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Updating Social Security

Location: Washington, DC

UPDATING SOCIAL SECURITY -- (House of Representatives - April 27, 2005)


Mr. RYAN of Wisconsin. Mr. Speaker, I would be glad to do so, but let me first thank my colleagues from Georgia, Indiana and Kentucky for talking about this issue tonight. This is one of the most important issues facing our country, and it faces all generations; our seniors' generation, our worker generation, our children's generation and our grandchildren's generation.

We have one problem that my colleagues have done such a good job of talking about, which is the insolvency problem, that when we go from 3.3 workers paying for one retiree to 2 workers paying for one retiree, or put another way, when we go from 40 million seniors to 80 million seniors within one generation, it is bringing the system to insolvency. But the real problem starts not just in 2017 but in 3 years, in 2008, when the oldest baby boomers begin retiring. That is when the revenues coming into Social Security start going down. And in 12 years, we no longer have enough money coming in to pay off all the benefits.

But there is one more problem that is coming to Social Security that we also want to fix, in addition to making the program solvent, and that is we want to make this program generationally fair, and it is not right now. Take me, for example. My mom is 70 years old and she gets about a 5 percent rate of return on her payroll taxes that she paid when she worked. It is a good deal for current seniors. They are getting a relatively good market rate of return on their payroll taxes, 5 percent for a 70-year-old; even higher for an 80-year-old.

But for current workers today, based upon the payroll taxes they are now paying, they are getting anywhere from 1 to 1.5 percent. The average worker today gets a 1.25 percent rate of return on their payroll taxes. Well, when you take a look at my children, our children's generation, I have three little toddlers, right now, under the current system, they are scheduled to get today a negative 1 percent rate of return on their payroll taxes.

Now, why is that important? I would say it is important because 80 percent of the American worker pays more in payroll taxes than they even pay in income taxes. It is the biggest tax most Americans pay. When Americans take 12.4 percent of their wages and put it into this program and it is a program that they are not even getting a fair share on, we have to ask ourselves can we not do better? Can people get a better retirement benefit from Social Security if they could only grow their money, this 12.4 percent coming out of their paychecks, at a better rate of return, like current seniors are getting?

That is why when we talk about saving Social Security, we want to do more than what Congress has traditionally done in the past. What have they traditionally done in the past? Raised taxes or reduced benefits. Specifically, Congress has raised payroll taxes 22 times since this program began. The payroll tax rate was 2 percent in 1937. Today, it is 12.4 percent. So we could save this program with solvency by just raising taxes again or reducing benefits. But if that is what we do, then that 1.25 percent that current workers are getting, and that negative 1 percent that our children will be getting, will just get much worse.

When you take a look at the pension plans around America, if you take a look at the Thrift Savings Plan that we here in Congress and other Federal employees have, which got us an average of 7.67 percent over the last 10 years; or if you take a look at most of the union pension plans, the Taft-Hartley plans, that got between 7 and 10 percent over the last 10 years; or if you look at the AARP's mutual funds, they have 35 bond and stock mutual funds that got on average about 7 percent over the last 10 years; and you look at the pension system, you say we can do better for workers today.

Why are today's workers only going to get a little over a 1 percent rate of return on their payroll tax dollars when every other pension fund, every other savings system out there does about 5 or 6 or 6 times that? So that is what we are taking a look at.

What I do in my bill is give people a choice. For those people under the age of 55, if they want to, they can dedicate a portion of their payroll taxes to their personal savings accounts. And we are not talking about privatizing Social Security. We are not even talking about partially privatizing Social Security. Because to privatize the program would be to let someone take a chunk of their payroll taxes and go outside the system, take it to their stock broker and do whatever they want with it. That is not what is being debated here. That is not what is on the table. That is not what is being discussed.

What we are talking about, whether you look at the Ryan-Sununu bill or any other bill in Congress, or the President's framework, what we are talking about is personal accounts that are inside of Social Security; that are run, overseen, managed, and regulated by Social Security, not Wall Street firms outside of the system. The vision that we have is to give people a choice of having a personal retirement account inside of Social Security, run by Social Security, just like the Thrift Savings Plan that we here in Congress have where we can get a better rate of return on our dollars. That is what we are planning on doing.

Now, the great thing that you can accomplish with personal retirement accounts is it can help bring solvency to the system and it can reduce the need to raise taxes or reduce future benefits. So what I would say is, the most humane way to save Social Security for future generations, to make it fair for our kids so they can get a similar retirement benefit like our seniors are getting today, and to bring the system into solvency and preserve the Social Security safety net, which we are all interested in continuing, personal retirement accounts are the most humane way to save the system. Because without them, then you have to resort to steep tax increases or benefit reductions.

If we want to fix this problem right now, tomorrow, and just do it on taxes, what the Social Security trustees, what the actuaries tell us, is the payroll tax rate would have to go up 50 percent tomorrow, to 18.6 percent. So when you are looking at the fact that 80 percent of us in this country, the biggest tax we pay is payroll taxes, and you want to raise that 50 percent to solve this problem, we say no to that.

When you take a look at the benefits, if you want to do this just on benefits, we would have to reduce future benefits by 40 percent just to solve this problem for the three generations we have. But with personal retirement accounts, you can prevent those kinds of painful options and give people a chance of making their money work harder for them so they can actually accumulate real wealth and get a better benefit when they retire.

The added benefit of a personal retirement account also is that it is your property. It is part of the individual's property. The government cannot take it away from you. It is the ultimate lockbox. Because unlike today, where the government spends all the Social Security surpluses, raids the trust fund, the government cannot take your personal account away from you.

When I talk to constituents, one thing that surprises them so much is that they think that they have a personal retirement account already. When they get their statement in the mail from Social Security, it says here is what you are entitled to, here is what you paid into it. People think there is an account with their name on it with money in it waiting for them. That is not the case. Court case after court case, from Fleming v. Nester in 1960, the Supreme Court has continuously told us no American has a legal or a contractual right to their Social Security benefit. The only guarantee any American has to their Social Security benefit is whatever the 535 politicians in Congress in any given year decide it is going to be.

But with a personal retirement account, that is your money. That is your property. It is surrounded by private property rights that the government cannot take from you. If you die, it goes to your family. It does not go back to the government.

I take a look at my personal situation from my own life, because our lives shape our values, which shape what we do here. My father died when I was 16 years old. He was 55. I was a recipient of the safety net. The survivor benefits that I got from Social Security helped me pay for college and finance my education. My mom at the time had a choice to make. She could either keep the payroll taxes that she paid when she worked, and my mom was a stay-at-home mom for a number of years, but also worked at a hospital. So she paid a lot of payroll taxes. But she had a choice when my dad died: Keep what she paid in her payroll taxes or not, and/or keep what my dad had paid in his payroll taxes. Not both.

She got a $250 death benefit and then she had to give away all that money she paid in payroll taxes throughout her working career. She had to give that all back into the system and get the benefit based on my dad's payroll taxes. Under the personal retirement account system, especially for women who outlive their husbands, especially for any spouse who outlives the other spouse, not only would my mom be able to keep the payroll taxes she had always paid over those years for herself, she would also get my dad's personal retirement account on top of it.

So there are a lot of problems in the current system that I think a personal retirement account fixes, not least of which is inheritability. You actually own the fruits of your own labor and you own the account that you have in your name. The great thing that occurs in society by fixing Social Security this way, instead of going to the old-fashioned way of cutting benefits or raising taxes, is you broadly decentralize the concentration of wealth in America through personal retirement accounts.

Mr. Speaker, what do I mean when I say that. Under the Ryan-Sununu bill with accounts that we are proposing, where we have accounts and we keep the safety net of Social Security intact, we do not reduce benefits or raise taxes. According to the Social Security actuary, workers will have $7 trillion in their personal retirement accounts within 15 years. That is $7 trillion that every willing worker in America will have in their name as part of their property that they otherwise would not have. That is $7 trillion that would have otherwise gone to Washington will instead go into workers' savings.

Half of America today is the investor class. Half of the households own stocks and bonds. What that also means is the other half of America does not. The other half of America are not members of the investor class.

With personal retirement accounts which come from the existing retirement accounts that workers already pay, the biggest tax that they pay, every willing worker will be an owner in our society. They will own a piece of America's free enterprise system. They will have a stake in our society, they will be an owner of real assets and real wealth. That is a good thing.

I would like to think from the left or right, Republican or Democrat in Congress, we can agree on a couple of notions, that to decentralize the concentration of wealth in America and to narrow the gap between rich and poor would be a good thing to do. That is exactly what would happen when we have personal retirement accounts as part of the plan to save Social Security. That is essentially what our bill does.

If Members have any other questions on the specific mechanics, I will be happy to go into them. I thank the gentlewoman from Kentucky (Mrs. Northup) for talking about this issue. If we delay like the gentleman from Indiana (Mr. Chocola) said, every year we delay, according to the trustees, not the Republicans or the Democrats, but the trustees, it is another $600 billion of debt that we go into the hole. We owe it to our kids and grandkids not only to make this program solvent, but to give them a choice to have a system so they get an actual decent retirement benefit when they retire.


Mr. RYAN of Wisconsin. Mr. Speaker, I thank the gentleman. Also, there are some fiscal issues that we need to talk about. There are some real misnomers out in the press. The trustees of Social Security have told us that the long-term debt, the unfunded debt we would owe to Social Security, that we would have to put aside today to keep it going into the future, is $11.1 trillion. Add to that the $1.7 trillion in unfunded IOUs we have in the Social Security trust fund, and it is not an asset, it is a debt, that is over $12 trillion we are short of money we would need to keep Social Security going at the current level where my kids get a negative 1 percent rate of return.

If we come up with a plan to save the system that has a personal retirement account as a part of it, and any borrowing or cost associated with transitioning from the current system over to a saved system, that cost is not new debt. Many people say that the Bush plan costs $2 trillion.

Well, that is not true; but, nevertheless, because there are not enough specifics to even analyze that plan, it is a framework, but let us take that at face value. The Bush plan costs $2 trillion to have personal retirement accounts that are voluntary. To bring the system into permanent solvency, $2 trillion wipes out that $12 trillion in debt. So if we are talking about debt that is incurred to save the system, that is not new debt; that is taking debt that is hanging out there on top of the American people, recognizing it and paying it off today, just like you refinance your mortgage but paying it off at a smaller digestible level, and leaving the country debt-free with a better Social Security system that is guaranteed and gives people better

benefits when they retire. It is a really important point that I think is missed a lot in the debate up here.


Mr. RYAN of Wisconsin. Mr. Speaker, only that I think it is very important that we come together, bring our ideas to the table, and fix this problem. We cannot keep kicking the can down the road. We owe too much to our kids, and just the numbers are so overwhelming. When we in one generation are going to double the number of retirees we have in this country, followed by fewer workers paying into the system, it is a system that cannot sustain itself. That is why we have got to fix this.

Social Security, I would argue, is the most successful and important program ever devised and created by the Federal Government. It has done wonders keeping people out of poverty. It is too important to let it fail and fall because of partisan politics. We have got to fix it for our kids and grandkids.


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