[Congressional Record Volume 149, Number 120 (Thursday, September 4, 2003)]
[House]
[Pages H7940-H7944]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            SOCIAL SECURITY

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 7, 2003, the gentleman from Michigan (Mr. Smith) is recognized 
for half the time until midnight.
  Mr. SMITH of Michigan. Mr. Speaker, tonight, while we discuss issues, 
there are two global forces proceeding on a collision course. The first 
is the aging of society. This does not mean that each one of us is 
getting 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 elderly people 
financial support are not sustainable as they are recently structured 
because as people are getting older the birthrate is also decreasing.
  The paths of these forces ultimately will affect most countries of 
the world, both developed and lesser developed. The wages of employees 
and workers will be going down and the security of the elderly and the 
people's very economic well-being will be disrupted.
  I would suggest, Mr. Speaker, that much is at stake and the 
challenges are real, but the opportunities are also unprecedented. As 
few as 6 years ago it was very unpopular to discuss Social Security and 
the problems of the solvency of Social Security and the fact that 
Social Security was going broke because it was so, for lack of a better 
word, demagogued in political campaigns.
  When I introduced my first Social Security bill, 9 years ago now, my 
opponents in the next election said, well, the gentleman from Michigan 
(Mr. Smith) is trying to harm Social Security and your Social Security 
is in danger. And of course seniors, better than half of whom depend on 
Social Security for over 90 percent of their retirement income, were 
concerned. And so it took a lot of speeches on my part, I gave 200 
speeches in my district in my first 4 years in Congress, explaining 
what the problems of Social Security are. So the people in the 7th 
Congressional District of Michigan understand the charts that I am 
going to go through tonight and the predicament that Social Security 
faces and the fact that it is going to be insolvent very shortly.
  Social Security is a pay-as-you-go system. And unlike privately 
invested savings accounts, where contributions are invested in wealth-
producing assets for retirement, Social Security benefits, the taxes 
that come in to pay your Social Security, are immediately sent out as 
benefits. So it is a generation transfer of wealth. Younger workers 
today are paying in their FICA tax, their Social Security tax, and 
almost immediately by the time it gets to the Social Security 
Administration that money is sent out in benefits for existing 
retirees.

[[Page H7941]]

  And of course it is sort of like a chain letter. If you can imagine, 
government is saying, well, look, you pay to the names at the top of 
this list, you add your name to the bottom of the list, and then in 
later years, all of the people under you on that list will be sending 
you money. Well, the success of a pay-as-you-go system like Social 
Security is predicated on the fact that there is going to be a growing 
worker population, or at least the worker population as a percentage of 
the number of retirees is not going to dwindle. And of course right now 
the number of workers per senior in many countries of the world is 
going down.
  We can talk about the extreme problems that are now facing Japan and 
Italy and France and Germany. In France, for example, Mr. Speaker, 
their payroll tax in France is 51 percent of the paycheck that they 
earn. Now that means that the company is deducting that 51 cents from 
their pay, and what they cannot deduct from the pay because they cannot 
hire employees, then they have to increase in the price of their 
product. So two things happen: the worker earns less than they might 
otherwise earn and the price of the product goes up. So that particular 
company is less competitive than other countries that do not have that 
kind of huge burden of accommodating their senior population.
  Germany is approaching a 40 percent payroll tax deduction. In the 
United States we have a 15 percent payroll deduction. We have 12.4 for 
Social Security and the remainder is for Medicare and Medicaid, the 
Medicare part A and Medicare part B.
  I put this first chart up to sort of review the history of the United 
States and how Social Security first got started. We went through the 
very severe depression of the late 1920s and early 1930s, and Franklin 
Delano Roosevelt said, look, there needs to be some kind of a forced 
savings program so that old people do not have to go over the hill to 
the poor house and live in poverty. There should be some kind of 
security for these people. So he suggested a forced savings plan while 
people were working, to take some of those earnings and, in effect, put 
it aside so we had that social security, those benefits that could be 
paid out in retirement.
  When Franklin Roosevelt created the Social Security program over 6 
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.
  Researching the archives of some of the debate in the House and the 
Senate was very interesting. Back in 1934 and 1935, as it turned out, 
the Senate proposal, and of course what we do here is the Senate passes 
one bill, the House passes another, then it goes to conference 
committee for the final compromise before we send it to the President. 
The Senate said, look, it should be privately owned accounts. We are 
going to force people to take a portion of their earnings and put it in 
a savings account, an investment account, for their future retirement, 
but it is going to be owned by the workers. The House, on the other 
hand, passed legislation that suggested that, look, government would 
handle all of this money coming in and then government would keep that 
money and pay it out when the time came for these retirees to retire.
  In the conference committee, the argument from the House was very 
strong. They said, look, we just went through this terrible depression; 
we need government to control this money instead of having individuals 
maybe investing in something they should not invest in. So let us have 
the government control it. So it ended up with a compromise of what we 
have today as Social Security with workers paying into the Social 
Security System, the government taking all this money, and then paying 
it out when somebody would retire.

                              {time}  2320

  Now, since 1983 when we had the huge tax increase on Social Security, 
the Greenspan commission said well, Social Security is going broke, we 
are going to cut benefits and increase taxes, so we had a huge tax 
increase. Since 1983, there has been extra surplus money coming in from 
the FICA tax, and part of the problem is instead of that extra surplus 
money being invested and gaining returns, this Chamber, the Senate, the 
President, has spent that money every year for some other purpose. In 
the pretense of having a lockbox in a couple of the good years, we 
borrowed that money from Social Security and we paid down some of the 
public debt, the Wall Street debt, but we still used it. It was gone 
instead of being invested.
  I wanted to show a pie chart of how we spend the revenues coming into 
the Federal Government to demonstrate just how big Social Security is 
as a total part of total government expenditures that are now 
approaching $2.2 trillion. And I am not sure Members can read the 
numbers, but Social Security is 22 percent of the total Federal budget 
compared to defense. Even with Iraq and Afghanistan at 18 percent, 
other domestic discretionary spending, all of the 13 appropriations 
bills which go through this Chamber that we spend half the year arguing 
about, those 13 appropriations bills for discretionary spending only 
amount to 19 percent. The point I am trying to make is Social Security 
is the largest part of the total budget and the problem is that if we 
have seniors living longer, that part of the pie is getting bigger and 
bigger.
  If we add prescription drugs to Medicare, then the green-eyeshade 
predictors are predicting that within 50 years Medicare will be a 
larger expense than Social Security, but essentially taking up to over 
half of all Federal revenues spent for Social Security and Medicare.
  Because Social Security solutions are complicated by other spending, 
I want to demonstrate with this chart what is happening to Federal 
spending. It was President Reagan that said we are spending worse than 
drunken sailors and the sailors were offended, but government has been 
growing at 2 and 3 times the rate of inflation, so government is 
getting bigger and bigger. And we are doing that not with tax revenues 
coming in, because it is unpopular to raise taxes, so it is sort of a 
tricky system which has been devised which will simply borrow the money 
so people back home cannot really see that that extra borrowing affects 
their lives, nothing like what they see when they pay their tax bill, 
so we have continued borrowing. So the debt of this country is now 
growing very rapidly. We now have a debt of $6.8 trillion, and the 
total debt is approaching $10 trillion in the next 10 years.
  This middle green line is the debt held by the public. That has been 
going up. We had a little downside during the good years of 1999 and 
2000 and 2001, but even that is going to continue to increase. But the 
dramatic increase is the bottom purple line, and that is the amount 
that we are borrowing from Social Security. So we continue to borrow 
from Social Security, and that means that the total debt, what we are 
borrowing from Wall Street, and now so much of that borrowing is from 
other countries. Because of our trade deficit, they invest their money 
in this country and now they own more of this country than I think we 
should be comfortable with, but that is another debate. But the total 
debt of this country is the sum of what we are borrowing on Wall Street 
plus what we have borrowed from Social Security, and it is approaching 
$10 trillion.
  The Congressional Budget Office just made their predictions last 
Friday which is that for this year, 2003, the deficit spending, how 
much more we are spending than what we are taking in, if we include 
what we are borrowing from Social Security, is $560 billion in 2003, 
$640 billion in 2004.
  Is that bad? Is that a lot of money? Maybe putting it in perspective, 
what are we, 227 years old as a country. In the first 200 years of this 
country, we amassed a debt of $500 billion, and now we are going over 
$500 billion deeper in debt every year. I think it is important to 
remember that those current taxpayers and citizens do not feel the pain 
of this extra borrowing and extra debt. The deficit is how much we 
overspend in 1 year over and above the revenues that are coming in, and 
debt is the accumulation of those annual deficits. But debt and deficit 
is the promise of future taxes. Who is going to pay these future taxes? 
It is our kids and grandkids that we are imposing this burden on, 
saying we think our problems are so great today that we are going to 
borrow this money that you have to pay back somehow in future years 
because we think our problems

[[Page H7942]]

are so important today that we are going to make you pay back the cost 
of this overspending that this Congress, this House, this Senate, this 
President, the last President, the President before him, have decided 
it is reasonable to put you deeper in debt.
  Right now every man, woman, and child in this country owe over 
$26,000. A baby is born, that baby has a debt of $26,000 burden for the 
rest of his life that sometime is going to have to be accommodated.
  Here is my one-glance chart. The red means how deep we are going to 
be in trouble with Social Security in future years. The short purple-
blue here is the surplus, the extra money, the money that is greater 
than the benefits being paid out that is coming in in FICA taxes and 
Social Security taxes right now. And the only reason again that we have 
this extra amount coming in, as it turns out it was a mistake in 1983. 
They calculated the increased tax on Social Security that was needed. 
They calculated higher than they actually needed, so we have had huge 
surpluses coming in because those surpluses are going to run out simply 
because the baby boomers are going to start retiring in the next few 
years, and those baby boomers that are at the top of their earning, 
paying in maximum Social Security taxes, are going to go into the 
receiving side of Social Security and taking out maximum benefits.
  It is a tremendous challenge. The unfunded liability is estimated 
between $9 trillion and $10 trillion today. If we are going to keep 
Social Security solvent for the next 75 years, it would take between 
$9-10 trillion today to put into an investment fund to accommodate the 
shortage of revenues as opposed to promised benefits.

                              {time}  2330

  This chart represents the problems of fewer workers being responsible 
to pay the retirement benefits of our retirees in this country. In 1940 
there were 38 workers working for every person over age 65. By the year 
2000, it was three workers. The projection by the actuaries at the 
Social Security Administration is that by 2025, there will only be two 
workers working and paying in their Social Security tax for every 
retiree. If we are to give those retirees the same amount, you can see 
that taxes have to be increased. And so I have another chart that is 
coming up pretty soon on how every time we have been in trouble in this 
country since we started Social Security, every time we started running 
low on funds, we increased the tax rate or the tax base, how much the 
tax rate is on so many dollars that you might earn.
  This is not a new situation in terms of knowing it was a problem. Let 
me read you a few quotes, starting with 1991 from the former 
commissioner of Social Security, Dorcus Hardy, at that time. He said, 
and I quote:
  ``The crisis is coming fast in the lifetime of a few already retired 
and of almost all those now under age 55. The stakes are high, 
trillions of dollars.'' That is 1991.
  The next quote is from 1994: ``Failing to take prompt action on 
Social Security will burden our children and our grandchildren with 
benefit cuts and crippling taxes.'' That was Representative Nick Smith. 
When I came to Congress in 1993, I already had my first Social Security 
bill. So every 2-year session I have introduced another Social Security 
bill. Since 1994, they have all been scored by the Social Security 
Administration to keep Social Security solvent. I came to Congress and 
went on the Budget Committee, in my first year, freshman year in 
Congress, I introduced a budget that balanced the budget for this 
country because I felt so strongly as a farm kid from Michigan that 
government should act like we ask families to act, that they cannot 
just go deeper and deeper into debt and never pay it back. Somehow 
there has to be some kind of a plan where eventually you start paying 
back all the debt you earn. Right now we have the interest on the debt, 
if we were to go back to that pie chart, is approaching $300 billion, 
but this is at record low interest rates. If interest goes back to 
normal, then the servicing of that debt, the interest payment on that 
debt, is going to almost be a much more dramatic part of the whole 
Federal Government spending.
  And what do we do to pay the interest on that debt? Do we just simply 
borrow more money, pretending that sometime in future years our kids 
and our grandkids will magically come up with the productivity and the 
competitiveness internationally to pay off this debt that we are 
accumulating today? I think we should be ashamed of ourselves.
  I get off the track here, but let me go through a few more of these 
quotes which I am trying to simply demonstrate that we have known for a 
long time that it has been a problem. This is in 1996 and it is the 
former Secretary of Commerce and the Concord Coalition President, Peter 
Peterson: ``Will America grow up before it grows old? Will we make the 
needed Social Security transformation early, intelligently and humanely 
or procrastinate until delay exacts a huge price from those least able 
to afford it?''
  1998: ``We face a crisis in the Social Security system and we can no 
longer wait to put it on a sound footing. We need to move from the 
unreliable pay-as-you-go system to one based on benefitting from real 
investment.'' That was representative Tim Penny, Democrat from 
Minnesota, 1998.
  In 1999: ``Time is the enemy of Social Security reform and we should 
move without delay.'' Actually that came from a bipartisan Social 
Security task force that I chaired where Democrats and Republicans 
agreed that we cannot delay and put off any longer a solution to make 
Social Security solvent because we knew and Americans know that Social 
Security is an important program to so many Americans, current and 
future retirees, that we simply should not overlook it.
  I just am so discouraged that there has been little reaction from the 
House or the Senate in developing solutions to Social Security. By my 
count, there have only been 26 Members since I came to Congress in 
1993, only 26 Members that have signed on to the Social Security 
solution bill that would keep Social Security solvent.
  Let me move ahead with the charts. 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. Payroll taxes will not 
cover benefits starting in 2017 and the shortfalls will add up to $120 
trillion between 2017 and 2075. $120 trillion over those years is the 
same as putting that nine to $10 billion in a savings account today.
  If we are to increase taxes to cover these deficits, again that means 
that the taxes come out of the hide of those workers for less income or 
it means higher prices that that company charges when they sell their 
products. So somehow people are paying that tax. Doing nothing means 
tax increases of some kind in the future.
  I thought this was a fun chart, Mr. Speaker. This is how many years 
it takes over the past 60 years that you have to live after retirement 
to break even on the Social Security taxes that you have sent to 
government. If you were lucky, in 1940 since that was just the 
beginning, you could get back all you and your employer put in in 2 
months. By 1980, you had to live 4 years after retirement. In 1995, you 
had to live 16 years after retirement. It keeps going up because we 
keep over these years increasing the taxes that you pay in, so you are 
paying in more money, benefits are not increasing proportionally that 
much so you end up having to live longer to break even on Social 
Security. The purpose of this chart is to try to start sending the 
message that Social Security is not a good investment for retirement. 
By 2015, it goes to 26 years that you have to live after you reach 65 
to break even on the money you have sent in to Social Security.


                Announcement by the Speaker Pro Tempore

  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 the remainder of the time before midnight.
  Mr. SMITH of Michigan. Mr. Speaker, I will not take all the time. I 
will cut my speechmaking down a little bit, but allow me to go quickly 
through these charts. If you know everything that is on these charts, 
then I would suggest, Mr. Speaker, the people that might be watching 
would be more informed on the problems of Social Security than probably 
many Members of the House and the Senate.

[[Page H7943]]

  The Social Security trust fund, when I started making my 200 speeches 
in my district to explain Social Security, people thought if government 
would just keep its fingers off the Social Security trust fund, not 
taking that surplus money, that Social Security would be okay. This 
chart represents how much is in the trust fund, how much government has 
borrowed and owes to the trust fund, government does not know how it is 
going to pay it back, but on the books government owes $1.3 trillion to 
the Social Security trust fund. The shortfall that we talked about 
earlier between nine and $10 trillion is the shortfall that we need 
today in an investment account receiving interest rate returns to 
accommodate the shortfalls in Social Security. By shortfalls, I mean 
how much is needed over and above the dollars coming in from the FICA 
tax.
  A system stretched to its limits. Seventy-eight million baby boomers 
begin retiring in 2008. Social Security spending exceeds tax revenues 
in 2017. And Social Security trust funds go broke in 2037. What that 
means, Social Security trust funds go broke, that is assuming, and I 
think it is a fair assumption, that somehow government is going to 
borrow more money or reduce benefits to pay back, but eventually it is 
going to pay back what it has borrowed.

                              {time}  2340

  The challenge is where does that money come from? Do we lower 
benefits to save some of the money? Do we lower spending on other 
programs, or do we increase the income tax? Do we increase user fees, 
or do we increase the payroll tax?
  This is an interesting chart, Mr. Speaker. The real return of Social 
Security is less than 2 percent for most workers, and it shows a 
negative return for some compared to over 7 percent of the market. If 
they are very low income and they do not have good food and they do not 
have the kind of health care they should, then often they are going to 
die before age 65. So they pay in money, and then they do not get that 
money back because they do not reach 65. The average return is just 
under 2 percent, about 1.7 percent, but the Wilshire 5000 index, an 
index fund of 5,000 of the leading stocks in this country over the last 
10 years, and that includes the last 3 bad years of the Dow in the 
stock market, the average for the Wilshire fund over and above 
inflation is 7 percent. So is there some way that we can decide that 
here is some kind of a safe investment, it is going to be in the 
worker's name so that government in these cases, in the cases of 
individuals that might die before they reach 65, that money still goes 
into their estate to go to whoever they choose that it might go to 
rather than government saying they died too early and they do not get 
anything.
  Social Security is a challenge. We have got to face up to it. I went 
over to the White House a few weeks ago. I talked to the President 
about it. I talked to Karl Rove about it. They agreed that it has got 
to be one of the main issues that we talk about in next year's 
campaign. And so, Mr. Speaker, I would hope that everybody that is 
interviewing candidates that are running for the U.S. House of 
Representatives or running for the United States Senate or running for 
President to say, look, what are your plans to save Social Security? 
And do not go along with this hogwash rhetoric of saying, boy, Social 
Security is important and we are going to save it. Ask a follow-up 
question: How are you going to do that? Do you know that Social 
Security has a liability right now of $10 trillion? Where are you going 
to come up with the money? How are you going to do that?
  So I think it is important that we pin every candidate down to make 
them develop and come up with a plan that is going to save Social 
Security instead of simply glossing over with rhetoric that it is an 
important program and, by gosh, we are going to save it.
  The U.S. trails other countries in saving its retirement system. In 
the 18 years since Chile offered PRAs, personal retirement accounts, 95 
percent of Chileans have created accounts. Their average rate of return 
has been 11.3 percent a year. Among others, Australia, Britain, 
Switzerland offer personal retirement accounts.
  There is no Social Security account with their name on it. I like 
this quote from the Office of Management and Budget: ``These (trust 
fund) balances are available to finance future benefit of payments and 
other trust fund expenditures but only in a bookkeeping sense. They are 
claims on the Treasury that, when redeemed, will have to be financed by 
raising taxes, borrowing from the public, or reducing benefits or other 
expenditures.''
  There have been two cases that have gone before the Supreme Court of 
the United States with people that did not receive Social Security 
benefits but they said, Look, we paid into Social Security, we deserve 
those benefits. In two different decisions, the Supreme Court of the 
United States said there is no entitlement to Social Security benefits 
just because they paid into the Social Security system. So there should 
be an acknowledged, a realized danger that if worse comes to worst, 
government can say we are not going to pay all those benefits because 
we do not have the money and after all we are doing all these other 
important things; so they need to sacrifice with the rest of the 
Nation. But if they are in their own personal accounts and if we go to 
a fixed contribution with guaranteed returns, the bill I am going to 
introduce next week, and my press conference is in room 2200 over in 
the Rayburn building announcing the bill that I am going to introduce 
on Social Security, it has been scored by the Social Security 
Administration and it is keeping Social Security solvent forever, and 
takes the kind of actions of making it optional if one wants to have a 
private savings account earned by them as the worker; but it also 
guarantees that they will get as much back as they would out of Social 
Security for people who choose not to invest in personal savings 
accounts.
  Economic growth will not fix Social Security. We hear quite often 
when the economy gets back on its feet, then there is no problem. The 
problem is 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. So temporarily we have more taxes 
coming in, but because there is a direct relation between the earnings 
that they have and the taxes they pay in to the benefits that they 
eventually get out, we dig a deeper hole later. Growth makes the 
numbers look better now, but leaves a larger hole to fill later.

  I think the important point, Mr. Speaker, is that we have got to do 
something. It is just unconscionable, and I feel embarrassed that I 
have not been able to excite more of our Members. I mean, there are 
important things going on from Iraq to Afghanistan to how do we deal 
with prescription drugs and Medicare. But to put off and not face up to 
the largest financial crisis that we see down the road that is going to 
affect such an important program for Americans is not fair. It is not 
fair to our kids. It is not fair to retirees. It is not fair to our 
workers. The biggest risk is doing nothing at all.
  Social Security has a total unfunded liability of over $9 trillion. 
It looks like about $9.6 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. Probably 
politically we will not cut benefits. That means that the other option 
is to increase taxes on somebody; but here again our businesses, we are 
losing our manufacturing base. What bothers me even more as chairman of 
the Subcommittee on Research of the Committee on Science is we have 
lost 500,000 jobs in the last 3 years, the high-tech jobs; and if we 
start putting an extra 50 percent price on the products that we are 
selling trying to compete in the world or if we cut the pay of workers, 
either way it has a tremendous effect on our ability to compete.
  Increasing payroll taxes, I suggest, is not the answer. In 1940 the 
rate was 2 percent on a base of $3,000; so one could pay $60 a year. By 
1960 we were running out of money again; so we tripled the rate to 6 
percent on the first $4,800 base for $288 a year. In 1980 we upped it 
to 10.16 percent of the first $25,900 for a $2,600 possible tax per 
year. In 2000 we upped it to 12.4 percent on $76,000, but the $76,000 
was indexed for inflation; so now it is 12.4 percent on the first 
$84,000. So here again just to demonstrate that what we can expect in

[[Page H7944]]

the future if we continue to put off Social Security, the longer we put 
off the solution, the more drastic the solution has to be; and I know 
that because this is my fifth Social Security bill that I am 
introducing next week.
  I thank our pages this late at night. Let me just wrap this up. Our 
two pages working this late in the evening, one from New Jersey and one 
from Arizona. So I thank the pages, and I am about to conclude.

                              {time}  2350

  Seventy-eight percent of families pay more in payroll taxes than in 
the income tax. The percentage of families that pay less in payroll 
taxes than income taxes is 22 percent, so the reciprocal is 78 percent. 
We have raised Social Security taxes so much on the workers that 78 
percent pay more in the Social Security tax than they do in the income 
tax.
  Personal retirement accounts, they do not come out of Social 
Security. They become part of your Social Security retirement benefits. 
A worker will own his or her own retirement account and is limited to 
safe investments that will earn more than the 1.9 percent paid by the 
Social Security. Actually it is 1.7 percent.
  The findings of the House Committee on the Budget Task Force on 
Social Security that I chaired several years ago, 4 years ago, after we 
heard all of the testimony over a period of a year, we all agreed, 
Republicans and Democrats, that we have got to do something, that 
Social Security is going broke, that we need to have some guidelines to 
guide us in how we revise Social Security, and the guidelines 
essentially boiled down to three statements. Number one was that we 
should not affect existing retirees; number two, that workers should be 
able to be even better off with retirement benefits than they are 
today; and the third proposition is that somehow the changes should not 
damage our economy in America, but actually improve the economy. That 
is why savings and investment is so important.
  Mr. Speaker, I urge all my colleagues to be prepared when their 
constituents ask them what are they going to do about solving the 
Social Security problem.

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