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Public Statements

Hearing of the House Budget Committee: Social Security

By:
Date:
Location: Washington, DC


HEADLINE: PANEL I OF A HEARING OF THE HOUSE BUDGET COMMITTEE

SUBJECT: SOCIAL SECURITY

CHAIRED BY: REPRESENTATIVE JIM NUSSLE (R-IA)

WITNESS: SECRETARY OF THE TREASURY JOHN SNOW

BREAK IN TRANSCRIPT

Mr. Cooper. Thank you, Mr. Chairman.
Mr. Secretary, on page 149 of the December 2001
Presidential Commission on Social Security Reform, they talk
about the disability program under Social Security. Many of the
comments of my colleagues have talked about the retirement
program for Social Security.
Secretary Snow. Right.
Mr. Cooper. But it is well-known, or should be to everyone,
that Social Security really has three benefits: The retirement
plan, the survivors benefit, and the disability benefit.
Now this commission in 2001 did a lot of great work. But I
believe this is accurate to say that, regarding disability,
they were unable to come to a conclusion. They said, in fact,
that the benefit was a little bit too complicated for them to
deal with.
So I would like to ask you today, since the administration
is planning on changing one of its most popular and successful
programs in American history, I would like to ask you about
that disability element.
If a young person or middle-aged person or older person
wanted to go out on the marketplace today, could they buy a
benefit, a disability benefit, like the one in Social Security?
Could they buy such a benefit from a private company? If so,
what would the premium be?
Secretary Snow. I think disability benefits are available
in the open market. It would depend an awful lot on whether you
are a violin player, a major league baseball player or you are
climbing trees or working off 100-story buildings in New York
City.
So it is a little hard to answer the question in the
abstract without knowing the details of the individual.
Mr. Cooper. Well, let me get more specific.
Since you are part of an administration proposing this
fundamental change for all Americans, what is the valuation you
would put today on the benefit that is available under Social
Security disability? What is that worth actuarially?
Secretary Snow. We will see if we have a number. I have not
seen the actuary's valuation of the disability benefits
implicit in the Social Security system.
But what the President has said--and maybe this cuts to the
chase--what the President has said is, he wants to sustain,
protect, secure, make safe the disability benefits.
Mr. Cooper. But all the estimates that we have seen involve
out-year cuts and benefits, not sustain those benefits, so I
think it is crucial for the administration, if they want to
change the system, to know the value of what they are changing.
It is my understanding--and I do not have the power that a
Secretary of the Treasury does--it is my understanding that a
disability benefit of this type is unavailable from any
commercial source in the world today.
Now, perhaps I am mistaken in that, and perhaps you can
find a seller of disability insurance that is as good or better
than Social Security is. I would love to have that information.
So if you could supply that.
Secretary Snow. We will. I will check on that, and I will
check on the actuary's rendering of the valuation of
disabilities as well.
Mr. Cooper. But let me express some concern about your
preliminary answer though. You said, if you were to buy a
disability today, it might depend on if you were a violinist,
had some other job or worked on 100-story buildings.
But one of the great benefits of Social Security is it does
not matter what your job is as long as you pay into the system.
It protects everybody equally.
Because it is hard to predict, especially in this modern
life, what career you are going to have. It is certainly hard
to predict your health situation. You were unable to attend a
meeting last week because of your health, and that was
unexpected.
So the value of that disability benefit has to be valued
before the administration takes liberties with it.
Let me ask another question.
Secretary Snow. I agree with you. Disability is an
important, critically important part of Social Security, and we
want to sustain the benefits of Social Security.
Mr. Cooper. I see your brain trust behind you. Do any of
them have any idea what the current value of the disability is?
Brain trust?
Chairman Nussle. Well, this is--the gentleman will suspend.
The Secretary has been asked to testify. If he would like to
refer to them for an answer, otherwise he has offered to give
you that answer in the future.
So we will conduct the hearing here.
Thank you.
Mr. Cooper is recognized for the balance of his time.
Mr. Cooper. Thank you, Mr. Chairman.
Another fundamental area to ask. It is one thing to take
the existing Social Security pie and reslice that, and some
folks may advocate partial privatization of the system. Others
may not.
But basically, you are just reslicing the same pie. What is
the administration proposing to actually grow the pie to
increase the amount of money that average Americans are able to
save every year? Today, we have many wonderful ways of doing
that--IRAs; 401(k)s; SEPs; other good savings programs; but
many Americans are not fully utilizing those savings vehicles.
What can we do to grow the savings rate in this country?
Secretary Snow. Probably the single most important thing
you can do to grow the savings rate in this country and thus
help people have secureretirements is to adopt the President's
personal savings account as a part of fixing Social Security.
Mr. Cooper. Mr. Secretary.
Secretary Snow. That is real savings, that is genuine
savings.
Mr. Cooper. No.
Mr. Secretary, under the President's proposal he would take
up to 4 percent of what is being paid into the current system.
He is not suggesting a plan that would really boost savings and
additional vehicles on top of the amount that would be
allocated to Social Security. He is just talking about
reshuffling that.
Secretary Snow. In fact he is, Congressman, in fact, in the
budget, you will see a section on lifetime savings accounts,
retirement savings accounts, employer savings accounts for
employees. No, we recognize--as I responded earlier in--on the
current account question--we need to encourage more savings in
the United States. The budget reflects the need to do that.
But I would say that, in addition to all the things in the
budget, the personal retirement accounts that the President is
proposing are one other important way, because people will
then, say, accumulate, accumulate a nest egg through power of
compounding, have more at the end than they otherwise would
have; by far, earn rates of return far higher than they could
secure under the Social Security system.
Mr. Cooper. You say that as if it were a guarantee.
Chairman Nussle. The gentleman's time has expired.

BREAK IN TRANSCRIPT

Mr. Cooper. Thank you, Mr. Chairman.
I apologize, I had a simultaneous hearing with Armed
Services.
First, I think Republicans and Democrats would both agree
that four of President Bush's primary initiatives, probably
four initiatives that he will be judged by history on, would be
the Iraq war, tax-cut permanency, Social Security reform, and
the Medicare drug bill.
My chief of staff, Greg Hinote, thought this up. What do
those completely different major initiatives have in common?
The answer is, sadly, maybe tragically, none of those is
accurately reflected in the President's budget.
We learned today that the Medicare drug bill was seriously
underestimated. Social Security reform is completely ignored in
the budget. The Iraq war is not funded beyond September 30th of
this year. And for tax-cut permanency, apparently they are
thinking about changing the budget rules, so the cost of that
scored a zero.
Mr. Holtz-Eakin. If I could, I would like to point out that
Mr. Spratt and Chairman Nussle were given a copy of the
testimony we wrote to Chairman Thomas of the Ways and Means
Committee today about this question of whether the Medicare
drug bill is, in fact, more expensive than originally
estimated.
The answer to the question basically is no. I think that if
one did an apples-to-apples comparison over the same budget
windows, with the same components, we would estimate that it is
about $6 billion more expensive than we anticipated. I don't
think that the CMS estimates are radically different from that.
So I think for the record it is important to recognize that
there has not been a lot of clarity about these cost estimates
from the beginning, but it doesn't look like the bill is any
more expensive at the beginning than it was at the outset.
Mr. Cooper. Even if we concede that point, three out of the
four President's major initiatives are met, representing the
budget, which almost makes a travesty of the operations of this
committee. You know, we can talk about whether we are seeing
150 programs the President promises to cut and things like
that; that is the small potatoes.
The big stuff, none of it is accurately represented in the
budget, with the possible exception of the Medicare amendment.
On Medicare, did you anticipate that Medicare was going to
cover Viagra and other things like that in their medical
benefits package? That was just in the news a week or two ago.
Mr. Holtz-Eakin. Well, in our review of Medicare, to date
we haven't changed our estimate very much. The most important,
even in the young life of the MMA, is the issue of the final
regulations. We are reading through the thousands of pages to
see if the implementation matches what we envisioned when we
did the cost estimate. The answer to that question will arrive
with our estimate of the President's budget in March.
Mr. Cooper. Different line of questioning. I asked
Secretary Snow if he had a valuation for the disability
component of Social Security benefits. He did not give me an
answer; said he would try to supply one. Do you have a
valuation for the disability component of Social Security
benefits or the survivorship death benefit component of Social
Security benefits? What would that be?
Mr. Holtz-Eakin. Our analysis includes all three components
of the program. It includes the dollar values. I don't know
them off the top of my head. We can certainly get them to you.
They are buried in our reports.
I will point out that our numbers are the answer to the
question: What do you get after the fact, given that you are
disabled? The real valuation question is the insurance value if
you don't know how it is going to turn out. We are still
working, trying to put the best number on that.
Mr. Cooper. So you at CBO still do not have a valuation, an
insurance valuation of those benefits?
Mr. Holtz-Eakin. Not a broad social insurance value that--
of the type that would be appropriate.
Mr. Cooper. As far as you know, are those benefits
commercially available from any company in the United States?
Mr. Holtz-Eakin. Not the type of benefit offered in the
broad pool at Social Security.
Mr. Cooper. So, right now, would it be available for
purchase nowhere else other than through the Social Security
system?
Mr. Walker. That benefit, no.
Mr. Cooper. Final question. What if in a Social Security
compromise reform package some part of the corpus of the Social
Security Trust Fund was invested in some sort of safe market
investment as opposed to just Treasury securities? That would
achieve some of the goals of the folks who advocate privatized
accounts, wouldn't it, by enabling a better rate of return
possibly to be achieved, rather than just the ultraconservative
investment and Treasury instruments?
Mr. Holtz-Eakin. It would have the same implications as the
analysis of individual accounts. You have higher return at
higher risk, risk is present.
Mr. Cooper. Only the risk would be spread across the
society, as opposed to perhaps subjecting an individual who may
have chosen unwisely--the risk would be spread, as opposed to
individualized, right?
Mr. Holtz-Eakin. The same total risk would be present. It
could be distributed in many ways.
Mr. Cooper. Has the CBO done a study of that sort of Social
Security reform?
Mr. Holtz-Eakin. In the late 1990s, there were a series of
studies looking at Social Security reforms, including looking
at investments in private accounts. I don't know the names off
the top of my head, but we would be happy to get what we have
to you.

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http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:98642.wais

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