
  Mr. SMITH of Michigan. Exactly right.

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