HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE
SUBJECT: FISCAL YEAR 2006 BUDGET
CHAIRED BY: REPRESENTATIVE BILL THOMAS (R-CA)
WITNESS: JOHN SNOW, SECRETARY OF THE TREASURY LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.
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Mr. RYAN. I do. Mr. Secretary, I do have a few questions. I notice that you are hearing a lot of rhetoric on the other side. This is essentially the plan that is being offered by the other side: Nothing. Now, I would like to get to the question of whether there is a problem or not, because we have been distributed 5 pages of quotes from then-President Clinton and leading Democrats all in 1998 and 1999 saying, Social Security is going broke; there is a problem; we have to act to fix it now. The more we delay, the more painful the options become. We can go on and on about that. The point is, let's get to this whole trust fund idea. It has been said that we have $1.7 trillion of assets in the trust fund; that we will have by the time 2018 rolls around something like $5.3 trillion in assets. What are those assets in the trust fund? Is there a bank account with money in it? Are there tradable bonds or stocks that we can just draw on, once 2018 rolls around, that will take us to 2042? What are those assets?
Mr. SNOW. Well, those assets are IOUs from the United States Department of the Treasury to the Social Security Administration.
Mr. RYAN. So, when 2018 comes, and according to the trustees, of which you are a member, we have less revenues coming in than benefits being paid out, is there, all of a sudden, money that we can draw upon from these assets, or do we have to come up with the money somehow?
Mr. SNOW. No. You have to come up with the money. It will be a sizeable amount of money. It will have a major impact on the deficit.
Mr. RYAN. So, there is no cash behind those assets, we have to either raise taxes, cut spending, or borrow more money starting in 2018 to continue paying benefits for Social Security in 2018. Is that correct?
Mr. SNOW. Unfortunately, Congressman, those are the only options.
Mr. RYAN. That is right. So, I think this notion that we are fine for 37 years, no problem until 2042, is really quite misleading. That is wrong. We will, in 2018 have to come up with money, which we do not have right now, to continue paying seniors' benefits. The question then that I think we are trying to get at is, can we do a better job than we are doing right now for Social Security? My generation is looking at about a 1 percent rate of return. My children are getting a negative-1 percent rate of return. No one is talking about depriving people who are in or near retirement of any promised benefit. It has been taken off the table. The President and Congress have all been saying, if you are in or near retirement, you will have exactly the same Social Security benefits with no benefit change whatsoever. The question is, can we take this debt that we owe, this unfunded liability, which is really $12 trillion in present value terms, and convert it into a real asset where workers can get a better rate of return, retire with better benefits and wipe this liability off our books? So, even if the critics who are saying this plan will cost $2 trillion, let's just give them face value and say the plan does cost $2 trillion. If we have a plan that costs $2 trillion and, in doing so, it gives workers personal retirement accounts where they can own and control their money, they retire with better benefits, and it wipes off the books a $12 trillion debt, I will take that deal any day. So, the question I have, Mr. Secretary, is, starting in 2018, what is the debt that we owe? What is the money that we will have to start paying out on that day? What are the differences between payable and promised benefits starting at that time?
Mr. SNOW. Well, in--if you go to 2028, you will have to come up with about $250 billion.
Mr. RYAN. In that year alone?
Mr. SNOW. In that year alone. This is the chart, if you can see it. This is 2018. Every year thereafter, you can see a huge Federal deficit being developed as a result of the shortfall between the in-flow and the out-flow, and it can only be met in the ways you addressed.
Mr. RYAN. So, are the alternatives to either raise taxes, cut benefits, borrow more money or grow the rate of return coming to Social Security? Are those essentially our four alternatives?
Mr. SNOW. Those are the alternatives. Unfortunately, as we discussed earlier, higher growth rates for the economy as a whole do not fix this problem, because with the way the Social Security system works, they just get translated back into higher compensation levels to the retirees.
Mr. RYAN. So, is it correct to say that, if we do not have personal retirement accounts as part of the reform, then you would have to resort more toward either more borrowing, deeper benefit cuts or higher tax increases?
Mr. SNOW. I think it is safe to say that the situation that retirees face will be much worse if we do not have personal retirement accounts. Absolutely.
Mr. RYAN. Thank you.
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