[Congressional Record Volume 150, Number 51 (Tuesday, April 20, 2004)]
[House]
[Pages H2192-H2195]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SOCIAL SECURITY AND GOING DEEPER INTO DEBT
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 7, 2003, the gentleman from Michigan (Mr. Smith) is recognized
for the time remaining until midnight as the designee of the majority
leader.
Mr. SMITH of Michigan. Mr. Speaker, as the gentleman from Hawaii (Mr.
Abercrombie) said, yes, we have had many conversations about Social
Security including the stealing of the extra trust fund surplus that
has been coming in. We have never been quite square with the American
people.
I would yield to my colleague.
Mr. ABERCROMBIE. Mr. Speaker, I am very happy to join the gentleman
from Michigan (Mr. Smith). As one can see, the aura that he exudes when
he comes to speak about Social Security must have been so powerful that
the rays literally leapt out and said to me, say that the gentleman
from Michigan (Mr. Smith) is coming.
Mr. SMITH of Michigan. Mr. Speaker, I think that the people of Hawaii
are still wide awake and listening to this debate.
Mr. Speaker, I am going to comment tonight not only on Social
Security but what I consider a huge challenge for this country, and
that is going deeper into debt and increasing the spending of the
Federal Government and sacrificing the increased burdens of that
increasing debt in addition to the kind of high taxes that it takes to
accommodate this kind of spending and this kind of servicing of the
debt.
The first chart I have is a pie chart that I wanted to sort of show
how the Federal Government is spending $2.4 trillion. And we see the
largest piece of this pie is Social Security, spending 21 percent of
all Federal spending; and that is going up.
In 1983 we had the Greenspan Commission that gathered together
because Social Security was going broke, and what they decided is to
dramatically increase taxes, payroll taxes, our FICA taxes, for Social
Security and at the same time reduce benefits. And that is the
challenge for Social Security, that is the challenge for Medicare, that
is certainly the challenge for Medicaid, the three major programs where
Members of Congress have continued to make promises over and above far
beyond our ability to pay for them in the future. And that is the
problem with extra pressure on increasing taxes and increasing debt on
these kind of unfunded liabilities.
We see the other pieces of the pie. Defense is 20 percent; 2 years
ago it was 19 percent.
Interest. Look at this issue of interest on the debt. It is now 14
percent of total spending. Within 6 to 8 years that amount of the piece
of pie that interest consumes servicing this increasing national debt
is probably going to double.
Now, interest rates right now are almost at record lows. We know that
interest rates eventually are going to increase. And so increasing
interest rates
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in addition to the increased debt is going to consume a lot larger
piece of the total Federal spending.
Then how do we accommodate that increased spending? Do we simply say,
well, we are going to increase debt more or increase taxes more?
Increasing debt puts additional pressure on the interest rates which is
going to up interest rates and up the cost. If we increase taxes, that
puts our businesses at a greater competitive disadvantage to other
businesses in other countries that we are competing with.
Right now we charge our business approximately 18 percent more taxes
than the taxes that are charged to our major competitors in the major
industrialized countries of the world.
The other problem with the increased debt is how fast government is
growing. The debt of this country, we are about 227 years old as a
country, it took the first 200 years of this country to amass a debt of
$500 billion. Now, Mr. Speaker, we are going deeper in debt over $500
billion a year. For the past several years, and it looks like as far as
we can see into the future, we are continuing to increase debt over
$500 billion a year.
How can we do that? We can do it because Members of Congress have
felt that it is in their political interest of getting reelected to
expand government programs. And now we are in a situation where almost
one-half of the adult population in the United States pays less than 1
percent of the total income tax so they do not have a lot at stake in
terms of their pocketbook. So it is easier for that population to elect
representatives that promise them more and more Federal programs, more
and more Federal spending.
Look, there is no limit to the problems in the United States.
{time} 2320
But a country that does not pay attention to the major concerns and
major problems it is facing ends up being dismantled and diminishes. As
strong a country as the United States is, militarily, economically, we
cannot survive the kind of unfunded liability and increasing debts that
we are accumulating.
Just briefly to go around the pie chart, and then I will go to
unfunded liabilities in a second. The domestic discretionary is 16
percent. Other entitlements is 10 percent. Medicaid is 6 percent.
Medicare is 12 percent.
Medicare is going to be overtaking Social Security in terms of its
percentage of total Federal spending within the next 25 years. Here
again, promises we made compounded by the demographics of an increasing
retired generation of Americans compared to a relatively small number
that are working in this country and paying in their taxes to
accommodate Medicaid, Medicare, Social Security and the other programs.
On this next chart, Mr. Speaker, I ask everyone to consider the kind
of promises that we have made over and above our ability to pay for
those promises. I call that unfunded liabilities. The massive unfunded
liabilities, in other words, the promises we have made in some of these
programs over and above the revenue that is coming in to pay for them,
is going to become a disastrous challenge for this Nation. And we pass
these budgets now, and we do not pay attention to what we are doing to
take care of the problems of Medicare, Medicaid and Social Security.
Look at these figures. Medicare Part A, mostly hospitals, is $21.8
trillion. That is going to be needed in today's dollar value to
accommodate the promises that we have made just in Medicare Part A.
When I say today's dollar value, in effect, these the accumulations,
the sum of the Medicare A, B, Part D, and the Social Security comes to
$73.5 trillion. In other words, we would have to put $73.5 trillion in
a savings account that is going to grow with inflation and probably the
time value of money to accommodate the more expensive wage inflation
that represents the increase in benefits for many of these programs to
accommodate what we are going to have to dig up in the future.
To me, Mr. Speaker, it is unconscionable. I hear Democrats say, well,
we need more spending, we cannot cut taxes, but Democrats and their
budget proposed greater spending than the Republicans did in their
budget. But the Republicans, on the other hand, are suggesting in
effect, let us borrow more money to accommodate the spending even
though we start slowing down the spending. This year, probably the best
year since 1995, 1996, we are holding spending down. But even so, Mr.
Speaker, holding down this spending, we are still ending up with an
increased expansion of the size of the Federal Government that is
almost three times the rate of inflation.
So just imagine for a moment if you project this out, and the size of
government is growing three times as fast as inflation, then we are
going to have such an empowered Federal Government with such great
dependency from the American people that even more Americans are going
to call for more government services. I think as you look at the
unfunded liabilities of $73.5 trillion, Medicare Part B, mostly
doctors, $23.2 trillion. Medicare Part D is $16.6 trillion. Medicare
Part D is the new prescription drug bill that we passed. That is
interesting.
Last November the projections for the unfunded liability were about
$7.5 trillion for the Medicare prescription drug program. Now with the
actuary's report that came out about 4 weeks ago, the Medicare and the
Social Security actuaries' report, the new estimate is $16.6 trillion
unfunded liability. So skyrocketing costs, prescription drugs are
sometimes the kind of medical technology that can keep people out of
the hospitals. And so if you go in the hospital and you are on
Medicare, then your prescriptions are covered. So it is reasonable for
some of those drugs to be covered. But to have such a huge expansion of
this program without cutting back and reforming the system so that it
can survive and so it is sound financially again I think is a great
mistake.
And of course, I had a tough night that night. I ended up voting
against the prescription drug program because I am so concerned that we
are digging a deeper hole in terms of the challenge that we are putting
on our kids and our grandkids and our great-grandkids to try to pay
back what we now consider is our justified overspending.
And think about that just for a moment. Do we pretend that their
problems are not going to be as great or as challenging in the next
generations, 10, 20, 30, 40 years from now? Because that is what you
would have to assume when we see Democrats and Republicans, House and
Senate, vote to expand spending to the extent that we are, continuing
borrowing the money and expect future generations to pay off that debt.
Social Security, the Social Security Trust Fund's IOUs, we are going
to have to come up with $12 trillion to accommodate the increased
promises for future Social Security retirees. About $12 trillion,
between 11-, it is between 11.9 and 12.2 that we are going to need over
and above the Social Security FICA tax. That is 6.2 percent of what you
earned for the employee, another 6.2 percent paid by the employer. But
make no mistake, it all comes out of the employee's pocket. We are
going to need that $12 trillion over and above what is coming in over
the next 75 years to pay for promised benefits.
How do we get this Congress' attention? I think, Mr. Speaker, the way
to get the attention of Members of Congress is for voters in the United
States, this election and every election, to say to individuals that
are running for the House, that are running for the Senate, that are
running for the President, look, what are you going to do about all of
these promises that you cannot pay for? What are you going to do about
the increasing debt that you are passing on to our kids and our
grandkids, pretending that your problems today are so much greater than
theirs? How do we get their attention? I think that is how we get their
attention.
I think the American people have got to start realizing that you
cannot just have government, some money that is printed in Washington,
pay for more and more of the problems of America and more and more of
the problems of the world.
We are in a war. During World War II, I was a little kid, and I
collected string. I collected tin foil because Mom and Dad and Uncle
Sam said that, look, you need to sacrifice. So during World War II we
did. We cut way down on all other spending. Every family in America
tried to sacrifice and help fight a
[[Page H2194]]
war, and we fought a war, and we won a war. But now we are pretending
that it is not a real war, and there is no reason to justify cutting
other spending because it might hurt us politically back home, and, of
course, that is what happens.
I was on the Committee on the Budget for my first 8 years in
Congress, and you start a new program, and, of course, if they can get
funding to continue that program for a second year, it becomes almost
like an entitlement, and they form their own lobbyists and special
interests to lobby Congress by contributing to campaigns to encourage
Members of Congress to continue to contribute and put money in the
appropriations process to those programs. And make no mistake, when you
take a race track home or a jogging trail or a bike path or a library
or any of the other pork barrel projects, the news media probably puts
you on television, puts you on the front page cutting the ribbon, and
they say, look what our Congressman has brought home.
{time} 2330
Here is the problem. When you take pork back home to your District
and it is in an appropriation bill, it obligates you as a Member of
Congress to vote for everybody else's pork, and now we have put in so
many line items of so many pork barrel projects that it has become one
of the main reasons that we have expanded Federal Government spending.
This is another bar chart that represents how much money is going to
come out of the general fund to accommodate these programs: Medicare
and Medicaid and Social Security. If you see the year 2020, for
example, 16 years away, unless we raise taxes or otherwise increase
borrowing, we are going to have to reach in to the general fund to the
extent of 28 percent, taking 28 percent of this general fund, just 16
years from now, to accommodate our overpromises. I say overpromises,
maybe it is nice, maybe it is good, but the fact is we do not have the
revenue to pay for those promises because what we are doing at the same
time is increasing all spending.
We have had increased spending every year that I have been here.
Earlier this evening I heard individuals saying, look, President Bush
has been using all of the surplus revenues coming in from Social
Security and that is bad, but that kind of demagoguery, that does not
get us ahead.
The fact is, ever since Social Security started, anytime there has
been more money coming in through Democrat administrations, through
Republican administrations, through Republican control of the House and
Senate and Democrat control of the House and Senate, every year we have
spent all the surplus from Social Security coming in. There has never
been a year since I have been in Congress and for the last 20 years at
least that the total debt of this country has not increased.
We started bragging back in 1995 and 1996 of a lock box, but that did
not last long. It was a gimmick phrase. Hopefully it was going to give
us the intestinal fortitude to slow down our increase in spending. It
did not work. In one year, we took the Social Security surplus and used
it to pay down some of the public debt, sort of like changing credit
cards, but the total public debt of this country subject to the debt
limit never went down. It continued to go up. Now that debt is over $7
trillion, and within the next four months we are going to have a vote
in the House and Senate to, yet again, increase the public debt of this
country, and hopefully, we can talk about that vote when it comes up,
talk about the fact that we are putting an extra burden on our kids and
our grandkids.
See what happens in the year 2030? If we do nothing to change these
programs, it is going to take over 50 percent of the current general
fund that we spend on the rest of the pie chart that we showed earlier
to accommodate Medicare and Medicaid and Social Security. Let me talk a
little bit before we close tonight about Social Security.
I was fortunate enough to chair the Bipartisan Task Force on Social
Security. Democrats and Republicans, after we heard testimony from the
experts for about a year, we all agreed that the longer we put off the
solution to Social Security, the more drastic that solution is going to
have to be.
With this chart I wanted to just give a quick bird's-eye view of the
temporary surplus coming into Social Security, and that is because the
taxes were increased so dramatically back in 1983 that we have had a
surplus. Now we are anticipating 2017 or 2018 is when there is less
money coming in from the Social Security tax than what is required to
pay benefits, and there are a lot of people that think that somehow
there is a Social Security fund with their name on it. Not so. This is
a pay-as-you-go program. Let me just explain that pay-as-you-go program
in Social Security.
Current workers pay in their FICA tax for Social Security on Monday,
for example, and by Friday it is all sent out in benefits. Current
workers pay the benefit of current retirees, and that is what is
bringing us into the predicament that we are now facing. When we
started Social Security back in 1934, the average age of death was 62,
and the official retirement age for benefits was 65. What does that
mean? That means that most people died before you paid out anything,
and the program was working very well. Now people are living longer,
the birthrate has gone down, and we are having a problem.
Here is how Social Security works. Benefits are highly progressive
based on earnings. At retirement, all of a worker's wages up to the tax
ceiling that is about now $89,000, all of the wages are indexed to
present value using wage inflation. What that means is and what the
next blip says is the best 35 years of earnings are averaged, but for
example, if wage inflation doubles, let us say, every 12 years, so if
12 years ago you were making $20,000, it is calculated on the way your
Social Security benefits are calculated to be double that or $40,000
now. So it is not the actual dollar amount that you earned 10, 20, 30
years ago. It is the wage inflation of what that kind of job would pay
today.
Here is how the progressivity of the Social Security system works. If
you are a very low income worker, you get almost 90 percent back in
Social Security checks of what you were making on your job in payroll,
90 percent of the earnings up to the first $7,344 is what you get back
in Social Security payments. The next space between $7,300 and $44,200,
you get 32 percent of that back, and then after that you get the 15
percent of earnings above the $44,000. So the more you earn, the less
percentage of what you get back. So if you are a very high income
earner, it is a little over 15 percent. If you are a very low income
earner, you get back up to 90 percent.
I just put this line in because a lot of people are concerned about
the fact that early retirees receive adjusted benefits. It is true. If
you retire early at 62, so based on the average life span, a wage
benefit is calculated so the person that retires at 62 and now dies at
the average age of 86 will get the same benefits as an individual that
waits to 65 years old to start taking those benefits. If you wait until
66 or 67, your benefits actually increase in those two following years
by 4 percent a year. So sometimes it is to your advantage to wait.
There has been a lot of debate and discussion on should we have
personally-owned savings accounts that belong to the individual worker
that the government cannot touch and that would bring in more earnings
than what Social Security would. When President Roosevelt first came up
with the proposal for Social Security, he suggested that it be
privately-owned accounts, and it would still be accounts that you were
required to put in a certain percentage of what you earn, but they
would be in your name and you could not take them out until you
retired.
It was interesting searching the archives. Actually, the Senate
passed a bill for personally-owned accounts, and the House, the House
said, well, government should be responsible and government should take
in all the money and the Federal Government should invest it.
{time} 2340
I think probably when it went to conference, because it was so soon
after the recession, that decision was made, well, we better let
government do it instead of having those accounts personally owned. But
Social Security is not a good investment. It is a system that
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we know is stretched to its limits, and that is because 78 million baby
boomers begin retiring in 2008. Social Security spending exceeds tax
revenues in 2017. Social Security Trust Funds go broke in 2037.
Now, just a word on the trust funds. As I mentioned earlier, every
year there is more money coming in from the Social Security tax than is
needed to pay benefits, and right now we are bringing in about $90
billion more than the benefits. But, again, that runs out in 2017-2018.
That is when there is not enough money coming in.
The government writes out an IOU to the Social Security Trust Funds.
It spends the money on other government programs or paying off some of
the Wall Street debt. But, again, we have never had a year where the
total debt of this country has not increased, so we are facing a
predicament with Social Security Trust Funds. Even if they are paid
back, it means increased borrowing or increased taxes.
I have a chart I hope to get through in a few minutes, because we are
going to conclude this evening's session soon, that shows that every
time the United States has been in problems with less money coming in
than what is needed for Social Security, they have done one of three
things. They have either increased taxes or reduced benefits or a
combination of both. Usually, it is a combination of both.
Here is a pictorial view of the demographic problems of fewer and
fewer people that are working and paying for the benefits of retirees.
In 1947, there were 34 working Americans paying in their Social
Security tax for every retiree. By the year 2000, it got down to three.
The estimate is that by 2025 there is going to be two American workers
paying an increased amount of Social Security tax to accommodate every
retiree.
A lot of people say that economic growth will not fix Social
Security. Social Security benefits are indexed to wage growth. So if
you have a strong economy, and there is more jobs and higher wages,
because you are paying in on those more jobs and higher wages
temporarily, there is more money coming in to Social Security. But in
the long run, when that person or that increased number retires, then
there is more money going out of Social Security. So economic
expansion, because of the fact that Social Security benefits are
directly indexed to how much you were making when you were paying in,
does not solve the problem. It simply tends to fill the hole a little
in the early years, but it leaves a bigger hole in the later years.
The fact is that it is going to take more than economic growth to fix
Social Security. And to think that you can fix Social Security simply
by upping taxes again only solves the problem in the short run. We have
to end up with a better return on those Social Security benefits.
As I make speeches around the country and around my Seventh District
in Michigan, a lot of people say, look, if government would keep their
cotton-picking hands off the Social Security Trust Fund money, then
everything would be okay. And I agree with that, we should keep our
hands off that Social Security surplus. It should be really invested
instead of spent on other programs. But to represent how great the
problem is, what the challenge really is to Social Security, I did this
bar chart.
Right now what we have borrowed from Social Security, taking all the
extra money in every year, plus paying interest on it, the IOUs now
amount to $1.4 trillion. But the extent of the Social Security unfunded
liability problem is between $11.9 trillion and $12.4 trillion. So I
use the figure $12.2 trillion as far as the unfunded liability. That
is, again, what we need in today's dollars over and above what is going
to be coming in from the Social Security tax.
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. To me, this shows why Social Security is not a good
investment. The real return on Social Security, the return of what you
and your employer, or if you are a sole proprietor, of what you pay
into Social Security, the return on average is 1.7 percent.
And I compare that, over in the far right chart, which is the
Wilshire 5000 Index. Over the last 10 years, even with a bad, poor 3
years on equity investments, still the 5000 equity stocks earned 11.86
percent. Compare that to the 1.7 percent that you receive from Social
Security.
This is how many years it takes to break even on your Social Security
benefits. By 2005, you have to live 23 years after retirement.
Okay, here, Mr. Speaker, is what we have been doing. Every time we
have gotten in some problems, we have simply increased taxes. This
chart shows the history of tax increases. In 1940, 2 percent of the
first $3,000. In 1960, they decided to raise it to 6 percent of $4,800.
Then in 1980, we made a big jump to 10.16 percent of the first $26,000.
By the year 2000, 12.4 percent of $76,000. Now it is 12.4 percent of
$89,000 this next year. So what we have done is continued to increase
taxes to the extent that now 78 percent of Americans pay more in the
Social Security tax than they do in the income tax.
And that is what that chart says; 78 percent of families pay more in
the payroll tax than in the income tax.
Here are six principles that seem reasonable to me as we try to face
the challenge of how do we change Social Security, and one of the
problems that I faced. I have introduced Social Security bills since I
first came to Congress in 1993 that have been scored to keep Social
Security solvent. In the changes back in 1993, 1994, 1995 and 1996, I
did not have to borrow any money from the general fund to accommodate
some of the changes that would keep Social Security solvent.
The six principles that seem reasonable to me as we protect current
and future beneficiaries are that we allow freedom of choice; we
preserve the safety net; we make Americans better off, not worse off;
we create a fully-funded system; and no tax increases. And maybe, if
there is another blip, it should be a system that makes sure that the
American economy stays strong instead of the kind of changes such as
increased taxes that are going to weaken our economy.
Let me conclude, Mr. Speaker, by asking everybody to make a guess of
what the FICA tax is in the country of France, for example. Right now
the payroll deduction on wages in France is over 50 percent to
accommodate the senior population. So no wonder France is having
trouble competing. No wonder France did not want to spend any money in
Iraq. No wonder there are demonstrations in France, because if you are
paying a 50 percent tax on wages that you have to withhold, then you
have two options. You either increase the price of your product, that
makes you less competitive, or you increase the wages you pay to your
worker. Let us not allow America and the United States to get into that
kind of predicament.
Germany just went over 40 percent of payroll tax. So, again, Germany
is discovering that it is much more difficult to compete.
Mr. Speaker, I would again encourage my colleagues and I would
encourage the American people to start talking to their candidates that
are running for Congress, that are running for the Senate, that are
running for President of the United States. What is their plan in the
long range to save Social Security, to keep Social Security solvent, to
save Medicare and Medicaid and keep those programs solvent? It is a
huge challenge, and we should be willing to face up to it.
{time} 2350
Mr. Speaker, we have had a system in this country where those who
work hard and save and try and invest end up better than those who do
not. So to continue to increase taxes on those individuals that do save
and do try and do invest is going to discourage some of the motivation
and incentives that have made this country great. Let us deal with
these problems now. Great empires that put off solutions to important
problems are those kinds of empires that collapse. Let us not allow
that in America.
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