Congressional Record, Volume 149 Issue 119 (Wednesday, September 3, 2003)

[Congressional Record Volume 149, Number 119 (Wednesday, September 3, 2003)]
[House]
[Pages H7822-H7826]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

SOCIAL SECURITY

The SPEAKER pro tempore (Mr. Carter). 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. Mr. Speaker, Social Security. I am
disappointed that there are only about 22 people that have ever
sponsored legislation to help solve the Social Security problem,
probably one of the greater challenges that we have faced in this
country as far as financial.
Certainly I yield to the gentleman from Hawaii (Mr. Abercrombie), my
friend.
Mr. ABERCROMBIE. Mr. Speaker, I just want to say, and I want this on
the Record, he is the man. He is the man on this. He and I have had
these discussions in the past; and if there is anybody who understands
the issue, anybody who has been more devoted on this issue, I do not
know who it is. I have enormous respect for him not only for the depth
of research that he has done on it but the passion he brings to the
discussion. And it is something, in the context especially of the
tragic circumstances we were just outlining, that definitely needs to
be put forward because the financial stability of this country is at
stake; and if there is anybody who is a leader in trying to confront
that issue in a positive way, it is him.
Mr. SMITH of Michigan. Mr. Speaker, the gentleman from Hawaii and I
discussed, maybe it was 8 years ago, the problems of Social Security
and the problems that we were pretending somehow that taking all the
Social Security surpluses and spending them for other programs was not
being something considered in this body or in the White House. The
challenges of Social Security are real, and as short a time ago as 5
years to 6 years, it was considered very unpopular to discuss any
changes in the Social Security system.
Certainly the fact that we have an aging population and a slowing
down of the birth rate, in fact, many countries of the world, and the
United States is approaching that situation, where we are going even
below the zero sum growth. If a mother has an average of something like
2.2 children, then on average it is going to replace the mother and the
father. But many countries of Europe, most countries of Europe, and now
the United States, are approaching a situation where we are not
reproducing a workforce that ultimately is going to have to pay Social
Security benefits, and that is because we have a Social Security system
that is referred to as ``pay as you go.'' That means we tax the
existing workers of this country and their taxes immediately are sent
out in benefits to recipients.
And to demonstrate how much Social Security has grown as far as a
percentage of the total budget, I have drawn this pie chart; and that
shows that Social Security is now the largest piece of pie, the largest
portion of total Federal spending, representing 22 percent of total
Federal spending. And defense, even with the increased challenges that
we are now facing in Iraq and Afghanistan, Social Security is still a
much higher cost than defense. And of course we see other entitlements.
All other entitlement programs only represent 14 percent, but we should
not overlook Medicare and Medicaid. Medicare it allows at 11 percent;
but if prescription drugs are added to that program, the estimates are
that the cost of Social Security and Medicaid will soon even be greater
than Social Security.
So the question is what do we do about it? How do we come up with
money? What do we do in an aging society? An aging society does not
mean that each one of us is growing older, which is true, but rather
that the elderly population is increasing more rapidly than the
population as a whole. The second is that Social Security systems which
provide most of the elderly people's financial support are not
sustainable as they are presently structured. All we have seen in some
other countries, what we have seen in most States of the United States,
is moving from a fixed benefit program to a fixed contribution program.
There are three goals that I think we need to pursue in terms of
making any changes in Social Security. Number one, that current
retirees do not have a reduced benefit program. Number two, is that
future retirees, our young workers today, can expect even a better
retirement in terms of guaranteed money coming in during their
retirement years than exist today for the current population. The
number three requirement is that it should be a program that does not
jeopardize our economy but encourages economic growth.
The next chart represents what has been happening in the Social
Security. This past Friday the Congressional Budget Office came out
with their new estimates of the economy and projections for our deficit
spending in this country. Their projection was for this fiscal year,
2003, we would be having deficit spending, spending more than we are
taking in, of $562 billion. 562 billion includes all of the surplus
money that is coming into the Social Security trust fund. Next year,
they are projecting that we are going to have deficits, spending more
than we are taking in, of $644 billion. And I just say in relation to
Social Security, we cannot continue to expand the spending of the
Federal Government and at the same time not deal with the unfunded
liability of Social Security, the

[[Page H7823]]

unfundability of our other programs, Medicare, Medicaid, the promises
that we have made to military retirees, the promises that we have made
to civil servants for their retirement.
This chart shows the projections of where we are going in deficits,
and deficits are the annual overspending. Debt of this country is the
sum or the accumulation of that annual overspending to how much this
country has gone in debt. We have a law in this country that says we
cannot increase how much the government goes into debt unless we have a
law that ups that amount and it is passed by the U.S. House of
Representatives, it is passed by the Senate, and it is signed by the
President. We have been doing that on a regular basis, and now we sort
of hide it into the inner chapters of some budget resolution that
automatically increases how much we are allowed to go in debt.
But, Mr. Speaker, nobody should misunderstand what deficit spending
and debt does in terms of the obligation to our children and our
children's children, and deficit spending and debt are the promises of
tax increases in the future. Just let me say, to pretend that our
problems today are such that it justifies taxing younger workers and
kids that are not even born, pretending that maybe their problems are
going to be less than what we have today is not only unfair, it is
unconscionable. This simply says that gross Federal debt by 2013 is
going to be approaching $10 trillion. Today it is $6.8 trillion, rising
very rapidly at the rate of $562 billion this year and another $644
billion next year.
This is sort of a red and blue display of what is happening in Social
Security. The short very small bluish-purple area is surpluses that are
coming in from Social Security; and we have surpluses coming in from
Social Security because in the past history of Social Security, since
it started in 1935, has been every time we are shy on money to pay out
promised benefits or we increase promised benefits because it is
politically popular, we raise taxes; and in 1983, under the Greenspan
Commission, we dramatically increased taxes and reduced benefits. And
so we have a short-term surplus that is going to be coming in and
available. As we see, it is diminishing until about 2017, and then by
2018 we dramatically go into the red, and the red means that there are
not enough tax revenues coming in from our payroll taxes, taxing
workers in this country to pay promised benefits to retirees.
The coming Social Security crisis. Our pay-as-you-go retirement
system will not meet the challenge of demographic change, and this
represents workers paying into the system for each one retiree. And of
course as we age, as we are living longer, and the wealthier nations do
live longer, the more impoverished nations die at an early age, and
actually those developing countries actually have a higher birth rate.
So there is a greater replacement. But in wealthy nations like the
United States, like most of Europe, they are having a birth rate or a
replacement that means that there is going to be a decline in the birth
rate and an increase in the number of years that people live and
therefore it is going to take more workers working, paying into the
system to accommodate every one retiree.
So we go from 50 workers in 1940 working, paying in their taxes for
every one retiree. By the year 2000, it is three workers. The estimate
is by 2025, there are going to be two workers for every individual over
65 years old. So a greater obligation. So what we have done in the past
is continue to reduce benefits or increase wages. And as we started out
with what I think should be the goals, we should not reduce the
benefits to current recipients of Social Security. Insolvency is
certain. I mean, we are not guessing. 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. Payroll taxes will not cover benefits
starting in 2017, and the shortfalls will add up to $120 trillion
between 2017 and 2075. Between 2017 and 2075, we are going to be short
$120 trillion to pay benefits. $120 trillion is going to be needed over
and above what comes in in Social Security taxes.

{time} 2115

Now, just to put that in comparison, our annual budget is a little
over $2.2 trillion, a huge financial challenge for this country and
this Congress. Yet I am so disappointed that we have known that this
problem existed since 1994, very accurately in our projections from the
actuaries at the Social Security Administration, and yet in my count
there are less than 22 Members of Congress in both the House and the
Senate that have ever signed on to a bill that can keep Social Security
solvent. It should disturb us all that we have been unwilling to face
up to probably the greatest challenge that we have, and I think all of
us agree that Social Security is a program that has served us well and
served so many seniors in their retiring years.
In most developed countries they are dealing with similar challenges
for an aging population. Take Japan or Germany or France or Italy. In
France, the payroll tax is 51 percent. Can you imagine? Out of every
dollar you make as a worker, now you are taxed 51 cents on that payroll
dollar in France. Germany is approaching that amount. A little over 40
percent tax in Germany to accommodate their aging population.
What this does, of course, it puts businesses at a competitive
disadvantage. If businesses have to in effect pay this Social Security
tax or in effect pay less wages to the workers because they have got to
come up with the Social Security tax or the senior retirement tax that
is going to accommodate seniors, then it makes those particular
companies in those particular countries less competitive.
So my plea is, let us not allow this to happen in the United States.
Let us start moving to a system that is going to protect current
retirees, that is going to make existing young workers even better off
than their fathers and grandfathers. It is going to make sure that it
strengthens our economy in the United States and it does not weaken it.
This is another example of what a bad investment Social Security is,
because this chart represents how many years you are going to have to
live after retirement, assuming you retire at 65, how many years you
have to live after retirement to break even on the money you and your
employer have sent in to the Social Security system. It was not bad in
the early years, when we were first getting started, but by 1995 you
had to live 16 years after retirement. By 2005, it is 23 years. Then by
2015 it is projected you have to live 26 years after retirement is
projected. That is just to break even on the investment.
So is there a better way? My suggestion is there is a better way.
Some people have suggested that if government would just keep its
fingers out of the pot of the Social Security trust fund, everything
would be okay.
We should keep our fingers out of the pot of the Social Security
trust fund, and that should be invested to make sure Social Security
stays solvent instead of Congress and the President spending all of the
surpluses. Of course, that is what we have been doing for the last
several years, is taking all the Social Security surplus and spending
it on other government programs. So when we talk about prescription
drugs or some other good sounding programs, what we are doing is
borrowing that money from Social Security, or borrowing it from other
areas the government can borrow from, like Wall Street, to pay for
expanded programs that this Congress comes up with.
Back to my chart. The trust fund is short $1.3 trillion that we owe
Social Security. The shortfall after repayment of the trust fund, the
shortfall, if we came up with the money right now, is $10 trillion.
Remember earlier I mentioned $120 trillion over the next 75 years? What
we need in today's dollars to put into an investment account is $10
trillion. In other words, the unfunded liability of Social Security,
some estimates are $10 trillion. Some estimates are $9 trillion.
The system is stretched to its limit. Seventy-eight million baby-
boomers begin retiring in 2008, Social Security spending exceeds tax
revenues in 2017 and the Social Security trust fund goes broke in 2037,
although the crisis is going to arrive much sooner. When the crisis
arrives is 2017.
Where do you come up with the extra money? Some people suggest, well,
if

[[Page H7824]]

we can get the economy going, or all government has to do is pay back
what it has borrowed from the trust fund. That will keep us going until
2037.
On the economy, the fact is that a stronger economy that results in
higher wages has a short-term effect of increasing revenue coming into
the Social Security system. But the long-term effect, because of the
fact that benefits are directly related, benefits in your retirement
years are directly related to the wages and the taxes you pay in on
those wages when you are working, means that ultimately it is going to
be a bigger problem in terms of the amount of dollars that is paid out.
So suggesting that a strong economy will solve Social Security is
totally inaccurate.
I like to put in this chart with a picture of Franklin Delano
Roosevelt, because he created the Social Security program over six
decades ago. He wanted it to feature a private sector component to
build retirement income. Social Security was supposed to be one leg of
a three-legged stool to support retirees. It was supposed to go hand-
in-hand with personal savings and private pension plans.
Let me tell you an interesting research item I found as I went
through the archives of that debate back in 1934 and 1935. As it turns
out, the Senate had decided on private investments in the name of the
worker, so that it was the property of the worker. Even though it was
restricted and he could not take out that investment until he retired,
the Senate decided that that was the best way to go, to allow private
required deductions from payroll to go in a fund that was owned by the
worker.
The House, on the other hand, said, well, government should run the
system and have that extra money available to government, and then be
responsible for paying out the benefits in later years.
When it went to the conference committee between the House and the
Senate, the final decision was what we have today, and that is
government taking all the money that comes in and then being
responsible for paying out the benefits. But, of course, over the years
what has happened, as there ended up demographically fewer workers in
relation to the number of retirees that were promised benefits, the
United States on every occasion when they did not have enough money
coming in taxes to accommodate promised benefits, is they increased the
tax and/or lowered benefits. Usually it was both.
In most countries, issues of the administration have not been fully
explored. Most countries do not have the kind of market-based economy
we do in the United States. They are not used to having 401(k)s and
other investment plans which individuals own and are a little more
responsible for some of those investments. But in the United States, we
are pretty used to it. Yet we have put off a market-based system for
Social Security that can accomplish the goals of more retirement income
for the retirees.
I chaired the House Committee on the Budget Bipartisan Task Force on
Social Security. We had experts in from this and other countries
testifying to the problems of accommodating senior citizens through a
government program. The Democrats and Republicans on that task force
agreed that something must be done as quickly as possible to change
Social Security to keep it solvent, and that privately-owned investment
accounts should be one option.
One of the criticisms of private investment accounts was that it
would cost too much. The brokers would be charging the individuals huge
amounts to keep track of the investments of those individuals. We had
testimony from several individuals that it could be as low as one or
two cents.
This is the letter I wrote David Walker, Comptroller General of the
United States, in which I stated, ``The House Budget Committee Task
Force on Social Security recently heard testimony from William Shipman.
His firm completed a study that concluded that the administrative
annual costs for establishing broadly diversified Social Security
personal retirement accounts would equal between $3.38 and $6.58 per
account holder.''
I continued in the letter to the Comptroller General, ``If verified,
I believe the conclusion will prove highly significant as Congress
evaluates plans to modernize the retirement system. It will demonstrate
that it is possible to provide meaningful investment opportunities to
all Americans for only one or two cents a day. For that reason, I am
requesting that the GAO study the methods and conclusions of this
report and determine its accuracy.''
What they determined is this was possible, and very likely, if we had
indexed investments, such as we do in our Thrift Savings Account that
is available to all Federal employees. So arguing that the brokers are
going to get rich off of this program or that ``snake-oil'' salesmen
will convince some of the investors to invest in bad investments is
safeguarded in the Social Security bills that I have introduced over
the last 6 years.
Just as a footnote to introducing a bill, let me mention that next
Wednesday at 10:30 a.m. in Room 2200 we are going to have a press
conference on the reintroduction of my 2003 Social Security bill that
has now been scored by the Social Security Administration to keep
Social Security solvent, and it meets the three goals that I expressed
earlier.
Again, let me demonstrate how bad a savings retirement investment
this is by using the existing Social Security system. 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 market return as
far as equities.
If you are poor and if you are hungry and, as it turns out, if you
are a young black worker, you die before you reach age 65. That means
that you pay in for most of your life, but you do not reach the age
that you are going to take out and accrue the benefits that supposedly
you paid in for.
If we have a private investment account, what I am suggesting in my
legislation that I will be introducing next week is you allow 2.5
percent out of the 12.4 percent FICA tax that goes into Social Security
to be privately owned. The investments are restricted. There are
safeguards in government, oversight of how the money is handled,
similar to our Thrift Savings Account for Federal employees and for
Members of Congress. But the safeguards can be there.
What this chart demonstrates is that if you are a young worker that
is poor, that means you are probably going to die before age 65, or if
you are a black worker, which means you are going to die on average
before age 65, that it is your money. It can go into your estate for
your heirs.
The average again is 7 percent. But the market return, and this
includes the last three downside years of the market, the Wilshire
Index from 1993 to 2003 had a 7 percent return, real return on equity,
a 7 percent return over and above inflation. There has been no 12 year
period in the last 100 years where there has not been a very
substantial positive return to equity investments, and, if they are
diversified, that assures additional safety.
One of the most often talked about solutions for Social Security in
the United States and other countries, I represented the United States
in a forum in England several years ago where all countries were coming
in talking about their problems and potential solutions for
accommodating an aging population, most often the suggestion was either
reducing benefits or increasing taxes, if you will, sort of like a
band-aid for the problem, for temporarily fixing the problem; instead
of making a transition from a fixed benefit program to a fixed
contribution program, using the market economy especially available in
the United States to accommodate even higher returns in retirement for
young workers.

{time} 2130

I was disappointed that the U.S. trails many other countries in
saving its retirement system. In the 18 years since Chile offered
personal retirement accounts, 95 percent of Chilean workers have
created accounts. Their average rate of return has been 11.3 percent
per year. Now, remember, this compares to the 1.6 percent return we are
getting on Social Security in America. Among others, Australia,
Britain, Switzerland, offer workers their own personally owned
retirement accounts.
Let me emphasize with this chart that there is no Social Security
account with your name on it. And I

[[Page H7825]]

quote from the Office of Management and Budget, ``These trust fund
balances are available to finance future benefit payments, trust fund
balances, trust funds. They are there to finance future benefit
payments and other trust fund expenditures but only in a bookkeeping
sense. There are claims on the Treasury that when redeemed will have to
be financed by raising taxes, borrowing from the public or reducing
benefits or other expenditures.''
So we have been borrowing from Social Security all of these years. We
now owe Social Security a little over $1.3 trillion. The question is
where are we going to come up with the money when it comes time to
start paying those funds back. What we should be doing now is
developing a system where we get real returns from the Social Security
taxes coming in, the surplus coming in that is available for real
investment with real returns.
Economic growth will not fix Social Security. 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. The biggest risk is doing nothing at all. Social Security
has a total unfunded liability of over $9 trillion. The estimate when I
made this chart is $9 trillion; now it is closer to $10 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. Let me say that again. It is part of the desperate situation
that we are faced with in solving Social Security if we continue to put
off a solution.
This Chamber, the Chamber across the Capitol, the Senate, the
administration, the tendency is for politicians to not deal with tough
problems like solving Social Security until the disaster is upon us.
But the longer we put off a solution, the more drastic that solution
has to be. I know that because this is my fifth Social Security bill
that I have introduced; and every session, every 2 years, it takes a
little more in terms of coming up with money to fund the program than
it did the 2 years earlier. That is because the surplus for Social
Security is running out, and after 2017 there will no longer be more
money coming in from taxes than is required for benefits.
If you remember the red chart, that is where very deeply we go into
some other form of financing Social Security.
So some people have said, Should we turn Social Security into a
welfare program? Should we just make the rich pay in and more greatly
reduce or not pay benefits to rich retirees? Well, even the unions have
suggested this is a dangerous direction to go because most of us in
America think that we are going to make it and to have the government
say, look, we are going to mandate that you save for your retirement
but if you are successful and work hard and invest, then we are not
going to give it to you after all, would decrease the problem for a
Social Security system.
It is not working as a welfare system because we are not giving those
people that really need it enough, and it is not working as a system to
tax the rich simply because we give higher income earners a greater
retirement benefit in the end, even though it is very progressive. That
means if you are lower income, you are going to make 95 percent of what
you were making on average when you were working. However, if you are a
high-income retiree making a very large salary, you can get as little
as 15 percent on average of what you were making during your working
years back as a Social Security benefit.
Here is what we have done. Here is a chart that does not show earlier
years. It does not show what some have suggested for future years. But
it shows, it demonstrates not the reduction in benefits, and I should
make a chart on that, how we have reduced benefits, and you reduce
benefits trickily, because if you are a politician you do not want your
voters scolding you, so we simply do things like we are reducing the
COLA by a little bit or we are increasing the retirement age. Of
course, that is what we did in the 1983 program. We said we are going
to start increasing the retirement age. That means reducing benefits.
Or we are going to index benefits, instead of wage inflation, we are
going to index them to CPI, just plain inflation.

You can reduce benefits, but in the long run we need a transition
from a fixed benefit program to a market-oriented program that is also
going to help the economy.
In 1940 we had a 2 percent tax on the first $3,000 for a maximum tax
for any American worker of $60. By 1960 we saw the working population
go down in comparison to the number of retirees, and we upped not only
the rate but we upped also the base so the maximum taxes for any one
year was $288. By 1980 we increased the rate to 10.16 percent on the
first $26,000, $25,900; and by the year 2000, the 1983 changes we had
indexed the base up to $76,200. Now that based is 84,000 with a 12.4
percent tax.
The next chart shows the number of American workers that pay more in
the Social Security tax than they do in the income tax, and that is a
current debate. So right now the percentage of families that pay more
in the Social Security tax than they do in the income tax is 78
percent. Seventy-eight percent of American workers pay more in the
Social Security tax than they do in the income tax. And so to think
that we can accommodate this problem with solutions that simply raise
taxes on American workers, I think should be out of the question.
Personal retirement accounts, they do not come out of Social
Security. They have become part of your Social Security retirement
benefits. A worker will own his or her own retirement account, and it
is limited to safe investments that will earn more than the 1.9 percent
paid by Social Security.
How do we get Congress interested in dealing with this problem? And
the reason politicians are not interested in solving Social Security is
because if you are a Republican, the Democrats go back home the next
election and they demagog the issue saying that I am trying to ruin
Social Security. Vote him out of office, and vote me in and I will save
your Social Security.
The only way to save Social Security is two ways: either increase
revenues or reduce benefits. Maybe a third way is a combination of the
two. It is not complicated. We have got to do one or the other, and
what I am suggesting is that we increase revenues by a better return on
investments.
Findings of the House Budget Task Force on Social Security that I
chaired a couple of years ago are that guaranteed return securities and
annuities can be used with personal as part of an investment safety
net.
So we can have companies that are now willing to offer a greater
return than the 1.6 or 1.7 percent depending on how much you earn that
is given by Social Security, companies that will guarantee that they
will give you better than what Social Security is offering as far as an
investment.
A universal Social Security survivor and disability benefit program
needs to be maintained. And let me just stress that point. Some people
have said, well, Social Security is sort of an insurance policy against
getting injured on the job or if you happen to die, benefits for
survivors. No suggestion of any Social Security proposal that I or any
other Members have introduced do anything to touch the insurance part
of that program. The injury and survivor benefit insurance program
should be maintained and is going to be maintained.
Congress should consider paying for a portion of disability benefits
for workers who have been in the system a short time using monies from
the general fund. And I agree. We need to. In fact, the legislation
that I am offering next week will have an additional amount contributed
by government to their personal savings investment account for workers
that are earning less than $34,000 a year. That is so some of these
individuals may very well have more money in retirement than they did
in their working years.
The six principles of saving Social Security: protect current and
future beneficiaries, allow freedom of choice; and freedom of choice,
my bill and most every other bill that has been introduced says it is
going to be voluntary. You do not have to have private investments
accounts you earn, but you have the option of having those accounts.
And what we will be announcing at the press conference

[[Page H7826]]

next week is we have a provision where we can guarantee a greater
return than Social Security is now paying retirees. Makes Americans
better off not worse off, it creates a fully funded system, and no tax
increases.
This is a challenge that we need to deal with. Because of past
demographic realities and in order to pay promised benefits, government
has too often responded by either increasing taxes or slowly but
relentlessly decreasing benefits. It is not fair to current retirees,
it is not fair to future retirees to start reducing those benefits. And
it is not fair to current or future workers to say we are going to
continue to tax you more because we have not adequately planned for the
kind of demographics that we are challenged with in Social Security.
Again, let me reemphasize that a country like France that now taxes
51 percent of what that individual worker earns is simply money that
effectively comes out of that business operation and that they have to
pay for by reducing the wages they pay to employees or by increasing
the price that they charge customers that might buy their particular
product. So for the three goals that I think we all should agree on,
let us have changes that do not reduce benefits for current retirees.
Let us develop the kind of changes that are going to keep the program
solvent, that are going to increase the benefits for current and future
workers as far as their potential increase in retirement income; and
let us have a program that is going to help the economy of the United
States.

{time} 2145

That means savings and investments, to allow those savings and
investments to expand our research efforts and expand the kind of
products that we develop that people want to buy and to increase our
productivity in this country.

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