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Public Statements

The Fiscal Cliff

Floor Speech

By:
Date:
Location: Washington, DC

Mr. HARKIN. Mr. President, I come to the floor today to give some perspective on the debate going on in Washington about the so-called fiscal cliff. The so-called fiscal cliff is a misnomer, but what it reflects is the concern that unless we act our economy is going to be hit by significant austerity in 2013. Not at 12:01 on January 1, but over the course of the year. So it is not a cliff, it is more like if we do not do something we are going to start on a slope. But we are not falling off any cliff at 12:01 on January 1.

Fortunately there is an easy way to address one of the major parts of this puzzle. The Senate earlier this year passed a tax relief bill for the middle class. It would extend for 1 full year all of the Bush-era tax cuts on middle-class families. That is sitting in front of the House of Representatives. President Obama has said, If they pick it up and pass it tomorrow I will put my pen to it immediately. That is one thing that could be done right now. But the House Republicans will not take it up. I say if they were to take it up today, pass it, the President signs it, I think you are going to see a lot of middle-class families maybe even do a little bit more Christmas shopping because they know their taxes are not going up next year and that will help spur our economy.

Again, I point out some of my friends on the other side of the aisle, here and in the House, have been talking about doing that very thing. So there are some Republicans who recognize that this would be one of the best things we can do, and that is pass the middle-class tax cut that we passed here in July.

Nonetheless, I keep hearing what we really need to do to address the so-called fiscal cliff is to enact significant entitlement reform. What does that mean, entitlement reform? Let's be upfront with the American people. When you hear our friends the Republicans and others talk about entitlement reform, they are talking about three things: cutting Social Security, cutting Medicare, and cutting Medicaid. That is it. That is what they are talking about.

For example, let's take a look at Social Security. It has become an article of faith, almost, among a lot of people around this city that one of the ways to reduce the national debt is to ``reform Social Security.''

That is really fishy because Social Security can pay full benefits, 100 percent, until 2033, and by law it is not allowed to add to the deficit or debt. So, therefore, it is not driving our long-term debt.

What is really going on here? I think one of the ways to figure it out is a close look at the proposals under consideration. If you look closely you will find almost all of these serious proposals to save Social Security purport to do so by cutting it.

For instance, one proposal is to raise the retirement age so that hard-working Americans, including nurses, cashiers, carpenters, mechanics, truckdrivers, have to work even longer before they can retire with full benefits.

I remind people we already raised the retirement age. We did that in the 1980s, from 65 to 67. That is being phased in right now. The Bowles-Simpson Commission, what did they want to do? They wanted to raise it to 69. I remind people that life expectancy at age 65--that is the amount of time you are going to live after you reach 65--has not grown equally among all Americans. Not surprisingly, higher income Americans have seen much larger gains in life expectancy after 65 than low- and moderate-income families. So you raise the retirement age for Social Security, you help those who have money and you hurt those who do not. That is exactly what it is. You hurt low- and moderate-income Americans who work at some of the most physically demanding jobs in our economy. It hits them the hardest. So we can dismiss that.

I was looking at the list of people proposing that we raise the retirement age--Bowles-Simpson; the Third Way; Lloyd Blankfein--CEO of Goldman Sachs, how about that--Senator Coburn, the American Enterprise Institute, Cato Institute, Republican Study Committee. Oh, yes, the Ryan budget, by the way. We know what the voters of America thought about that Ryan budget.

Anyway, there is a whole list of people there who are saying we have to raise the retirement age. Let's see what kinds of jobs they have, what kind of work they do during their lifetime.

Another proposal we have heard about to kind of ``fix'' Social Security is to base future cost-of-living adjustments, the COLAs, on the so-called chained CPI. That is a phrase you are hearing more and more of. What it does is basically it reduces annual cost-of-living adjustments. It is nothing more than a benefit cut by using a measurement of inflation that reflects the costs faced by seniors even more poorly than the current measurement.

In terms of take-home benefits for an individual beneficiary, the chained CPI will result in a benefit cut of $136 per year for a 65-year-old. However, because of the compounding, the benefit cut would increase to an average of $560 per year less for a 75-year-old retiree. That is a severe benefit cut, particularly for the oldest Americans who are the most likely to have gone through all their own retirement savings and must rely totally on Social Security. Furthermore, the chained CPI is simply not a more accurate way to measure inflation. Rather, it more accurately measures the degree to which people are reducing their costs and as a result it can mask big changes in the quality of life for Americans.

I have talked to people in town meetings about chained CPI. If an elderly person is on Social Security and due to heating costs or perhaps some medical bills that person's budget is pretty tight, instead of buying beef for dinner, he decides to buy chicken. This decreases his costs a little bit. Chained CPI would look at that and say that since his costs have gone down, we should reduce his COLA. Now that his COLA is reduced, he is sort of locked in there. Now his budget is a little tighter so he decides to go to beans. In this scenario, he has gone from beef to chicken and is now eating beans. The chained CPI said his costs went down further so we will reduce his COLA even more. Pretty soon he is reduced to drinking warm water for soup and the COLA keeps going down even more. That is what the chained CPI does to an elderly person.

Don't be fooled by a fancy CPI. Chained CPI is akin to being on a boat and you have to swim to shore and someone puts a big log chain around your ankle and tells you to swim. It is going to drag you to the bottom. Chained CPI chains you and drags you down.

There are long-term challenges confronting the Social Security system, and we know that. The baby boomers are retiring and we have fewer workers contributing to the system. Fortunately, we knew this has been coming for decades, and that is why we have the trust fund in the first place. The trust fund pays 100 percent of the benefits until 2033. What happens in 2033? A lot of people say Social Security is going to go belly-up. No, it doesn't. Unless changes are made, the Social Security trust fund will pay out 75 percent of anticipated benefits in 2033. What happens if we reduce unemployment? What if we reduce unemployment from its present 7.7 percent down to 4 percent? Guess what. That 2033 now goes up because there are more working people paying into the system.

So one of the best ways to fix Social Security is to get jobs back for people in this country. That is why those of us who are committed to honestly strengthening Social Security will resist any effort to cut Social Security and are saying, no, don't make it any part of a grand bargain. It should have no part of it whatsoever. There are approaches that can strengthen Social Security. To do so, I introduced legislation earlier this year that would provide seniors with greater economic security.

My proposal does it three ways. First, we actually raise the amount of Social Security that people get by $65 a month. Some might ask how can that save money. I thought we were supposed to cut benefits not increase them. I say there is a way. We can increase it by $65 a month. Others might say that to an upper income person, $65 is not much. To some who have paid in the minimum amount to Social Security, they have had minimum-wage-type jobs most of their lives, so $65 a month over 1 year can be quite a bit.

Secondly, my proposal ensures that COLAs better reflect the cost of living for seniors than what we presently do right now, and we certainly don't do chain CPI.

Finally, how do we do this? By applying the payroll tax to every dollar of eligible earnings by removing the so-called wage cap. We don't do it over 1 year; we phase it in over 10 years. For the life of me, I have never been able to understand why it is equitable for someone who is making $50,000 a year to pay their payroll taxes on every $1 they earn, but for someone who is making $500,000 a year, they only pay payroll taxes on the first 20 cents of every $1 they earn. The rest of the 80 cents they pay no payroll taxes on.

We talked about this for a long time and we have never done it. It is time to remove the wage cap which will allow us to pay $65 more per month per person. According to the actuaries of Social Security, the 100-percent benefit that would expire in 2033 goes to 75 percent and would be extended beyond 2050. Just by doing that, we will extend the life past 2050, pay $65 more a month per person, and make it fair for everyone by ensuring that everyone pays into the trust fund on every $1 they earn. These are the kind of changes we should consider as part of any effort to reform Social Security. Regrettably, I don't hear from those who want to put Social Security on the table as part of a debt reduction package calling for these type of reforms. They want to just cut benefits, that is all.

As we work to resolve the fiscal cliff on our long-term deficits, our core principle should be that we need a resolution that is good for the middle class, and that starts with strengthening and protecting programs such as Social Security. It also means we should take this opportunity to continue to support hard-working families and create jobs, particularly through programs such as infrastructure investment. We should also continue to provide help, such as the middle-class tax cut, to working Americans by giving them more money to put in their pocket to spend and drive the economy forward.

However, we must not continue the payroll tax cut of the last 2 years because of the threat it poses to the integrity of Social Security. Two years ago, to help middle-class families through tough times, we reduced the amount they paid into Social Security by 2 percent, from 6.2 percent to 4.2 percent. In order to make up for that, we put money from the general fund into the Social Security trust fund. It is the first time we have ever done that. I said it was wrong, and I still say it is wrong. We then extended it for 1 year until the end of this year. I thought that would be the end of it. Now I am hearing voices say we ought to extend this payroll tax cut.

Two of the critical strengths of Social Security are that it is universal and it is self-funded. No dollar paid in

benefits comes from any source other than the payroll tax. As such, Social Security does not add one dime to our deficit. Again, that fact alone is a strong argument for those of us defending Social Security from misguided attempts to cut the system in the name of deficit reduction.

I have often argued that Social Security doesn't add one dime to the deficit. It never has. However, if we are taking money out of the general fund, which we know is borrowed money, and we are putting that into the trust fund, then the trust fund is now taking money that is borrowed. No longer can we say every dime paid out of that is from the payroll tax since it is coming from the general fund. I think we made a mistake 1 year ago by extending it. Now it is the time to end it. It must not be extended. I, for one, will do whatever I can as a Senator to stop the extension of the payroll tax cut in order to help solve the deficit and in order to help middle-class families.

How can we help middle-class families? It is very easy. First of all, pass the tax cut extension that we have sitting before the House. Secondly, rather than cutting payroll taxes by 2 percent, we should put in place a modified version of the Making Work Pay tax credit that we did under the American Recovery Reinvestment Act. That credit provided working Americans with $400 per person, $800 per couple in 2009 and in 2010. We can adjust that credit and double it to $1,600 per couple to replace the payroll tax cut. So as we put the 2 percent back to where everyone pays back in at 6.2 percent, what we do on the other side is provide for a Making Work Pay tax credit that goes to people who are working. Obviously, no one gets the 2-percent payroll tax cut if they are not working. The Making Work Pay tax credit would also go to those who are working and make it a similar amount of money as they had on the Social Security payroll tax fund. This would have a greater bang for the buck because it would better target working Americans of modest means who tend to spend more of what they get back.

I will clarify what I mean by that. Under the Social Security payroll tax cut--the 2-percent cut--the maximum amount of money someone would get would be at the highest level they paid into Social Security, which is approximately $110,000 on a payroll of $110,000. So that person would get $2,200 back. That is for someone making at least $110,000 a year. If someone is making $20,000 a year, they would only get $400 back. So the higher your income, the more they get back; the lower the income, the less they get back. It is just topsy-turvy. It should be the other way around. There should be more benefits to lower income and less benefits to higher income.

With this tax credit, that is what we do. More would go to people who are making $40,000, $50,000 $60,000, $70,000, $80,000 a year than to those higher income people. That is why the Making Work Pay tax credit is much better than extending the Social Security payroll tax.

We are at a turning point in our economy. We can either move forward with an agenda that will strengthen the middle class or be dragged backward by misguided policies that consign us to additional decades of unequal growth and stagnant wages for working families.

I stand ready to work with my Senate colleagues to reduce the deficit and debt but not at the expense of hard-working, middle-class families who make this country the great country it is.

With that, I yield the floor.

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