HEADLINE: HEARING OF THE SOCIAL SECURITY SUBCOMMITTEE OF THE HOUSE WAYS AND MEANS COMMITTEE
SUBJECT: PROTECTING AND STRENGTHENING SOCIAL SECURITY: PART III
CHAIRED BY: REPRESENTATIVE JIM MCCRERY (R-LA)
MEMBERS OF THE HOUSE OF REPRESENTATIVES
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Chairman McCrery, Ranking Member Levin and fellow subcommittee members, I appreciate the opportunity to testify before the subcommittee and to share my views on how we should work to strengthen the Social Security system. About 45 million seniors depend on Social Security to provide vital financial support during retirement years, and this important program provides critical benefits to widows and those with disabilities. It is my top priority to preserve Social Security and make sure it remains solvent for future generations.
As the debate over Social Security reform progresses in an increasingly politicized environment, we must not lose sight of the fact that this Congress has the tremendous opportunity to put the program on solid financial footing for the long term and enable Social Security to keep serving all generations well.
When I sat down to come up with a plan to strengthen Social Security for future generations, I chose to uphold several principles. The plan must protect the benefits of our seniors and near-retirees. It must not raise taxes or expose people to unnecessary risk, and it should maintain a strong safety net for all workers. It should also stop the government from raiding the Social Security trust fund to pay for unrelated programs. Lastly, it should make Social Security fair for future generations.
There's no denying that as time goes on, Social Security is becoming a poor deal for workers. Whereas a 70-year-old retiree today enjoys about a 4.5 percent return on the tax dollars they paid into Social Security, a 40-year-old in today's workforce can expect only about a one percent rate of return on their Social Security payments. Even worse, today's young children will get about a negative one percent return, assuming the government comes up with the funds to pay their benefit when they retire.
Improving the rate of return on workers' investment in Social Security and moving toward a retirement system in which workers can actually own a substantial part of their retirement benefit under Social Security should be at the heart of reform that strengthens and protects the program for future generations.
My legislation, H.R. 1776, the Social Security Personal Savings Guarantee and Prosperity Act, which I have introduced with Senator John Sununu of New Hampshire, creates personal accounts within the current Social Security framework without cutting benefits, raising taxes, or increasing the retirement age. Furthermore, the plan is completely voluntary, and workers who decide to stay in traditional Social Security rather than exercising the personal accounts option would receive the benefits promised to them under current law.
From 2006-2015, this legislation would allow workers to devote to tax-free personal accounts 5 percentage points of the current 12.4% Social Security payroll tax on the first $10,000 in wages and 2.5 percentage points on taxable wages above that. Starting in 2016, workers will then be able to shift 10 percentage points of the current 12.4% on the first $10,000 in wages and 5 percentage points on taxable wages above that. Once fully implemented, workers would be dedicating an average of 6.4 percentage points of the Social Security payroll tax to their accounts. This progressive account structure allows lower income workers to keep more of their FICA taxes in their personal account than higher income workers.
The plan is completely voluntary, and workers who decide to stay in traditional Social Security rather than exercising the personal accounts option would receive the benefits promised to them under current law.
Those choosing to participate in personal accounts will be enrolled in a "life-cycle" fund that automatically adjusts the worker's portfolio based on his or her age, moving near-retirees into safe, government-backed bond funds. Workers may stay with this "life-cycle" fund or choose from a list of five index funds similar to those found in the federal Thrift Savings Plan (TSP) that members of Congress and federal employees have that helps them save for retirement. The federal government would then back the personal accounts with a guarantee that workers receive at least as much as Social Security promises under current law, providing an added level of security for workers' retirement savings.
To finance the transition, we propose a three-tiered approach.
First, our plan separates Social Security and the reform's transition financing from the rest of the federal budget and dedicates the Social Security surplus - projected until 2017 - to Social Security. For decades, Congress has used the surplus to pay for priorities other than Social Security, and this practice must stop if we want to save the program for our children and grandchildren.
Stopping the raid on Social Security tax dollars goes a long way toward jump-starting this reform. In fact, the total projected surplus over the next ten years - about $2 trillion including interest - is more than enough to pay the $1.2 trillion transition cost over that same period.
In addition to devoting the short-term surplus to Social Security, our legislation would slow the growth of federal spending by one percentage point a year for eight years and transfer the savings to Social Security.
Lastly, the anticipated increase in corporate tax revenue, sparked by increased investment through personal accounts, would go to the Social Security Trust Fund.
With these three steps successfully implemented, no borrowing would be necessary to finance the transition to a solvent Social Security system. If one of the steps doesn't occur, federal bonds could be issued to help reimburse Social Security for the surpluses it has lent the government in the past. Even in this case, the temporary cost would be worth it because our plan achieves permanent solvency and pays off Social Security's entire unfunded debt for the foreseeable future.
The Chief Actuary of Social Security has already scored this legislation as achieving permanent solvency for the program, without benefit reductions or tax increases. This plan also pays off the entire $11.1 trillion unfunded debt owed to Social Security.
By establishing personal accounts within the Social Security system, we can give every American worker the choice of building a nest egg for his or her retirement. With personal retirement accounts, every worker will become a laborer and a capitalist earning a much higher rate of return on their payroll tax dollars than the current system can currently offer them. Furthermore, I firmly believe that there is no better way to bridge the wealth gap and decentralize the concentration of wealth in America than to adopt personal accounts like the ones Senator Sununu and I are proposing.
I look forward to working with my colleagues on the Social Security Subcommittee and ultimately, the full Ways and Means Committee on this issue. Thank you and I look forward to your questions.
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