[Congressional Record (Bound Edition), Volume 150 (2004), Part 7]
[House]
[Pages 8611-8614]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              {time}  1730
                TUTORIAL ON FEDERAL GOVERNMENT FINANCES

  The SPEAKER pro tempore (Mr. Cole). 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, this afternoon I am going to give 
sort of a tutorial on Federal Government finances. This is the 195th 
birthday of Abraham Lincoln and, in his famous Gettysburg Address, he 
sort of indicated, can a Nation of the people and by the people and for 
the people long endure? Of course, the challenge of the Civil War was a 
huge challenge. But I would suggest, Mr. Speaker, that a challenge even 
greater than the wars might be the willingness of the United States, 
the House and the Senate and the President, to deal with real financial 
problems and, of course, the financial challenge before us is 
overspending and overpromising.
  This is a pie chart of how we spend Federal Government money. We see 
at the bottom piece of the pie is the 21 percent that is spent on 
Social Security right now. Then, as we go around, Medicare is 12 
percent. However, it is interesting that Medicare is expected to be a 
greater piece of the Federal pie, if you will, a greater percentage of 
total Federal spending than Social Security within the next 25 years, 
because it is growing very quickly. Medicaid is 6 percent, also 
growing, and that is growing with the increasing number of seniors that 
are spending all of their savings, as they have spent $40,000 or 
$50,000 or $60,000 per year on nursing home care, and then after all of 
their finances have been depleted, then they go on Medicaid and the 
Federal Government starts paying nursing home care.
  Other entitlement programs, 10 percent. Entitlement means if you 
reach a certain age, if you reach a certain level of poverty, you are 
eligible for additional help. If you are a business or an industry or a 
worker, you are entitled if you work, but do not make very much money, 
you are entitled to an income tax credit. If you are a farmer and the 
prices of the products you sell are low, you are entitled to a 
supplement to build it up, that income, a little more for those farmers 
to keep the farmers in business. This Congress and the United States 
has been very generous with other people's money. In fact, so generous 
that we are now facing the dilemma of a huge debt and huge promises 
that I call entitlements, unfunded liabilities.
  The domestic discretionary spending that goes in the appropriation 
bills, along with defense, is 16 percent. Defense is 20 percent. With 
the Iraq and Afghanistan war, it has gone from about 19 percent up to 
20 percent, and then interest, interest, interest on this increasing 
debt.
  The interest cost for this country is now about $300 billion a year 
to pay interest at a rate that is the lowest, almost the lowest in 
history, but a very low interest rate. Alan Greenspan, the chairman of 
the Federal Reserve, has now suggested that there is no question that 
eventually interest rates are going to go back up again, and that, 
compounded by the fact that we are increasing the amount of debt that 
we have to pay interest on, it is anticipated that within the next 20 
years, interest on the debt will be one of the largest pieces of pie.
  What does that mean to future generations? What does that mean for 
our kids and our grandkids. I am a farmer from Michigan, and the 
tradition on the farm has been you pay off some of that farm mortgage 
to try to give your kids a little better chance at a better life than 
you might have had. But in this Congress, what we are doing is going 
the other way. We are building up a debt, we are building up 
obligations because, somehow, we think the problems we have today are 
so great that it justifies us borrowing money from our kids and our 
grandkids and making them pay for the overspending that we are pushing 
on them today in this Congress.
  Right now, we are in the midst of a budget decision in conference 
committee with the House and the Senate, trying to figure out a budget 
of what we are planning on spending for the 05 budget, that means the 
05 fiscal year starting September 30, October 1 of 04, and going for 12 
months until October 1 of 05, that is called the 05 fiscal year budget, 
and that is what we are working on, that is what we are arguing about.
  This year, the good news is it is probably the most lien budget that 
we have had since 1996. But still, it is growing at between two and 
three times the rate of inflation in terms of the increased expansion 
of that spending, the increased size of government, taking money away 
from the people that have it and coming up with new programs and new 
entitlements and new discretionary spending. That means that this year, 
we can anticipate in 04 we are looking at a debt that is going to be 
close to $600 billion. Next year the debt is going to be approximately 
$530 billion. We are spending more than what is coming in, and this 
just adds on to how much interest we are going to be paying in the 
future.
  Mr. Speaker, we are a country that is about, let us see, where are 
we, 228 years old. In the first 200 years of this country, we were very 
frugal and we have gradually accumulated a debt in that first 200 years 
of $500 billion. Now we are going deeper into debt, over $500 billion a 
year.
  Now, how do we get the discipline? How do we get the intestinal 
fortitude to say, look, we are going to quit playing politics and start 
doing what is right for our kids and our grandkids in terms of the 
overspending and the overpromising.
  Let me just mention what happens to a Member of Congress when they go 
home to their district. If they take home pork barrel projects, and 
pork barrel projects, as far as the line items for pork barrel projects 
that individuals take home: new libraries or new jogging trails or new 
whatever, or new promises of new programs, or keeping some historic 
monument in their hometown open, their chances of getting reelected are 
greater, because they get on the front page of the newspaper, maybe 
cutting the ribbon and they get on television.
  So in pleasing a lot of the American population that is, in effect, 
saying, give me more government, because it helps get some of these 
Members elected, we end up with a lot of Members that tend to want to 
make more promises, to solve more problems. But it is just so important 
that we remember where government gets its money is two ways: We either 
tax people that are now working and now earning money and take the 
money away from them to start these new programs, or we borrow the 
money and say, well, somehow, sometime, future generations are going to 
have to pay it back. It is a challenge that somehow we must face up to. 
That is one of the problems of overspending.
  Now I want to discuss for a moment overpromising. Here is our main 
overpromising programs, our entitlement programs. Medicare Part A, 
which is the Medicare program that is mostly for hospitals. Medicare 
Part B, the program that is mostly for doctors. Medicare Part A is an 
unfunded liability of $21.8 trillion, Medicare Part B, $23.2 trillion. 
The Medicare drug program that we passed last November is estimated, 
and this is from Tom Savings, these figures, an actuary for both 
Medicare and Social Security; he is estimating that Medicare Part D, 
the prescription drug program, has an unfunded liability of $16.6 
trillion.
  It is hard to conceive how much $1 trillion is. But compare that to 
what we are spending in this Congress, and right now we are looking at 
a budget that is going to spend $2.4 trillion. But if we add Social 
Security, about $12 trillion to the unfunded liability, it adds up to 
$23.5 trillion unfunded liability. That means that we would have to 
come up with $73.5 trillion and put it in a savings account today that 
is going to earn in interest at least equal to inflation and what is 
called the time

[[Page 8612]]

value of money, pretty much the interest rates, to accommodate the 
increased money that is going to be needed over and above what people 
are paying in on their taxes to accommodate what we promised in Social 
Security, what we promised in Medicaid and Medicare to keep those 
promises. A huge challenge.
  Why do we not pay attention to the obligation that we are passing on 
to our kids and our grandkids? I think, number 1, it is such a huge 
problem that it is easy to overlook it. It is easy for some people to 
say well, if the economy would get better, maybe we could solve these 
problems.
  But let me just talk about Social Security for a minute. Our 
retirement benefits are based on how much you are earning. So if you 
are earning a lot now, that means eventually when you retire at 65, you 
are going to get a lot more in Social Security benefits. So an expanded 
economy, the way we have written the Social Security law, does not fix 
the problem of Social Security.
  The unfunded liabilities, and I am going to show my colleagues 
unfunded liabilities, Mr. Speaker, in a different way, and that is at 
what percentage of our total general fund budget is going to have to be 
used to pay the difference between what is coming in in the payroll 
tax, the FICA tax, compared to what is going to be needed to keep 
promises.
  In just 16 years, in 2020, it is going to use 28 percent. We are 
going to need 28 percent of the general fund budget to accommodate the 
unfunded liabilities, what we need to pay in addition to the FICA tax, 
the payroll tax for Medicare, Medicaid and Social Security. By 2030, we 
are going to have to come up with over 50 percent. About 53 percent of 
the general fund budget is going to have to be used to accommodate 
keeping the promises for those three promises, a huge challenge.
  Let me say why I think it is so serious. That is because ultimately, 
this overspending and overpromising is going to mean tax increases some 
time in the future.
  The equivalent payroll tax in France right now to accommodate their 
senior benefit programs is over 50 percent. Now, what does that mean to 
a business in France? It means they are either going to have to 
increase the price of their product to accommodate that kind of 
payment, or they are going to have to reduce the wages that they pay 
those employees. I mean that is probably one of the major reasons why 
it is difficult right now for France to compete in a world market on 
much of their production. It is probably one of the reasons why there 
is a lot of demonstrations in the street with farmers and workers 
saying, I have to have more money, because you are taking too much out 
of my paycheck.
  In Germany right now, the payroll tax to accommodate senior citizens 
has just gone over the 40 percent mark. That means it is going to be 
tougher if we do not deal with these programs in the United States, if 
we put the solution off, number 1, the longer we put off the solution, 
the more drastic the solution is going to be; and number 2, if we have 
to start taxing our businesses, it is going to put them at a 
competitive disadvantage that much more than what it already is with 
other countries.
  Now I am going to talk about Social Security. The Social Security 
program was started in 1934 by Franklin Delano Roosevelt, after the 
Great Depression, when people, old people were going to the poor house. 
The President said, look, let us start a program where we have a law, a 
requirement that while you are working you put some of that money aside 
to make sure that you will be more socially secure when you retire. So 
we passed the Social Security Act in 1934. It started in 1935.
  Here is how Social Security works. Benefits are highly progressive 
and based on earnings. So the more you earn, the more you will get out 
in benefits when you retire. At retirement, all of a worker's wages up 
to the tax ceiling are indexed to present value using wage inflation.

                              {time}  1745

  Well, what that means is we have continued to raise the ceiling on 
how much we charge the 12.4 percent Social Security tax on and 
currently that is $89,000. So when I say up to the ceiling, that is 
$89,000. And when I say indexed at present value, that means that we 
have a wage inflation factor. So what you have earned over the last 35 
years, what you were earning, for example, 15 years ago, and if wage 
inflation doubles every 15 years, that $20,000 job 15 years ago would 
be added on in terms of determining what your benefits are on, that 
$20,000 would be up to $40,000, what that job is paying today.
  That is how we figure Social Security benefits. The best 35 years of 
earnings are averaged. If you only work 30 years, there are 5 years 
that are thrown in at zero.
  The annual benefit for those retiring in 2004, here is how it is 
progressive. Ninety percent of earnings up to the $7,344. So if you are 
a very low-income wage earner, you get 90 percent of what you were 
making back in Social Security benefits if that was your average for 35 
years. Over the 7,300 you get 32 percent of the earnings between the 
7,300 and the 44,268. And over the 44,000, you get 15 percent of 
everything over that 44,000 level.
  So that is progressive in benefits to the extent that if you are a 
very high- income worker, you will be getting back maybe 15 or 16 
percent of what you paid in; and if you are a very low-income worker, 
you will get 90 percent of what you pay in.
  Early retirees receive adjusted benefits. If you decide to retire at 
age 62, the actuaries have figured out on average how long you are 
going to live. So if you are very healthy and you think you are going 
to live longer, then you are better off to wait until you are 65 to 
retire. If you do not think you will live very long, it will probably 
be better to retire early at 62.
  I added this last blip because, as I have given speeches across 
Michigan and across the United States, a lot of people say, well, there 
is a lot of cheating going on with supplemental security income paid 
out by the Social Security Administration. Well, it is paid out by the 
Social Security Administration, but it does not come out of the Social 
Security trust fund. It comes out of the general fund. It is a program 
for low-income people with some kind of disabling problems that becomes 
a program to help low-incomes with problems, like a welfare program, 
but it does not come out of Social Security.
  I am going to go rapidly through some of these charts. This chart 
demonstrates why we are in a problem now with the PAYGO program. I 
chaired the bipartisan Social Security Task Force in Congress made up 
of Democrats and Republicans. And after almost a year of hearing 
testimony, we all agreed that something has to be done, and the sooner 
the better, to correct Social Security. Otherwise, we are going to be 
in huge problems of insolvency in the near future.
  This represents the problem of a Social Security program that was 
developed in 1934, saying that current workers pay in their taxes that 
are immediately sent out to current retirees. So it is a challenge of 
having enough workers to pay in a FICA tax, a pay roll tax, to 
accommodate the number of seniors. And of course what is happening is 
the birth rate has been going down and the length of years that a 
person lives has been going up. In fact, in 1945 we had about 34 people 
working paying in their taxes for Social Security for every one 
retiree. By the year 2000, it got down to three people working. This is 
because people are living longer because the birth rate is going down.
  By 2000 we had three people working paying in their increased tax 
now, because that is what we do every time we run into problems: we 
increase the taxes. Now three people are working for every retiree. The 
estimate by the actuaries is by 2025 there will only be two people 
working, paying in their increased tax for retirees. There are 78 
million so-called baby boomers, the babies that were born right after 
World War II from 1946 to 1966. Seventy-nine million of what are the 
high-income workers now, mostly paying in the maximum Social Security 
tax, are going to be retiring and drawing out the maximum Social 
Security benefits. And that is why the insolvency is coming very 
quickly.

[[Page 8613]]

  The insolvency on Social Security will be here some time between 2016 
and 2018 according to the actuaries' report. Insolvency is certain. We 
know how many people there are, and we know when they will retire. We 
know when people will live longer in retirement, and we know how much 
they will pay in and how much they will take out. So we know that 
Social Security is insolvent. We know that it is going to take $12 
trillion in today's dollars, put into a savings account to accommodate 
what we need to pay out, promised benefits, over and above what is 
coming in in the pay roll tax.
  So do we start using the income tax to pay Social Security benefits? 
Do we change Social Security into a welfare program where we say that, 
oh, if you have been lucky enough to be successful in America, then we 
will not pay you Social Security even though we have made you take 
money out to save for retirement? The general feeling is that there 
would be some danger in a lack of support. In fact, the unions have 
suggested that we do not make it into a welfare program because America 
is a place where we started with our forefathers writing a Constitution 
sort of designing our economic system, in effect saying that those that 
study and learn and use it, those that work hard and save end up better 
than those that do not.
  Now, we have been in sort of a system of dividing the wealth and 
saying pay in according to your ability and the government will provide 
services according to your need. There has got to be, for lack of a 
better word, maybe a golden mean to still have that kind of incentive, 
to do what has made America great in the first place, and that is to 
work hard.
  A young couple that decides to work two shifts or both mom and dad 
work so they can earn more money to have a better life for their kids, 
we now not only say, well, if you are going to earn more money, we are 
going to tax you more. But if you earn more money, we will even tax you 
at a higher rate than if you just worked as a single parent or just 
worked on one 8-hour shift instead of doing two 8-hour shifts.
  Social Security benefits are indexed to wage growth. So when the 
economy grows, workers pay more in taxes but they earn less in benefits 
when they retire. Growth makes the numbers look better now, but leaves 
a larger hole to fill later on. And that is why when I introduced my 
first Social Security bill in 1994, it was much easier to achieve 
solvency than it is today. And the estimate in 1994 was Social Security 
was going broke in 2012. Now the new estimate is that Social Security 
probably is going to last until 2018, 2017 or 2018, because there is 
more money coming in, but eventually there is going to be more money 
going out.
  Social Security has a total unfunded liability of over $12 trillion. 
The Social Security trust fund contains nothing but IOUs. And 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.
  Social Security is not a good investment. And so one way to fix 
Social Security is getting a better return on the money made in. And 
that is why many people, including President Clinton, including 
President Bush, including myself and other Members have suggested let 
us look for a better way to get a better return on the money that 
people pay in on their payroll taxes. The average return is 1.7 percent 
for retirees on Social Security. If you are a minority, because black 
young men have an average age of death at approximately 63 years old so 
many of them do not collect benefits, but if you compare the average 
retiree return at 1.7 percent for the average Social Security 
recipients, compare that to what has happened for equity investments, 
and even the Wilshire 5,000 actually earned 11.86 percent after 
inflation over the last 10 years ending January 31, 2004. And that is 
even through some downer years after the bubble broke on the stock 
markets.
  So even with those downer years, you have an average equity return on 
those 5,000 stocks of over 11 percent, and that compares to the 1.7 
percent on Social Security. Is there some way to accommodate both sides 
so that there is some concern that we do not want to have private 
investments so wild that individuals can invest in things where they 
might go broke and still come back on the government?
  But the other side of the coin is, is it reasonable to have a worker-
owned account that is their property, that if they die early it passes 
on to their heirs? Some kinds of structures such as Federal employees 
have in the Thrift Savings Account is what I have structured into my 
Social Security bill to essentially try to limit it to safe 
investments.
  Just quickly on this chart, again trying to represent and convince 
that Social Security is not a good investment. If you retired in 1980, 
you have to live 4 years after retirement to break even on Social 
Security. By 2005, next year, you are going to have to live 23 years 
after retirement to break even. And then you see what happens after 
2015. You have to live 26 years after you retire to break even.
  Well, here is what we have done in the past. Every time we have 
gotten into trouble, we either increase taxes or reduce benefits or a 
combination. And of course, in 1983 under the Greenspan Commission that 
is what we did; we said we are going to increase the retirement age to 
67, gradually, so that is going to gradually happen. That started 2 
years ago on so many months per year. But mostly it has been increasing 
taxes.
  In 1940, we went from 1 percent up to 2 percent. It was 2 percent of 
the first 3,000. In 1960 we raised it to 6 percent of the first 4,800. 
In 1980 we raised it to over 10 percent to over 25 to almost 26,000. In 
2000 we raised it to 12.4 percent of the first 76,000. In 2004 it went 
up to 87,000. Today it is up to 89,000. So you pay your 12.4 percent 
tax on your first 89,000.
  If you are self-employed, of course, you pay all of it. If you are 
working for somebody, then the company says, well, I am going to in 
effect reduce wages to pay my 6.2 percent. So I really think it is fair 
to assume that the whole 12.4 percent comes out of the worker's pocket 
even though the worker only actually sees on his pay check stub the 6.2 
percent coming out of his pocket. The other 6.2 the employer pays. But 
here is what happens: now 78 percent of families pay more in the 
payroll tax than they do in the income tax. Huge challenge.
  And what this also means is back to our starting point of 
overpromising government programs and overspending and going in debt, 
today 50 percent of the adults in America pay about 1 percent of the 
total income tax. And so you can see that there are some parts of our 
population that have little to lose if they say, give me more 
government programs.
  So there is that kind of pressure with lobbyists coming in and 
saying, well, we represent this program or that program. In my 12 years 
in Congress, my experiences have been that if new programs can last 2 
years, then the interest groups to try to continue that spending are in 
visiting all of our offices saying how important their program is. And 
so the momentum of 2 years and 3 years almost becomes an entitlement 
program, even though we call it discretionary spending, that goes 
through the appropriations process.

                              {time}  1800

  Here are six principles that I have in my five Social Security bills 
that I have introduced. All have been scored to keep Social Security 
solvent. The six principles I have used is protect current and future 
beneficiaries, allow freedom of choice, preserve the safety net, make 
Americans better off, not worse off, and create a fully funded system. 
I think it is really important not to have any tax increases on 
workers.
  I am just going to go through some of the highlights of my Social 
Security bill. Number one, it is scored by the Social Security 
Administration to restore long-term solvency to Social Security. There 
are no increases in the retirement age, no changes in the COLA, that is 
the cost of living index every year, and there are no changes in 
benefits for seniors or near seniors.

[[Page 8614]]

Solvency achieved through higher returns from worker accounts and 
slowing the increase in benefits for highest earning retirees.
  Remember, Mr. Speaker, I had the chart that had the bend points of 
the 90 percent, the 32 percent and the 50 percent. I add another bend 
point of 5 percent which has the effect of slowing down the increase in 
benefits for high-income retirees. That is how I pay for the transition 
to allowing a worker to take 2.5 percent of their income and putting it 
in an account they own, even though government limits where they can 
invest that money.
  Social Security trust fund continues. Voluntary accounts would start 
at 2.5 percent of income and would reach 8 percent of income by 2075. 
The 8 percent would be bringing in much more money than they ever would 
have received with the existing Social Security program. Investments 
would be safe, widely diversified. Investment providers would be 
subject to government oversight. The government would supplement the 
accounts of workers earning less than $35,000 to ensure that they build 
up a significant savings, too. Actually, I sort of copied this from, I 
think, the USA account that President Clinton proposed that says for 
low-income workers, let us start adding to their savings and let the 
magic of compound interest build up their accounts, so even an average 
income worker can retire with millionaire-type benefits.
  All worker accounts would be owned by the worker and invested through 
pools supervised by the government, sort of like our Thrift Savings 
Account for all government employees and Members of Congress. That is 
how they save. Sort of like the regulations would be instituted to 
prevent people from taking undue risk. Workers have a choice of three 
safe indexed funds with more options after their balance reaches 
$2,500.
  Accounts are voluntary, so you do not have to go into this system of 
investing part of your money in private accounts if you do not want to 
and you can stay with the traditional program. But what we can do 
because the actuaries have scored that the investments on these types 
of limited investments will make more than the 1.7 percent Social 
Security pays you, we can guarantee workers in their personally-owned 
accounts will have as much return on that portion of their retirement 
income as they would have on the fixed Social Security system. You 
still would get your Social Security benefits, but to the extent that 
your traditional Social Security benefits are going to be reduced 
proportionally by the 2.5 percent of your earnings that you put into 
this savings account, so you will end up getting both the return in 
investments from the savings account as well as the fixed payments from 
the traditional Social Security.
  Government benefits would be offset based on the money deposited into 
their account, not on the money that you might earn from that account, 
and workers could expect to earn more from their account than from 
their traditional Social Security.
  Here are some provisions that are interesting, Mr. Speaker. It is 
what I call fairness to women. To be politically correct, probably you 
would call it fairness to spouses. Actually I was told that there were 
more females that graduated from college last year than males, so maybe 
eventually the women will be the high-income workers. What I have said 
is for married couples, account contributions would be pooled and then 
divided equally between husband and wife. So if one spouse earns a lot 
more than the other spouse, you add the two incomes together, what they 
are allowed to invest in their personal retirement savings account, and 
you divide by two. So each spouse has the identical amount invested in 
their personal retirement account. It would increase surviving spouse 
benefits to 110 percent of the highest earning spouse.
  One challenge that we have in the increased cost of Medicaid is 
people moving out of their homes. And now even with 100 percent of the 
higher spouse's earnings, when one spouse dies, and the projection is 
for the males to have about 3 years' shorter life span than the 
females, so you have a widow that is trying to get by on 100 percent. 
Often that is not enough to accommodate the fixed costs of staying in 
their own home. So in several ways in this bill, I try to encourage 
staying in their own homes instead of going into a nursing home. This 
is a bipartisan bill sponsored by both Democrats and Republicans. The 
way I do this is increasing the minimum to 110 percent instead of the 
existing 100 percent. And then stay-at-home mothers with kids under 5 
would receive a retirement credit for a certain number of years.
  If you are a mother staying home with your kids, then we will give 
you the high average earnings to fill in some of those years because 
you have to have 35 good years. So it seems reasonable for those 
mothers that are probably working as hard as their spouse, anyway, 
staying home with their kids, that you give them credit for those years 
that they are staying home with those kids under 5 years old. But I 
limit the number of kids and limit the number of years.
  Here is the last sort of sheet that I have done. This does a couple 
of things. We have one of the lowest savings rates in the world right 
now. Where our savings rate used to be as high as 6 percent, now it is 
actually about 1 percent. This whole mood of buy now and pay later, the 
mood of this Congress, in fact, that tends to say, well, a little 
borrowing now might improve something later on, so we are going deeper 
and deeper in debt. Likewise in the unfunded liabilities, we make more 
promises. So we sort of tried to look at a system that is going to 
allow encouragement to increase savings. We increase contribution 
limits on IRAs and 401(k)s and pension plans. We include in our 
legislation a 33 percent tax credit for the purchase of long-term care 
insurance up to $1,000, $2,000 if you are a married couple, per year. 
Low-income seniors would be eligible for a $1,000 tax credit for 
expenses related to living in their own home or if the seniors live 
with their kids or somebody else, that tax credit would be eligible for 
that particular family.
  In conclusion, overspending is dangerous for the economy. It is 
dangerous for our kids and our grandkids. In fact, it makes us more 
susceptible to international pressures. It makes us vulnerable. If one 
were to guess, Mr. Speaker, how much of our deficit this year is being 
financed by foreign countries, foreign investments, what would you 
guess? Seventy percent. Foreign investment is picking up 70 percent of 
the money that we have to borrow this year for overspending.
  Right now, foreign investments lend to the United States Government 
33 percent of our debt in this country. A huge challenge. Our trade 
deficit of now over $500 billion means that some countries have decided 
that they would prefer to keep those dollars and invest them by buying 
our businesses, by buying our equities, by buying our Treasury bills 
rather than buying the products that we make in this country. China, of 
course, is a huge challenge. I just recently returned from China. 
China's trade deficit with the United States, our deficit, has gone up 
to $125 billion. That means China takes these $125 billion and buys 
part of our Treasury bills, buys some of our equities. That results in 
us being more vulnerable to trade negotiations. If they say, well, 
look, United States, you're not being fair with us, we might just have 
to pull our money out of your Treasury bills. With foreign investments 
borrowing 30 percent of our money, tremendously vulnerable, it would 
put us at a huge disadvantage. Not only is this overspending and 
overpromising a burden on our kids, it is a tremendous challenge to our 
future economy.

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