[Congressional Record (Bound Edition), Volume 150 (2004), Part 8]
[House]
[Pages 11108-11111]
[From the U.S. Government Publishing Office, www.gpo.gov]




               FEDERAL SPENDING AND FISCAL RESPONSIBILITY

  The SPEAKER pro tempore (Mr. Feeney). Under the Speaker's announced 
policy of January 7, 2003, the gentleman from Michigan (Mr. Smith) is 
recognized for 54 minutes, unless the remaining speaker does not come 
to claim her time, in which case he has a full 60 minutes.
  Mr. SMITH of Michigan. Mr. Speaker, 54 minutes probably is very 
adequate. I was sitting up in my office listening, reading letters from 
constituents, letters that wanted more money for the AIDS program, 
letters that wanted more money over the approximately $29 billion that 
is going to our foreign support programs. They wanted more money for 
food stamps, letters coming in wanting more money for health care, 
wanting more money for NIH. I think it should be obvious, certainly it 
is with most of our Members, that there are many, many problems out 
there; and the question is how many of those problems should it be the 
responsibility of government to solve.
  We are now faced with a situation in the United States where 
approximately 50 percent of the adult population only pay about 1 
percent of the income tax. So as we have moved in the last 30 to 40 
years from an environment that our forefathers set up in the 
Constitution that encouraged effort, it encouraged savings, it 
encouraged individuals that saved and worked hard and invested, because 
they would be better off than those that did not; then, over the last 
35 to 40 years, we have been sort of dividing the wealth up by 
increasing the taxes on those that might make it or those that work 
harder, or those that save and invest, and distributing some of their 
tax money to the individuals that made less effort or were, in other 
words, sometimes unlucky. I think that is a danger for our future.
  Mr. Speaker, this is the 195th year of Abraham Lincoln's birth; and 
in his famous Gettysburg Address, he sort of surmised and wondered if a 
nation of the people, by the people and for the people could long 
endure. And I think in this kind of an environment where we have both 
sides of the aisle now calling for more spending; and it is an 
advantage to get reelected, Mr. Speaker, those individuals that take 
home more pork barrel projects, that promise more spending to solve 
more of these problems, probably do get on the television a little 
more, maybe get a picture of cutting their pork barrel project ribbon 
that they have taken home to their community. But the imposition on 
taxpayers today and maybe more importantly the burden that we are 
placing on taxpayers tomorrow, our kids and our grandkids, should be 
considered in the decisions we are making today.
  I wanted to start out, Mr. Speaker, with sort of a pie chart on how 
we spend our Federal dollars this year.

                              {time}  2215

  As you see, the biggest piece of pie in this chart is Social 
Security. Some people suggest, well, why is Social Security part of 
that Federal spending pie? It is really a separate account. It is a 
separate account. However, I think it should be noted that on two 
occasions the Supreme Court has said just because you pay Social 
Security taxes there is no entitlement to the program benefits when you 
retire.
  Social Security is simply another tax that Congress and the President 
have imposed on people, and the benefits are a separate bill of 
benefits that can be changed any time Congress and the White House 
wants to change those benefits. Of course, that is what we have done 
over the years. Every time we need a little more money for Social 
Security in this, if you will, pay-as-you-go program, the taxes have 
been increased or benefits have been cut or a combination.
  So as we go around the pie chart we have Social Security taking in 21 
percent of the total Federal spending. Coming around at 7:30, 8:00, 
Medicare is at 12 percent. The prediction is that Medicare costs will 
overtake Social Security within the next 18 to 20 years.
  Other entitlement programs, 10 percent; domestic discretionary 16 
percent. That is outside of defense. Domestic discretionary is what 
this body and the Senate discuss and argue about for 6 or 7 months out 
of the year. The rest of it is almost on fixed type of spending.
  As you see, the next item is defense spending at 20 percent. That has 
gone up a little over a percent because of the war in Afghanistan, the 
war on terror and the war in Iraq.
  Interest. I want to dwell a moment in interest at 14 percent. The 
interest on our debt in this country, now a little over $7.3 trillion, 
is $300 billion a year. That is $300 billion at a time when we are 
looking at a future of deficits that is adding to that debt 
approximately $500 billion plus a year.
  We are looking at relatively low interest rates today compared to the 
prospect of going back to much higher interest rates. So if we continue 
this overspending and if interest rates are going to go back up higher, 
which Mr. Greenspan predicted, which most of the economists are now 
predicting, we could well see interest on the debt within the next 20 
years taking up 25 to 30 percent of the total Federal budget.
  And I would just suggest, Mr. Speaker, this is, maybe a stronger word 
than unfair, would be unconscionable for Congress, the House and the 
Senate and the White House to think our problems today are so great 
that it justifies taking the money of our kids and our grandkids that 
they have not even earned that yet. They are going to have their own 
challenges, their own problems, and they are going to be unable to 
continue to increase the debt of this country to pass on to their kids 
and their grandkids.

[[Page 11109]]

  I am a farmer from Michigan. Traditionally, on the farm what we try 
to do is pay down the mortgage so that our kids will have a little 
better chance of having an easier life than maybe their parents or 
grandparents did. In this body, Mr. Speaker, what we are doing is just 
the opposite. We are increasing the debt every year.
  Deficit, of course, is how much we are overspending over and above 
the revenues coming into the Federal Government. The overspending or 
deficit spending this year is going to be about $560 billion, next year 
about $530 billion, maybe a little higher. And what we are saying is we 
are adding that much to the debt.
  In the next 2 months we are going to have to again pass a legislation 
in the House and the Senate signed by the President to increase the 
debt limit from its current $7.3 trillion on up to cover this kind of 
overspending and the debt that we are passing on to our kids.
  I want to emphasize two things. We are passing on this liability to 
our children and our grandchildren in two ways: One is the deficit 
spending and the increased debt and the burdens of being responsible 
for that debt in future years, and the other is making promises that we 
do not have the money to pay for. That is the next chart.
  The budgeteers call this unfunded liabilities. Unfunded liabilities 
means passing a law for a benefit program and the funds that are going 
to be required over and above what is coming in to pay for those 
programs. The payroll tax for Social Security, Medicare, is going to be 
the unfunded liability, what we are going to need over and above the 
payroll tax coming in. $73.5 trillion is estimated by the actuaries. 
Medicare part A is $21.8 trillion. That is mostly the Medicare that 
goes to hospitals. Medicare part B is mostly what goes to the doctors. 
$23 trillion, Medicare part D, the new drug program that was passed 
last November, the unfunded liability on that program is $16.6 
trillion.
  And so Social Security is $12 trillion. That is more than a quarter 
million dollars of unfunded liability for every man, woman, and child 
in America; and what is happening, of course, is the demographics of 
individuals living longer and the birth rate declining means that there 
is going to be even greater burden for our kids and our grandkids.
  The next chart shows if we do not do anything, if we keep just simply 
continuing to talk about that 16.6 percent of the spending that is 
discretionary spending and we do not deal with the kind of changes in 
the rest of the so-called entitlement programs, it is going to not only 
be a huge impact on the way of life and the potential success of our 
kids and our grandkids but it is going to be a huge imposition and 
strain on the economy of this country.
  And let me just ask, Mr. Speaker, if anybody would like to venture a 
guess on what the payroll tax is in France, for example. The payroll 
tax to accommodate their senior programs in France is now over 50 
percent of a payroll tax. Germany just when over 40 percent for their 
payroll tax to accommodate their senior population. If the United 
States continues to put off the solutions and dealing with these tough 
problems, then we are certainly going to see a situation where it is 
going to make us even more at a competitive disadvantage.
  We are already increasing our taxes on our businesses approximately 
18 percent over the taxes that are charged to our competitors. Our 
overzealous regulations, our high health care costs added to that put 
our business at a competitive disadvantage with many countries. But if 
we continue to slip and slide and not deal with the problems of the 
unfunded liability for Social Security and Medicare and Medicaid, then 
the situation is even going to be worse.
  And if we have that kind of a payroll tax, one understands that that 
business only has a couple options. They either try to pay less wages 
and salary to their employees in order to be competitive, or they try 
to increase the price of their product to cover their cost, and that 
tends to make them less competitive. So one can understand the 
demonstrations and frustrations in countries like France and Germany.
  This chart shows that just in 16 years from now we will have to take 
an additional 28 percent out of the general fund to accommodate those 
other programs, what is needed over and above the money coming in from 
the payroll tax. By 2030, it is going to be over 52 percent that is 
going to come out of the general fund. We add to that the projection of 
the cost of the debt, servicing that debt, that is probably going to be 
approaching 20 percent at least in the next 15 years.
  This chart is just a quick glimpse of the short-term surpluses from 
the huge tax increase on Social Security on the increase in the FICA 
tax that was passed by the Greenspan Commission in 1983. That increased 
tax money to cover temporarily the increase the cost of Social Security 
is going to last until about 2017, and then we have a huge, big red 
future. The red part of this graph projects the $12 trillion unfunded 
liability in Social Security.
  I want to spend a minute, Mr. Speaker, talking about how Social 
Security works and the problem with Social Security. It is a tough 
problem; and it is easy to understand why Members of Congress have 
tended to say, well, look, we are going to save Social Security but we 
are not going to pass the bill right now, we are going to look at it 
more closely. Mr. Speaker, many of my colleagues in their past 
campaigns said, look, we need to do something about solving the problem 
with Social Security.
  Here is how Social Security works. Benefits are highly progressive 
and based on earnings. At retirement, all of a worker's wages up to the 
tax ceiling are indexed to present value using wage inflation. What 
that means is if wage inflation means a doubling of wages every 9 
years, it means a job 20 years ago that, or 18 years ago, that paid 
$10,000 now you would be paying maybe $30,000 for that job. So when 
Social Security indexes your best 35 years, it adds into those 35 years 
what the current value of that job was, whether it was held 10 years 
ago or 20 years ago or 30 years ago.
  The annual benefits for those retiring in 2004 is very progressive. 
And, very quickly, today 90 percent of the earnings up to $7,340, in 
other words, if you are a low-income earner and over those 35 years you 
averaged $7,500 in wages, the government would pay you 90 percent of 
your weekly or monthly take-home pay in your retirement years.
  The next 32 percent of earnings between the $7,300 and the $44,000, 
is 32 percent of your earnings. And then as we deal with higher wage 
earners when they retire, everything above the $44,000 is only given 15 
percent in terms of what you get back in Social Security benefits.
  And I added this. Early retirees receive adjusted benefits, and SSI 
does not come out of the Social Security system. It comes out of the 
general fund.
  Let us talk a little bit about how we are going to fix Social 
Security. One way is to get a better return on the investment, the 
money that is sent in by the employee and the employer. Right now, 
Social Security is not a good investment. The average retiree will 
receive 1.7 percent return above inflation on what they and their 
employer sent into the Social Security system.
  Franklin Roosevelt, when he created the Social Security program over 
6 decades ago, he wanted it to feature a private sector component to 
build retirement income. His suggestion that he sent to Congress is 
that there be personal accounts but that individual would be forced to 
put into that personally owned account and they would not take anything 
out until they reached age 65.
  Looking through the archives in downtown Washington, I discovered 
that the Senate did pass that bill for personally owned accounts. The 
House passed a bill suggesting that it should be the government in 
control, taking all the money in and then paying out benefits when that 
individual reached 65. By the way, the program worked very well in 
those early years because the average age of death was 62. One could 
not collect benefits until you reached age 65. So most people paid in 
but never took out benefits.

[[Page 11110]]

  It is a program that is stretched to its limits. And the reason is 
demographics. Seventy-eight million baby boomers are going to begin 
retiring in 3\1/2\ years from now. Social Security spending exceeds tax 
revenues in 2017, and Social Security is simply going broke, and it 
needs to be fixed.
  It is not guessing on insolvency. I have heard suggestions from both 
sides of the aisle if we can get our economy strong enough, it will fix 
Social Security. Well, the fact is that we know how many people there 
are, we know when they are going to retire, we know that people will 
live longer in retirement. But here is what also we know: We know that 
if we are earning more wages now because of a stronger economy, or if 
more people are working now because of a stronger economy, because 
there is a direct relationship to how much you are earning and paying 
in now and how much you will get out when you retire, a stronger 
economy now means there is more money going into the system, but it 
means when these people retire there is more money going to be spent 
going out of the system.

                              {time}  2230

  So simply having a strong expanding economy by itself does not solve 
the Social Security problem.
  My last blip on this chart, payroll taxes will not cover benefits 
starting in 2017 and the shortfalls will add up to $120 trillion 
between 2017 and 2075.
  Here is the problem of the birth rate going down and the fact that 
people are living to older ages. In 1940 there were 28 people working 
paying in for every one retiree, so they were spreading the costs 
between those 28 workers on their payroll tax to finance every one 
senior. By the year 2000, it got down to three people working paying in 
and supporting one senior, so the taxes kept going up.
  The projection for 2025 is there will be two individuals working for 
every one senior that they are trying to support in their retirement. 
Economic growth will not fix Social Security, 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. 
Growth makes the numbers look better now, as we discussed, but leaves a 
larger hole to fill in in later years.
  Mr. Speaker, I was chairman of the bipartisan Social Security Task 
Force, and I probably made maybe 250 speeches around the country. In 
those early speeches people said, well, if Congress would keep their 
hands off the money coming in from Social Security, if they would keep 
their hands off the Social Security trust fund, everything would be 
okay. Well, we should keep our hands off that trust fund. That money 
should be invested and returning real earnings back to the Social 
Security. But these two columns show the money that is in the trust 
fund, roughly $700 billion borrowed. You add interest to that, so now 
there are IOUs out there that represent $1.4 trillion. But here is the 
total column of what is required for the Social Security problem. That 
is $12 trillion. So we need to get back that $1.4 trillion, and it is 
all spent; so government has spent all the money when it came in.
  So now the challenge is how do we, do we simply reduce benefits again 
so that we do not need as much money, do we raise taxes again on 
workers where already 78 percent of American workers are paying more in 
the payroll tax than they do the income tax?
  On this chart, it probably justifies an explanation. We will need 
$120 trillion between 2017 and 2075 in future dollars. The $12 trillion 
that we talk about in unfunded liability or the total for Medicare and 
Medicaid added to that is $73.5 trillion. That means that money would 
have to be put in a savings account today accruing interest that would 
accommodate for inflation plus the time value of money to come up with 
the $120 trillion that is required until the future years to cover 
Social Security benefits, that much more is needed over and above what 
is coming in on the payroll tax now.
  Social Security has a total unfunded liability of $12 trillion. 
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 put by 30 
percent. And with this program, with most of our seniors depending on 
Social Security for most of their retirement income, I think it would 
be very bad policy to again cut benefits. But that is what we have done 
in the past. That is what we did with the 1983 changes. We increased 
the taxes up to 12.4 percent, and we cut benefits in several ways 
including increasing the retirement age gradually from 65 to 67 years 
old.
  This figure shows that Social Security is a bad investment. In fact, 
if you are a black male, you have a negative return on the money you 
pay in to Social Security because on average a black male will die at 
something like 63\1/2\ years old, before they reach 65 years old. The 
average return for the average retiree is 1.7 percent. The column to 
the far right represents what the market has done, and this is the 
Wilshire 5000 that actually earned 11.86 percent over and above 
inflation for the 10 years ending January 31, 2004. This, of course, 
included almost 2\1/2\, almost 3 years of a down equity market on the 
stocks. This is another way of saying, Mr. Speaker, that Social 
Security is a bad investment.
  This chart shows how many years a retiree is going to have to live 
after retirement to break even on the money he and his employer, or he 
or she if they are self-employed, sent into Social Security. In 1995, 
if you retired in 1995, you have to live 16 years after retirement. By 
2005 you will have to live 23 years after you retire to break even on 
the money you send in to Social Security. So that should bring to mind, 
is there a better way to invest some of this money than simply sending 
it to the government and letting the government write out an IOU and 
spend any extra money that they have and only giving the retiree an 
average of 1.7 percent return?
  This chart I wanted to show simply because I think it indicates the 
danger of doing nothing and continuing to put off this decision. I 
would, as a footnote, I would just urge that every citizen in this 
election year when you go to candidate forums, when you go to 
Presidential forums and speak to their representatives, ask them what 
bill they have signed on or introduced to solve the Social Security and 
Medicare problem of unfunded liability, the fact that these programs 
are going broke. Because I think the danger is putting it off and then 
we simply increase taxes again.
  As you see, in 1940 we had the first tax increase. We went from 1.5 
percent to 2 percent, 2 percent of 3,000. In 1960 we tripled it to 60 
percent of a base of 4,800. In 1980 almost doubling it again to 10.16 
percent of the first 26,000. By 2000 we raised it to 12.4 percent of 
the first 76,000. In 2004, 12 percent of the first 87,900. And that 
view of history of what Congress and the administration has done 
probably is a danger signal to what we might do again if we do not 
stand up and deal with this problem.
  I know it is so easy to demagogue because this is my, I introduced my 
first Social Security bill when I came here in 1993. And I have 
introduced a Social Security bill every year after that that has been 
scored to keep Social Security solvent. So every election, I face the 
challengers that are saying I want to ruin Social Security.
  Now, probably after so many speeches in my 7th Congressional District 
of Michigan, most of my constituents understand the real problem of 
Social Security. So if those candidates that are replacing me, they are 
all very supportive that the system needs to be changed to keep it 
solvent and to keep this important program going and to keep our 
promises. Because what seniors, of course, what working people do is 
they look at how much revenue is going to come in from Social Security 
and what other kinds of savings they need to accommodate a retirement 
life-style that is going to be satisfactory. So simply telling these 
workers in their late forties and fifties that we are going to start 
reducing benefits would be terribly unfair.
  This simply is a chart showing that 78 percent of workers today pay 
more

[[Page 11111]]

in the Social Security tax than they do in the income tax.
  The six principles that I have set up, one, protect current and 
future beneficiaries; two, allow freedom of choice; three, preserve the 
safety net. In other words, in my bills I leave at least half of the 
trust funds in place. Four, make Americans better off, not worse off. 
So have a program where savings and investment in our industry is 
encouraged. Five, create a fully funded system. And my last blip that I 
think is important is no tax increases on your payroll taxes.
  Mr. Speaker, I am going to briefly run through the bill that I have 
just recently introduced. The Social Security trust fund continues, 
voluntary accounts would start at 2.5 percent of a personally owned 
retirement account and would reach 8 percent in future years, 2075. 
Investments would be safe, widely diversified, and investment providers 
would be subject to government oversight. The government on the last 
blip, the government would supplement the accounts of workers earning 
less than $35,000 a year. And what that does is ensure that with the 
magic of compound interest, adding a little bit to these low-wage 
workers into their privately held savings account, means that their 
trust funds are going to grow to a modest income workers can retire 
with what millionaires are getting from Social Security today. So the 
goal is to encourage savings and to have a system that does even better 
than our current Social Security system.
  Actually, I think this was first suggested by President Clinton that 
we add some funds to low-income workers in their personal savings 
account to help encourage more savings and to give them the kind of 
retirement benefits with that larger nest egg and how it can 
accumulate.
  My Social Security bill, as all my Social Security bills, has been 
scored by the Social Security Administration to restore long-term 
solvency to Social Security. No increase in the retirement age and no 
changes in the COLA, the cost of living, or no changes in the benefits 
for seniors or near-term seniors. Solvency is achieved through higher 
returns from worker accounts and slowing down the benefits for high-
income retirees. I do that by adding another ben point.
  You remember the ben point chart that went from 90 percent to 32 
percent to 15 percent. I add another so-called ben point at 5 percent 
so that high-income retirees would have the effect of having their 
benefits, their increase in benefits slowed down. Workers' accounts, 
all workers' accounts would be owned by the worker and invested through 
pools supervised by the government. Regulations would be instituted to 
prevent people from taking undue risks. In other words, we start out 
like the Thrift Savings Account for Federal employees, and that is a 
limit on where you can invest the money, such as index stocks, index 
bonds, index cap funds and other safe investments as determined by the 
Secretary of Treasury. Regulations would be substituted to prevent 
people from taking those undue risks through that process, and workers 
have a choice of those three safe index funds with more options after 
they have a balance in their account of $2,500 or more.
  What we also include in the bill is once you are able to have a 
permanent annuity that will guarantee you the same benefits as Social 
Security, then you can stop paying the 6.2 percent of your wages, of 
your income that you now pay into Social Security. So it gives you that 
kind of option if you think you can make the kind of investments and 
have the ability to set up that kind of insurance system just to 
guarantee that you are not going to later ask people to help finance 
your retirement if things go wrong.

                              {time}  2245

  Worker accounts. Accounts are voluntary and participants would 
receive benefits directly from the government, along with their 
accounts. Government benefits would be offset based on the money 
deposited into their account, not on the money earned, and workers 
could expect to earn more from their accounts than from the traditional 
Social Security. I think it is obvious that we could incorporate in 
this legislation a guarantee that if anybody selected the option, you 
can stay with the old system if you want to and not have personal 
retirement accounts, in my proposed legislation, but if you do go into 
personally-owned retirement accounts, we are guaranteeing that they are 
going to be at least as good in terms of what they are going to 
contribute towards your retirement as Social Security. So you cannot 
lose.
  Fairness for women. This is what I have incorporated in this Social 
Security bill. For married couples, account contributions would be 
pooled and then divided equally between husband and wife. So, if one 
spouse is earning much more than the other spouse, you add the two 
earnings together, you divide by two to determine what is going to be 
the identical amount that is going to go into both the husband's and 
the wife's personal retirement savings account.
  Two, it would increase surviving spouse benefits to 110 percent of 
the higher earning spouse's benefit. Currently, it is 100 percent. This 
tries to encourage people to stay in their own home a little longer 
rather than going to a nursing home. So we have upped the minimum 
amount that is going to be allowed after one spouse's death.
  Then stay-at-home moms. For stay-at-home mothers with kids under 5, 
they would receive retirement credit. So, for those limited number of 
years that they stay at home with those kids under 5 years old, we give 
them the average of their higher earnings for those outyears to fill in 
that best 35 years in determining their benefits.
  The additional retirement security. Trying to encourage a couple of 
things, encourage more savings, encourage people to stay in their own 
homes a little longer after they retire. So these are other provisions 
I have incorporated in my bill that is a bipartisan bill, signed by 
Democrats and Republicans.
  The increased contribution limits for IRAs, 401(k)s and pension 
plans, we would increase that contribution limit. The second blip, a 33 
percent tax credit for the purchase of long-term care insurance up to 
$1,000 per individual, $2,000 per couple. Low-income seniors would be 
eligible for a $1,000 tax credit for expenses related to living in 
their own homes and households caring for those dependents. So, if the 
kids are having one of their parents or both of their parents live with 
them, they would get a tax credit to encourage them to use their 
facility and care for their parents as opposed to maybe their parents 
going into a nursing home.
  Nursing home care, of course, is now increasing dramatically as we 
pass more rules and regulations. On the average, in my area of 
Michigan, nursing homes cost from $40- to $55,000 a year for a senior 
to stay at that nursing home, and with the increased medical 
technology, these elderly individuals that thought they had saved 
enough during their working years soon find out that if they are going 
to live that longer period of time, then their savings is used up, and 
they switch and then they are eligible for Medicaid, where the 
government pays the cost of that nursing home care.
  The promises that Congress has made. As I summarize Mr. Speaker, I 
would just encourage all citizens of this country to look at the 
overpromising and the overspending that seems popular for the moment, 
but in the long run, it becomes a detriment not only to our kids and 
our grandkids but to the kind of pressures it is going to put on 
economic growth in future years.

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