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Hearing of the Senate Special Committee on Aging - The Long Term Viability of Social Security

Location: Washington, DC








SEN. DEBBIE STABENOW (D-MI): Thank you, Mr. Chairman.

SEN. CRAIG: Turn your mike on, please.

SEN. STABENOW: And rather than making opening statements—welcome. We appreciate both of you in your leadership roles, and information that you provide.

I think rather than an opening statement I would like to ask some questions. I noticed that the hearing, I really talked about it and our distinguished chairman of the committee has asked you to look at the do nothing strategy related to Social Security. And I guess I would challenge the do nothing title of this, because I believe we have done something.

What we have done is pass a series of tax cuts on two different occasions now that have placed us in a much more serious situation in order to meet our obligations long term. It would certainly appear by the numbers. And, Mr. Chairman, there's a Center on Budget and Policy Priorities study that I would ask be placed in the record that's called "Social Security and the Tax Cut, The 75 year cost of the tax cut is more than twice as large as the long-term deficit in Social Security." And I would ask that that be placed as part of the record.

SEN. CRAIG: Certainly, it will be a part of the record.

SEN. STABENOW: Thank you. It seems to me if we're looking at all options, and it's always a question of values and priorities, that we certainly cannot look at tax policy separately or in isolation from this debate, that this is all part of the same debate in terms of the revenues that are available, the way the trust funds are used, what the deficit is as well as our obligations and so on.

And so I'm wondering, Mr. Walker, I will ask you first, if you would agree that the decisions we've made on tax policy will make it tougher to meet our Social Security obligations in the long run?

MR. WALKER: Well, I think you have to look macro and micro. Macro is the overall fiscal situation, and then micro would be individual programs such as Social Security. As my testimony points out on one of the figures in there, I'm not sure which one, maybe you can let me know and I can let you know for the record, we face a large and growing fiscal imbalance due to decisions that have been made both on the spending side and the tax side.

Frankly, we've been increasing spending at a much dramatic rate than historically has been the case and was expected. There have been actions taken on the tax side. The combined effect is that the bottom line is much worse as a result of that combined effect. As we show on figure 5 that's in the testimony, based upon those assumptions laid out, we face a large and growing fiscal imbalance, a structural deficit. Tough decisions are going to have to be made, dealing with entitlement programs, discretionary spending and tax policy. And ultimately that's a policy decision for the Congress to make, but it's not just one issue. It's looking at all three dimensions in order to solve the problem.

SEN. STABENOW: I appreciate that. And the reality is, as you've just indicated, that we make decisions every day. It's really not do nothing, we make decisions every day that impact what will happen in terms of Social Security.

Mr. Lockhart, I don't know if you'd like to respond to that question.

MR. LOCKHART: Well, certainly if you just look from the Social Security standpoint, our payroll taxes that were not used, we do get a Treasury bond, we also receive bonds to pay for the interest on that every year. So from the trust standpoint, there's no impact. I think what I'd like to do is really look at the $3.5 trillion, and picking up a comment that Mr. Walker made about looking at the net present value cost of these programs, one of the things one can do with reform is to reduce those numbers pretty dramatically. You can stop some of the growth on those charts that he has there. Social Security is slated to grow from about 4.4 percent of GDP to about 7 percent.

By reforms, you can actually level that off in a way that's fair to present and future generations, and that's, I think, where we should be looking for and that's why I think we should be doing it sooner rather than later, because it's a lot easier if we do it sooner.

SEN. STABENOW: Well, I guess to go back to my original premise, when I look as a member of the Budget Committee at decisions—when I was fortunate to come on that committee two years ago we were debating what to do with the $5.7 trillion surplus, I believe the largest, or one of the largest surpluses that our federal government has been fortunate to have. And then two years later now we've seen the I believe largest swing in our history to over $2 trillion deficits, over $7 trillion swing as we just look 10 years out. Our largest single year deficit possibly ever in our country that we are facing right now And the reality is that we are making decisions that impact that.

Some of that is the slowed economy. The largest single piece of that is tax policy, tax cuts that were given. And then we have spending and I believe it's somewhere in the range of 96 percent of the increases we've seen in two years are Defense, Homeland Security, and restoration of the 9/11 targets, particularly in New York. So 96 percent is something that the people of our country certainly believe needs to happen for our basic safety and security. All of those things again combine back to having an impact.

When we were debating the $5.7 trillion surplus, a number of us, including at that time the chairman of the Budget Committee, suggested because of your presentations, the numbers you have, that we actually put dollars aside to go into—to essentially put money in the bank, in terms of the trust fund, for future generations to address these issues of solvency so we would not be in a situation of looking at raising payroll taxes or cutting benefits or so on. That choice was not made. So it's not that we are doing nothing, we are making choices that impact where we are today, which I think is just very important for the American people to understand, not that that takes the place of the baby boomers retiring, not that it negates any of what you're talking about, but we are making choices.

Now we have the economy, and the unemployment rate for June jumped from 6.1 percent to 6.4 percent, the highest level in nine years, the highest number people on unemployment benefits since 1983. In a macro sense, I guess I would ask you, shouldn't we be focusing very much on job creation, not only for individual families where it's absolutely critical, but doesn't the weakened economy undermine our ability to provide benefits for future generations? And our economic policy is now how we stimulate the economy to create jobs. Doesn't that have an impact on your numbers as well when we look at the strength of the economy?

MR. WALKER: Well, first let me clarify that the do nothing phrase only deals with Social Security. Clearly, you are correct that Congress has been doing a lot of things in many different areas, and many of which are good things. I mean, some are good, some are not so good, depending upon where you sit. I do think, however, that one of the things that Congress needs to consider is whether it be on the tax side or the spending side when it is debating significant legislation that could have significant costs not just over the next 10 years, but also beyond the 10 years because many times Congress debates both tax and spending proposals that the cost ballooned after 10 years, and we act like the world is going to end in 10 years. Well it isn't.

And so a result we need to consider discounted present value concepts as part of the discussion and debate on both the tax side and the spending side. And one of the things we need to start doing, quite frankly, is to quit digging, because we're already in a huge hole. For Part A of Medicare alone we have $6 trillion unfunded discounted present value obligation. For Social Security we've got $3.5 trillion, and that's only for 75 years. If you look for perpetuity, Social Security is $10.5 trillion, according to the latest calculations, and Medicare may be more like $30 trillion. And so we need to recognize reality.

And, by the way, I might say I've been testifying on this issue for several years and we've had a long ranged structural imbalance, even when we had surpluses. We had a long range problem then, and even if the tax cuts didn't happen, we still would not solve problem but you are right to say you've got to look at both sides. You've got to look at both sides of the equation.

SEN. STABENOW: Yes, go ahead, Mr. Lockhart.

MR. LOCKHART: Excuse me, Senator. The only point I would like to make is in the case of Social Security, I think there is still time to make some choices here. If we do it relatively soon, we have the opportunity to stop those numbers growing, and that's critical. Every year that $10.5 trillion will grow by $600 billion. That's more than the present deficit. So to the extent we can start looking at solutions, start evaluating them, and if the president asks, do it on a bipartisan basis, I think we can really make a great choice for Americans' children and grandchildren.

SEN. STABENOW: Well, I certainly agree with that and believe that we need to make choices.

I would also suggest that, Mr. Walker, when you talk about stopping digging, that around here we just continue to dig without looking at the situation. And the vast majority—I mean, if we ask the American people, do we have the option of not focusing on homeland security, are we building the Pentagon in New York, or defense, or on the other side, reducing revenue to a supply-side strategy on tax cuts. People understand that we had to come forward with those dollars in terms of protecting safety and security. The option, in my judgment, was on the other side, and we have chosen as a Congress to keep digging. And my guess is we're going to see more digging and more and more of undermining revenue that just adds to the problem that you are talking about right now.

Thank you, Mr. Chairman. I would just add one thing and, as a positive note on Social Security, Social Security is not just about income for people, which we know the vast majority of people receive income from, and many of them, many of our constituents are possibly family members who rely on Social Security, but it's also a life insurance and disability policy for people of this country. And I remind young people of that when I speak to them in schools that if they were to become disabled or if there were to be a loss of life for their parents or themselves with minor children, it also is a part of a safety net that I believe has been a great American success story, and it's our job to be responsible about making sure it's there for the future. Thank you.

SEN. CRAIG: Senator, thank you very much. One of the reasons Chairman Grassley and I asked the GAO to do the audit and look at the do nothing is because we—you know, while you're concerned and responsibly so about actions taken this year and next year, what is critical to Social Security is actions we take now to impact us out 40 and 50 years. And if you'll notice, even with what we did this year, the line of revenue on Social Security is still flat lined, relatively speaking, as growth patterns occur. And, of course, out there in late 2030 or early 2040, a precipitous drop begins in Social Security's ability unless we do one of a couple of things at that time. And that's why we thought it was important, if you will, to look at the cliff, because we don't function well, you or I, at that cliff level.

We really have to think in actuarial terms, long term, on Social Security and its impact. The idea of raising payroll taxes by 50 percent would be as precipitously negative on your workforce and mine as it would be to cut benefits by anywhere from 30 to 35 percent. And those are the do nothing scenarios that both GAO and Social Security agree on. So what we're trying to do is build a record so that you can I look outward, and in the coming years make those kind of decisions. I personally think that's critically important.

SEN. STABENOW: Mr. Chairman, if I might, I absolutely agree with the need to do that. I would just urge that we do that within the context of all of the decisions we make, not just in the context of raising benefits or lowering benefits or raising the payroll tax, but that we do this in the context of the broader issue. If we, in fact, had now a $5 trillion surplus and were able to take a large part of that and pre-fund the liability outward on Social Security, I would daresay that would help a great deal. It wouldn't solve the problem, but it would allow us to make different decisions.

And so that's all that I guess I wanted to say is that we have—as we make decisions responsibly about where we go, I don't think going back into huge deficits, the largest deficits possibly in the history of the country, helps any of these numbers. And that should be of a big concern to all of us.

SEN. CRAIG: Thank you.

Gentlemen, thank you very much for your work and your testimony before us. As you know, this is ongoing as we work to build a record from which decisions will be made by members of this Congress, so I thank you both very, very much.

MR. LOCKHART: Thank you, Senator.

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