Hearing of the Special Committee on Aging on Exploring the Economics of Retirement

Hearing of the Special Committee on Aging on Exploring the Economics of Retirement

OPENING STATEMENT OF SENATOR LARRY CRAIG

Senator Craig. Mr. Chairman, thank you very much.

Chairman Greenspan, welcome again before the Aging Committee.

I had the opportunity about a year and a half ago to explore with you the dynamics of the Social Security system
juxtaposed to Medicare and prescription drug reform, and I remember at that time, and, Ron, it may assist you a little bit
in why the chairman is saying what he is saying today. I remember asking you the question which is the easier of the two
to fix, and I have used your comments since that time, because I thought they were very profound. In essence, you say said
Social Security is by far the easier to fix because we know the numbers. We can adjust accordingly. We can determine cash-flow. It is a relatively fixed model.

Health care is dynamic, constantly changing and constantly improving and very expensive, and how do with we fit that into
a model and be able to predict accurately the outcome and the cost? I mean, I am paraphrasing you, Mr. Chairman. I would
certainly not put words in your mouth, but generally that is what I gained from your comment.

I am probably one of the few on this panel besides possibly Senator Jeffords who was in the Congress in 1980, 1981, 1982,
and 1983, and I must tell you, Senator Kohl, I was there for the wrestling match between the two Irishmen, Tip O'Neill and
Ronald Reagan on the issue of Social Security reform. I will tell you who won the wrestling match in the first go around.
The Democrats did. The reason they did was because Claude Pepper and company went out to the land and said Republicans are going to destroy the Social Security system and only Democrats can save it, and that resulted in the unelection of a variety of my colleagues that were in the class of 1980. Republicans saw in part the reality of the politics of the
issue of that time, and Ronald Reagan, wise man that he was, along with Tip O'Neill agreed to put together a group that you
chaired.

The reform, and you will again correct me if I am wrong, was not unlike the model we had used in the past for Social
Security. It was a relatively simple model. It is, in fact, a model that many are asking for today. How do you fix it? You
simply raise taxes and cut benefits, raise taxes and cut benefits, raise taxes and cut benefits.

I have a granddaughter who is 7 years old. I have done the numbers for her. If we raise taxes and cut benefits, my guess
is that my granddaughter when she hits 22 or 23 is going to be paying around 18 percent of her gross so that grand-daddy can
live well. I am phenomenally fearful not for the this grand-daddy, but for a lot of the grand-daddies out there that might
be told by their grandchildren in the future, you know, you are too darned expensive for us anymore; we simply can't afford to
put our kids in college, buy our homes, buy our cars, and pay for your retirement, Social Security/supplemental income because it is taking too big a chunk of our hard earned pay.

Now, that juxtaposed against the demographics and the work force out there and all of that kind of thing, Chairman
Greenspan and I while I chaired this committee did something else. We looked at the demographics of aging. We looked at the dynamics of a country growing older than younger and a diminishing work force against technology and therefore fewer
paying into the system, and I must say our President is very wise to challenge us to think beyond the traditional box of
reforming Social Security, of raising taxes, cutting benefits, raising taxes, cutting benefits.

I don't mind less benefits, but I do worry greatly about my concern that my grandchildren are going to be asked to pay a
prohibitive tax against a program in which they will receive very little in return compared to what my parents, their great
grandparents, and I will receive. It is a challenge for us all of us. It is not something to be demagogued. In the past it has
been. Two wish Irishmen finally came together, formed a study group, came out with a change, but I do remember a change that I believe I voted for, and it was the largest tax increase on the working men and women of this country ever perpetrated by Congress. Did it fix and sustain Social Security in the out years? You bet it did, and it will for those who are in the
system now and receiving, but the work force of America pays more and in general the retiree gets less. That, in my opinion,
is not necessarily a good model.

But I do thank you for being here today. It is a phenomenal challenge for us that I hope we can stand together on as we
have in the past.

Thank you Mr. Chairman.

BREAK IN TRANSCRIPT

Senator Craig. Again, Mr. Chairman, we appreciate your comments, your both broad view of where we are and our
responsibilities and your candid application of your experience to that.

We have visited before about the demographics of aging and its impact on economies and countries. We see this phenomenal shift that is occurring out there, and you have talked about the historic numbers of retirements that will occur and their impact upon the economy. Some other nations, like Japan and western Europe, are preceding us down that demographic road. How instructive are any of the experiences they have had to us?

Mr. Greenspan. Well, Senator, as you know, there is a very substantial variation in how retirement is handled around the
world. Obviously, the demographic problems in some European nations are far worse than ours, and clearly that is also the
case in Japan. They are handling them in a number of different ways. There are a lot of private accounts or a lot of mixed
accounts. There are many different ways of approaching the issue, and I think we should endeavor to get to where we wish
to be in resolving these very broad questions.

We need to examine the experiences of other countries. We have to remember, however, that our culture is different. There
are different views and different ways in which we handle things, and so the actual experience of others is not necessarily useful, but I do think it is worthwhile looking at it because I think we will find types of things not to do as well as what to do.

Senator Craig. Last, Mr. Chairman, in part, the 1983 reforms intended to make the system solvent for the long term
by increasing government savings. This was supposed to involve large Social Security surpluses being used to buy down Federal debt during the early 21st Century. Today's trend lines for future generations show both declining Social Security solvency and growing Federal debt. Does this imply that for the sake of future retirement security, we would do to better to
incentivize personal savings than to pin our hopes on government savings?

Mr. Greenspan. Well, Senator, as I pointed out in my prepared remarks, 30 million Americans will turn 65 over the
next 25 years, we have the arithmetic that we cannot get around and the demographics we cannot get around, that is very great pressure on the replacement rate from Social Security to fall, meaning the amount of income we get as benefits relative to the amount of income we had in our last years of work.

This means that we have to look beyond Social Security into other ways of creating retirement assets and sources of funds,
because we either raise Social Security taxes to an extraordinarily high level, which remember is a tax on individuals and businesses and there are competitive issues here which we have to be aware of or we cut benefits. So I think it is very important to recognize that we have to look beyond Social Security for means of retirement income, and I think here we have to be especially careful to make certain that those who have inadequate resources essentially are held harmless in the adjustment, which we can actually do.

But it is important that we, instead of trying to solve just the Social Security problem, we look at the broader issues
of retirement income. I think having Social Security on the table and resolved fairly quickly is where we ought to go for
exactly the reason you and I discussed a while back, not that Medicare is not the far larger and far more difficult problem,
but rather is it probably sequentially better to get Social Security out of the way, because it is essentially a defined
benefit program. We know its parameters. We know it has to be resolved, and that can be done.

Medicare is going to turn out to be a far more difficult issue, which will require more time than we thought, and I
believe probably more than one commission and more than one effort to get there.

Senator Craig. Thank you.

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