HEARING OF HOUSE COMMITTEE ON THE BUDGET: THE PRESIDENT'S BUDGET FOR FISCAL YEAR 2006
February 8, 2005
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Mr. Wicker. Thank you, Mr. Chairman. I want to thank you and the administration, Director Bolten, for having the courage to come forward with a proposal, which we will see specifics of in more detail, concerning Social Security individual accounts. And I want to remind members of the committee of a quote from Albert Einstein when asked what was the most powerful force on the face of the Earth. He answered that the most powerful force on the face of the Earth was the power of compound interest. And that is what the administration is talking about and that is what talented members like Mr. Ryan, who is a member of this committee, have been proposing for some time now when it comes to giving workers an opportunity to put more of their money in individual accounts.
My friend from Kansas mentioned setting aside Social Security money in a way that government spenders couldn't get their hands on it. I would submit to you, Mr. Director, and to the members of the committee that the best way to do that is to put the money in an account controlled by the individual where it would be able to accumulate funds and also that great power of compound interest, and certainly in that instance the government would be prevented from tapping into millions and millions of nice locked boxes that individual taxpayers would have.
I understand that the administration is going to come forward soon with particulars about individual Social Security savings accounts and that details will include the fact that the proposal will be entirely voluntary, that individual workers now will not have to participate in this at all if they do not want to, that it will guarantee at least the same benefit that we are promising now with the Social Security Administration and the Social Security laws as they are currently; that there will be no tax increase involved; that there would be no increase in the retirement age; and that the goal would be to give workers upon retirement significantly more than they are promised now or that they can expect now under current law. And I think it is really unconscionable, Mr. Chairman, and Mr. Director, for the government to promise a Social Security return on investment of approximately 1 to 1-1/2 percent when we know we can do better. Of course, for some individuals, depending on where they live and the demographic groups, the return is actually less than that. Sometimes it is a minus figure. And when we can do better and give retirees more money upon retirement than they are getting now, I think we certainly can do that and it is incumbent upon us to do it. I think we can do it, Mr. Director, without a cut in benefits. I think we can do it without forcing a change in the cost of living adjustment, as the ranking member just discussed.
I think we can do all of these things, make it voluntary, give workers more on retirement and save the system in the end. How can we do it? Is it the magic the chairman was talking about when he said you can cut tax rates and increase tax revenue? We have proved that can happen. The magic in this proposal will be exactly what Einstein said and I repeat that. The most powerful force on the face of the Earth is the power of compound interest. I think we need to unleash that for the benefit of today's workers so we can do better for them with this program.
Let me ask you, we have been talking about the transitional costs. The Vice President said it will cost trillions. The question on a lot of people's minds, can we afford these transitional costs? The question I would ask you, can we afford not to do this? And what is the cost of doing nothing and leaving the system as it is currently constituted?
Mr. Bolten. Mr. Wicker, the best estimate of the cost of doing nothing right now is a present value unfunded liability of over $10 trillion. So the truth is we cannot afford not to take action for comprehensive Social Security reform as the President has outlined. And I would add one other thing, and that is as we talk about the personal accounts, it is very important for people to realize that these are not new costs to the government. You are exactly right in saying that if somebody is worried about the government taking your money away and spending it on something else, the right measure is to give people their own money to keep in their own accounts. And that is not a new cost to the government. These are benefits that we owe later on that we are letting people keep today.
When you talk about the transition financing cost, cost in my judgment is the wrong word. It is a financing element. It is a problem of having to deal with a slightly higher deficit as a percentage of GDP over the near term. If in fact what that does is make it possible for us to provide a better plan for retirees, let them keep their own money and permanently solve the Social Security fiscal disaster we have on the way, it is exactly the right thing to do.
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