[Congressional Record (Bound Edition), Volume 149 (2003), Part 18]
[House]
[Pages 24264-24267]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    KEEPING SOCIAL SECURITY SOLVENT

  The SPEAKER pro tempore (Mr. Murphy). 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, I am going to talk for a little 
while about another dilemma facing this country, and that is the 
problem of keeping Social Security solvent.
  We developed a program back in 1934 that provided that existing 
workers pay in their taxes, and then immediately those taxes were sent 
out to retirees. Franklin Delano Roosevelt, after the Great Depression, 
seeing many American families going over the hill to the poor house, 
like Will Carlton wrote about in Hillsdale County, Michigan, where I am 
from, provided a program which said let us have some forced savings 
during your working years so you have greater social security in your 
retirement years.
  It is interesting searching the archives in which the Senate said 
that these accounts should be in privately owned accounts, but you can 
only take them out when you retire. The House, on the other hand, 
passed a bill which said the government should collect all of the money 
and then send out the money to existing retirees as those individuals 
reach 65 years of age. This pay-as-you-go program worked very well in 
those early years because there was a growing number in the workforce, 
and most people died before they reached 65. Actually, up until 1939, 
the average age of death was 62 years of age. So if a person paid in 
all their life and never reached 65, the program worked very well.
  Now we are faced with the dilemma of two colliding forces hitting us 
and many other countries of the world. Those two colliding forces are 
the fact that we are living longer and the birth rate is declining. 
That means that there are fewer workers paying in their taxes to 
accommodate the needs of a growing number of retirees in relation to 
the number of workers paying in their taxes.
  I would ask all my colleagues to agree to three goals of retirement 
security. We are going to have to deal with it. We have known that for 
the last 12 years, that Social Security was going broke, that it could 
not stay solvent. The three requirements that I think everyone should 
agree to are, one, continue to provide retirement security for the 
elderly; number two, give young people an opportunity to improve their 
retirement prospects; and, number three, benefit the economy instead of 
burdening it.
  Now we are faced with a situation where every State in the Nation has 
changed their retirement program from a fixed benefit after people 
retire to a fixed contribution. Most companies, most of our industry 
and companies have also made that change simply because the fact is 
very clear that with a declining number of workers and an increasing 
number of retirees in relation to the number of workers simply because 
we are living longer, requires that the only program that can continue 
and be solvent is moving towards a fixed contribution program.
  Here is the dilemma that I would like to call to the attention of my 
colleagues, and that dilemma is the fact that every time this country 
has run into problems of not having enough Social Security tax money 
coming in through the FICA tax, one of two things have happened: we 
have either increased taxes or we have cut benefits, or we have done 
both.
  This chart represents how much we have increased taxes over the 
years. In 1940, the rate was 2 percent on the first $3,000 for a 
maximum tax on any individual worker in this country of $60 a year. By 
1960, we decided to up that tax rate, and we increased it threefold to 
6 percent on the first $4,800 for a total tax that was payable by 
workers in this country of $288.
  In 1980, up to 10.16 percent, jumped it up to $25,900, up to almost 
$26,000, and the total tax paid in by any individual increased also to 
$2,631.
  By 2000, we are paying 12.4 percent; it is on $76,200. That is 
indexed back in the so-called Greenspan Commission in 1983 where we 
changed the Social Security laws to cut benefits to increase the 
retirement age and to again increase taxes, and so the age today is the 
first 12.4 percent on $84,000 because it is indexed to inflation.
  I just cannot stress strongly enough, if we put off the solution to 
this problem, Washington, Congress, the House and the Senate and the 
President, are

[[Page 24265]]

going to repeat what they have done so many times in the past until 
disaster is upon us and then simply wait until the disaster is upon us 
and then say we are going to have to increase taxes and cut benefits.
  I call on my colleagues as aggressively as I can to say, look, the 
longer we put off the solution, the more drastic that solution is going 
to have to be, and it is unfair to American workers. The fact is that 
most American workers today, 76 percent, pay more in Social Security 
tax than they do for income tax.
  This is a pie chart that I thought would be good to represent how big 
Social Security has become as a portion of total State and Federal 
Government spending. Social Security now takes 22 percent of the total 
spending of the Federal Government. Defense, even with the problems in 
Iraq, Afghanistan, are still only 18 percent, growing up now to 19 
percent.
  Domestic discretionary, all of the arguments that we do from February 
through most of the year on the 13 appropriations bills uses up 19 
percent of the total Federal budget compared to 22 percent for Social 
Security. Other entitlements, 14 percent; Medicaid, 6 percent; 
Medicare, 11 percent. But here again, if we add prescription drugs to 
Medicare, Medicare eventually over the next 30 years could overtake 
Social Security as far as the portion of the Federal budget that is 
used for that particular program.
  It is easy for Members of Congress to try to do good and solve more 
problems for the people. In fact, I see part of the dilemma is a Member 
of Congress coming up with new problems to help solve some of those 
problems back home probably increases his or her chances of being 
reelected because they are on television and the front page of the 
newspaper cutting the ribbon for the new jogging trail or the new 
library or the new pork project or the new social program that they 
have introduced and passed in this Congress.
  What do we do in a Congress that we have today where more and more 
Members of Congress represent a population that wants more from 
government? Right now over 50 percent of the people in the United 
States get more from government in government programs than they pay in 
in taxes, so we can understand a lot of those individuals go to their 
Member of Congress, or their Senator, and say I do not care about the 
increased taxes. And that is because they do not pay into the income 
tax contribution part of our programs here in this country, and so we 
have over 50 percent of the American people that now get more from 
government than they pay in taxes, and so the tendency of a lot of 
those individuals is to suggest to their representatives, let us have 
more government. I think this is a huge danger of taking away some of 
the things that has made this country great.
  When our forefathers started this country 227 years ago, I think I am 
right on that, they said we want a Constitution that provides that 
those people that work hard, that save, that study and use that 
education end up better off than those that do not. And now we have a 
Congress that says let us sort of level the playing field and make sure 
that everybody has about the same, so we take away from the people that 
have been successful and give it to those individuals, maybe that have 
had bad luck, but maybe they have not had the inspiration to save. I 
think there is a danger in taking away the motivation that has made 
this country great. The bigger government gets, the more empowerment we 
give bureaucrats; and the more we take away from individuals as far as 
being responsible for their own lives, the greater danger we face in 
terms of weakening our economy and weakening our relative economic 
position with the rest of the world.
  Back to Social Security, this chart shows the dilemma in terms of a 
short-term surplus and very long-term future deficits. There is going 
to be less money coming in in Social Security tax than is needed to pay 
out benefits in about 2016 to 2017. Some people suggest just have 
government pay back what government has borrowed from the Social 
Security trust fund and we will be okay. Well, I agree, government 
should keep their hands off the Social Security surplus and the trust 
fund, but now government has borrowed $1.3 trillion from Social 
Security, and it is going to pay it back. It is going to be tough 
because we are going to have to increase taxes, or we are going to have 
to increase borrowing to come up with that $1.3 trillion.
  We will do that, but what do we do to come up with the estimated 
additional $10 trillion that is needed to keep Social Security solvent? 
Again, this represents how there are fewer and fewer numbers of workers 
paying in their Social Security tax to cover benefits. In 1940, there 
were 38 workers working, paying in their taxes for every one retiree 
that we had in America. By 2000, it came down to three individuals that 
were working for every one retiree. As the ratio of workers to retirees 
diminishes, that means that if we are going to keep those retirees and 
seniors at the same level of Social Security, then the taxpayers, the 
current workers, are going to have to pay in more.

                              {time}  2115

  The prediction is that by 2025 there are going to be only two people 
working to come up with enough taxes to accommodate every senior that 
is retired.
  Some people have suggested that if economic times were better, maybe 
we would solve the problem. Not so, Mr. Speaker. Insolvency is certain. 
We know how many people there are and when they will retire. We know 
that people will live longer in retirement, and we know how much they 
are going to pay in and how much they are going to take out.
  Payroll taxes will not cover benefits starting in 2017, and the 
shortfalls will add up to $120 trillion. That is hard for even Members 
of Congress to know how much $1 trillion is, but it is going to add up 
to $120 trillion that we are going to have to come up with by either 
increasing taxes or increasing borrowing over the next 75 years to keep 
the promises that we have made in Social Security.
  That $120 trillion paid over the next 75 years represents another 
statistic that I give, and that is that it is going to take about $11 
trillion today or $11 trillion unfunded liability, and that means 
coming up with $11 trillion today, put it in some kind of a savings 
account that is going to earn the average rate of return that we get on 
government bonds right now to accommodate the $120 trillion. It earns 
interest over the next 75 years.
  I am disappointed that there have been only 26 colleagues that I have 
counted in both the House and Senate that have been willing to sign on 
to a Social Security bill that has been scored to keep Social Security 
solvent. I mean, it is so easy to put off these challenges because it 
is an easy issue to demagogue. Ninety percent of the seniors today 
depend on Social Security for most of their retirement income. So one 
can understand that when a Democrat or a Republican comes up with a 
proposal for Social Security, and I know this for a fact because I 
introduced my first Social Security bill when I came to Congress in the 
1993-1994 session of Congress, and the next election my opponents were 
saying ``Nick Smith wants to ruin Social Security.'' It is easy to 
demagogue; so we have shied away from it. We have not stood up to our 
responsibilities.
  I have heard Members of Congress say it is up to the President to 
decide. I have heard Members of Congress say the President maybe misled 
us on Iraq. The fact is that, for lack of a better word, we cannot be 
wimps in terms of our responsibility in Congress. Whether it is Iraq 
and we have the opportunity to have all of the classified information 
that the President does or whether it is solving Social Security, there 
is a responsibility for the initiative to come from Congress just as 
much as it should come from the President. This represents what we have 
borrowed from the trust funds.
  And let me mention an interesting fact, in 1983, with the Greenspan 
Commission rewriting our Social Security laws, they suggested at that 
time that

[[Page 24266]]

we needed the kind of increase, the 12.4 percent increase, in taxes 
with the increased base that we showed on that earlier chart. They 
suggested that we need a 12.4 percent on an expanded base that started 
at about 70,000 and is at 84,000 today, but they admit now that they 
made a mistake, that they increased taxes higher than what was needed. 
That is why former Senator Moynihan said, Let us lower the tax and have 
just enough tax to cover benefits; and of course, if we had done that, 
it would have made it very clear that this was a program that could not 
sustain itself and was not solvent.
  Because of the increased tax, there was extra surplus coming in every 
year, and so now government borrowed that extra money that was not used 
when it came in. The money that was not used to pay benefits has now 
amounted to $1.3 trillion, but the shortfall after the full repayment 
of the trust fund is $10 trillion. So it is going to take $11.3 
trillion as the current unfunded liability of Social Security, a huge 
amount, and it needs to be dealt with.
  Social Security is a system stretched to its limits. Seventy-eight 
million baby boomers begin retiring in 2008. Seventy-eight million baby 
boomers begin retiring in 2008. That means any pay-as-you-go program, 
whether it is Social Security or Medicare, our anticipation that extra 
taxes are going to come in from workers is not correct in a situation 
where these workers are going to be fewer in relation to the number of 
retirees and to the additional responsibilities that government has in 
this country.
  Social Security spending exceeds tax revenues in 2017, and Social 
Security trust funds go broke in 2037, that is, if we pay back all that 
we have borrowed. But remember what government has done in the past is 
to increase taxes and reduce benefits so that they do not have to pay 
it back, and that is the challenge, that is the threat. That is why 
every senior citizen should say to every candidate running for Congress 
next year, what are you going to do about Social Security? What bill 
have you written or what bill have you signed on to that is scored to 
keep Social Security solvent?
  It is not new. I mentioned my first bill was in the 1993-1994 session 
of Congress when I first came to Congress. Here is what the 
Commissioner of Social Security Dorcas Hardy said back in 1991: ``The 
crisis is coming fast, in the lifetime of a few already retired and of 
almost all those now under the age 55. The stakes are high, trillions 
of dollars.''
  In 1994, I said: ``Failing to take prompt action on Social Security 
will burden our children and grandchildren with benefit cuts and 
crippling taxes,'' and that is what I said about every year, and it is 
so discouraging to not pay attention to what I think is one of 
America's greatest challenges, and that is to save Social Security.
  We talk about Iraq. I think if we are going to talk about Iraq and 
what are our responsibilities on national security, it is just as 
important to look at retirement security and economic security in this 
country; and that means, as we talk about Afghanistan, Iraq, and what 
it is going to take for expenditures, we should also be talking about 
what it is going to take to keep Social Security solvent and to keep 
Medicare solvent.
  Let me read a couple more quotes. ``Will America grow up before it 
grows old? Will we make the needed transformation early, intelligently, 
and humanely, or procrastinate until delay exacts a huge price for 
those least able to afford it?'' And that was the former Secretary of 
Commerce and Concord Coalition President Pete Peterson in 1996.
  In 1998, Tim Penny, a Democrat from that side of the aisle, was very 
aggressive as he studied Social Security, and he said at that time, 
``We face a crisis in the Social Security system, and we can no longer 
wait to put it on sound footing. We need to move from the unreliable 
'pay-as-you-go' system to one based on benefiting from real 
investment.''
  And in 1998 and 1999, I chaired the bipartisan Task Force on Social 
Security, and here is what all the Democrats and all the Republicans on 
that task force agreed when we completed. And we agreed, ``Time is the 
enemy of Social Security reform, and we should move without delay,'' 
and, again, that was all the Democrats and all the Republicans that 
agreed to that fact.
  And yet nothing happens.
  This chart represents that Social Security is not a good investment. 
The columns represent how long one is going to have to live after they 
retire to break even on what they and their employer put into Social 
Security. Of course, in the early years, it was a good deal and they 
were getting started and were not working very long; so they got back 
everything they put in very quickly. But by 1995, they had to live 16 
years after retirement. By 2005, they have to live 23 years after 
retirement to break even, and now it is up to 26 years.
  The average return on Social Security is 2.7 percent. So can we do 
better than that? The answer is yes. We can guarantee that we can do 
better than 2.7 percent on a lot of investments. The Social Security 
Benefits Guarantee Act, when F.D.R. created the Social Security program 
over 6 decades ago, he wanted it to feature a private sector component 
to build retirement income, and 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.
  I mentioned the Senate passed Social Security legislation that said 
there should be private accounts owned by the individual and so if that 
individual died before 65, it goes to their heirs. The House said 
government should do it all. When they went to conference, the House 
went out, and we ended up with the pay-as-you-go program that we have 
today that is going insolvent.
  The diminishing return on the Social Security investment, the average 
return is less than 2 percent. It is about 1.7 percent. If they happen 
to be a minority because of the fact if we take the average young black 
worker, they die before the age of 65, before they gain all the 
benefits of the retirement program. So actually they do not break even; 
they have a negative return on what they pay into Social Security.
  The average is 2.7 percent, but the Wilshire 5000, and that is from 
1993 until 2003, even during these bad years of the stock market, these 
poor performing years of 2001, 2002, and 2003, even with those years 
included, the average return over and above inflation has been 7 
percent.
  So are we smart enough to come up with some way to have private 
accounts and limit what those private accounts can be invested in? And 
probably they are going to be managed by government. That is what I am 
suggesting. There are going to be limits on what that individual can 
invest in, but something like what Members of Congress and Federal 
employees are allowed to do now in the Thrift Savings Account, they 
would have some choices of how that money is invested.
  Of course, the older one gets, the more reasonable it is to put more 
money in bonds and less money in equities. But just consider that for 
the last 100 years, any 14-year-period we have not averaged less than 
that 7 percent growth in equities. So if the economy and government and 
an indexed stock fund is not going to increase, then this country is 
not going to be economically well off anyway to pay Social Security 
benefits.
  But the fact is that it is going to be, and when I suggest that there 
should be a program that is going to help the economy, requiring this 
additional savings and investment, that is what makes our economy tick. 
Our savings rate is one of the lowest in the world, but if we can 
encourage greater savings and investment, then we have a greater 
assurance that our economy is going to stay strong.
  I am going to finish up with a fact that the United States, compared 
to other countries, has not done very well in moving into a system of 
having individually owned accounts. The U.S. trails many other 
countries. In the 18 years since Chile offered the PRAs, the Personal 
Retirement Accounts, 95 percent of Chilean workers have created 
accounts. Their average rate of return

[[Page 24267]]

has been 11.3 percent per year. Among others, Australia, Britain, and 
Switzerland offer worker PRAs.
  Let me conclude, Mr. Speaker, by reminding our Members that the 
Supreme Court on two occasions now have said that there is no 
entitlement for Social Security benefits, that government simply has 
put in a tax on people on the one hand, and on the other hand they are 
providing benefits that is called Social Security. But twice now the 
Supreme Court has said there is no entitlement.

                              {time}  2130

  Just because you paid into Social Security does not entitle you to 
take Social Security benefits. I mention that because the threat is, 
with Congress in a desperate situation, they are going to tend to 
reduce benefits. You can reduce benefits by reducing the COLA increase 
per year, you can reduce benefits by saying that you are going to have 
to retire at an older age, and you can reduce benefits by increasing 
taxes on individuals.
  So I just plead with my colleagues, I plead with the American people, 
to be vigilant this coming election, and ask your candidates that are 
running for President or for United States Senator or for this U.S. 
House of Representatives, have you written or signed onto legislation 
that is going to keep Social Security solvent?

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