COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison Giles, Chief of Staff Janice Mays, Minority Chief Counsel  SUBCOMMITTEE ON SOCIAL SECURITY E. CLAY SHAW, JR., Florida, Chairman
SAM JOHNSON, Texas MAC COLLINS, Georgia J.D. HAYWORTH, Arizona KENNY C. HULSHOF, Missouri RON LEWIS, Kentucky KEVIN BRADY, Texas PAUL RYAN, Wisconsin	ROBERT T. MATSUI, California LLOYD DOGGETT, Texas BENJAMIN L. CARDIN, Maryland EARL POMEROY, North Dakota XAVIER BECERRA, California
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisories announcing the hearing

Social Security Administration, Hon. Jo Anne B. Barnhart, Commissioner

Armey, Hon. Richard K. a Representative in Congress from the State of Texas, and Majority Leader, U.S. House of Representatives

Atwater, Frank G., National Association of Retired Federal Employees

DeFazio, Hon. Peter A., a Representative in Congress from the State of Oregon

DeMint, Hon. Jim, a Representative in Congress from the State of South Carolina

Dunn, Hon. Jennifer, a Representative in Congress from the State of Washington

Entmacher, Joan, National Women's Law Center

Etheridge, Hon. Bob, a Representative in Congress from the State of North Carolina

Foley, Hon. Mark, a Representative in Congress from the State of Florida

Independent Women's Forum, Nancy Mitchell Pfotenhauer

Institute for America's Future, Hans Riemer

Janis, Anna, United Seniors Association

John, David C., Heritage Foundation

Jones, Hon. Walter B., a Representative in Congress from the State of North Carolina

Kolbe, Hon. Jim, a Representative in Congress from the State of Arizona

Langevin, Hon. James R., a Representative in Congress from the State of Rhode Island

McDermott, Hon. Jim, a Representative in Congress from the State of Washington

Nadler, Hon. Jerrold, a Representative in Congress from the State of New York

National Association of Retired Federal Employees, Frank G. Atwater

National Women's Law Center, Joan Entmacher

Niesha M. Wolfe CPA Firm, Niesha M. Wolfe

Pfotenhauer, Nancy Mitchell, Independent Women's Forum

Pomeroy, Hon. Earl, a Representative in Congress from the State of North Dakota

Riemer, Hans, Institute for America's Future

Rodriguez, Hon. Ciro D., a Representative in Congress from the State of Texas

Schakowsky, Hon. Janice D., a Representative in Congress from the State of Illinois

Smith, Hon. Nick, a Representative in Congress from the State of Michigan

Stenholm, Hon. Charles W., a Representative in Congress from the State of Texas

United Seniors Association, Anna Janis

Wolfe, Niesha M., Women Impacting Public Policy, and Niesha M. Wolfe CPA Firm

Women Impacting Public Policy, Niesha M. Wolfe

Baldacci, Hon. John E., a Representative in Congress from the State of Maine, statement

SOCIAL SECURITY IMPROVEMENTS FOR WOMEN, SENIORS, AND WORKING AMERICANS

Thursday, February 28, 2002

House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.

The Subcommittee met, pursuant to notice, at 11:10 a.m., in room B-318 Rayburn House Office Building, Hon. E. Clay Shaw, Jr. (Chairman of the Subcommittee) presiding.

[The advisory and revised advisory announcing the hearings follow:]

Chairman SHAW. Good morning. We seem to have a great deal of interest in today's hearing. I think it will be a most interesting hearing. I would like to welcome each and every one of you.

Strengthening Social Security is a goal to many of us in this room. It is a most important program, and it provides income security to nearly 46 million American people that would not have it but for Social Security. It is particularly important to women, who live longer, earn less, take time away from the workforce to care for kids, and have less pension and asset income than men do. Social Security's lifetime inflation adjusted benefits, spousal and survivor benefits, and progressive benefit formula provide critical protection for women, and without Social Security, more than half of elderly women--more than half--would actually live in poverty in their senior years.

Ms. Janis, who will testify today, will share her perspective about the importance of Social Security and how it has affected her life.

Although Social Security has successfully provided an effective safety net for two-thirds of a century, Social Security is facing serious financial challenges. Beginning in 2016, payroll taxes will not be enough to cover promised benefit payments and Social Security will have to tap the trust fund in order to continue full benefit payments. In 2038, the trust fund will be exhausted and the payroll taxes taken out of the hard-earned wages of our working kids and grandkids will only be enough to cover 73 percent of the benefits and even less than that in the future years.

If we fail to enact a plan to save Social Security, the consequences will be devastating for millions of Americans, especially devastating for women. For these reasons, restoring Social Security's solvency for the 21st century and beyond is a national priority for the public, for the Congress, and for this President. We need to set aside politics and demagoguery and get down to the business of saving Social Security.

Our focus today, however, is to find common ground in advance of major reform to begin improving the program by enhancing Social Security benefits for women, assuring seniors that promised benefits will be paid, and better educating the American people. I would like to repeat the first part of that sentence. Our focus today is to find common ground in advance of major reform.

There are numerous proposals for improving women's benefits, and while such proposals will cost tens of billions of dollars and increase the threat of insolvency, there are some inequities in the program that could be addressed now without jeopardizing the financial position of the trust fund. I believe that women should not have to wait for comprehensive reform for us to make some helpful changes. Today, we will hear from several experts who will offer opinions for us to explore.

As we look to ways to improve Social Security for women, we must also assure seniors that strengthening Social Security does not mean weakening their economic security, and we must educate the public about Social Security's financial future. Conflicting facts reported in the print media and on television have made our job most difficult. It has fueled seniors' concerns that cuts to their benefits are imminent, despite commitments by the House of Representatives and by this President that their benefits will not be touched.

Today, we will hear ideas on how to express the commitment to preserve seniors' full benefits and how to improve information provided to the public in the Social Security Statements and the trustees' reports. I hope areas of agreement, such as improving women's benefits, will form the foundation for the kind of bipartisan partnership we will need to save Social Security. The Subcommittee has a history of working on a bipartisan basis to change people's lives by removing barriers so individuals with disabilities can return to work, removing the earnings penalties for seniors, and combating waste, fraud, and abuse. I hope we continue in that spirit to build on our past successes and reasonably address ways to strengthen Social Security for the next generation.

I now yield to the gentleman from California, Mr. Matsui.

[The opening statement of Chairman Shaw follows:]

Mr. MATSUI. I thank the gentleman from Florida, the Chairman of the Subcommittee. I appreciate the fact that he is holding this hearing.

I might, first of all, just point out that--and I appreciate the gentleman's remarks. I think working in a bipartisan fashion is critical and obviously it is very important because this is a very serious issue, one that undoubtedly all of us as Americans must really attempt to deal with in a very comprehensive way.

My concern at the outset of this hearing is the fact that it seems to have changed its character. I knew we were going to talk about older women, and I think we should. It is a very major issue. On the other hand, up until about 7:00 p.m. last night, we did have 3 witnesses on the Chairman's side of the aisle, 2 of which were going to discuss the so-called certificates of guarantee, and we had 10 Democratic witnesses that were planning on testifying, and I know we are out of session now and as a result of that, there was some desire perhaps to expedite the hearing, and so the Chair suggested that the 13 witnesses, 10 Democratic witnesses and 3 Republican witnesses, not actually appear, and certainly that is understandable, particularly if they can come at some future time.

But there is no question that the issue of the certificate of guarantees was on the table. In fact, I had written to Secretary O'Neill just 3 days ago suggesting that he have a position at the hearing, and perhaps Ms. Barnhart will be able to discuss that during her testimony. But the fact of the matter is that we understand that the certificate will probably be coming up sometime soon. I know that the Majority Leader, Mr. Armey, had talked about it. There has been some discussion that perhaps it could come up on the suspension calendar sometime in the next week or so.

As a result of that, I think we do need to talk about this, because just as we had the lockbox, now we have a certificate of guarantee. We do need to really flesh out some of these issues. I think this is a very serious issue, and we do not want to handle it in a way that perhaps is treating it rather cavalierly and so I think we need to talk about it.

I did get a Congressional Research Service (CRS) report and analyze Mr. DeMint's bill. They said it would confer no additional property rights nor contractual rights on anyone who receives these certificates, and so I guess the certificates will be about as valuable as the piece of paper they might be sent on. The intent of the DeMint legislation is to send it out to every recipient who is receiving Social Security at this time, guaranteeing their benefits for some indefinite future, and then any new recipient who goes on the rolls would also receive such a certificate. Mr. Armey really wants to do this badly because he thinks it is very important.

I would treat this a little, Mr. Chairman, like the lockbox. We passed the lockbox, signed by the President on three separate occasions, locking up the surplus of Social Security. Now we invaded that lockbox. I might just show the consequences of that lockbox and what has happened over the last 14 months or so.

When Mr. Clinton was President, we actually put that surplus to use by reducing the debt, and now we are invading the Social Security surplus in a rather substantial way, as the right-hand orange column will show. We are deeply into the Social Security surplus and the consequences of that is the next chart, if the gentleman will show the next chart.

Essentially, families that are making $30,000 a year, their payroll taxes are going into the so-called Social Security Trust Fund. The first stimulus package that the Republicans passed last year would have provided Enron Corporation with $254-million immediate tax relief by retroactively applying 16 years the alternative minimum tax, and that would have meant, had Mr. Daschle not stopped it--he is being criticized for stopping all these wonderful pieces of legislation, but had Mr. Daschle not stopped that legislation on the Senate side, then it would have taken, believe it or not, 130,000 families making $30,000 a year, their payroll tax money, their hard-earned payroll tax money that they thought was going into Social Security would have been just enough to pay for the $254-million tax cut for Enron Corporation. That is one of the consequences of breaking the so-called lockbox and invading the Social Security surplus.

It is my hope, Mr. Chairman, because we really should not be spending our time with certificates and lockboxes and things of that nature, we should put the President's three proposals that were part of the Social Security Commission and put that in legislative language, Mr. Chairman, and then let us vote on those proposals that the President has presented. Let us vote on Mr. Armey's proposal that he is now touting as a very significant piece of legislation. I think it is important that we do real substantive work rather than tinker around with certificates that have no property rights or legal rights or contractual rights.

I welcome these hearings. On the other hand, it is my hope that we really get into real issues rather than paper and lockboxes that no one on your side of the aisle had intended to keep.

Let me conclude that if you do bring up the certificate of guarantee for every Social Security recipient, Mr. Chairman, I hope it is not put on the suspension calendar. I hope that you allow a full debate and offer amendments on the Floor so that we can really have an opportunity to talk about this. The mere fact that 10 of my colleagues on the Democratic side wanted to actually testify today on this issue indicates the interest that we in Congress have.

I really welcome Mr. Armey's desire to debate this whole issue in the 2002 election--and it is his idea, not mine--because I think the American public has to be involved. The President has said that as soon as these mid-term elections are over, he is going to move on privatizing Social Security, and I think we have an absolute right and obligation as Members of the Congress representing 260 million Americans to debate this issue so that when the decisions are being made in 2003, at least the American public will know exactly what we are doing and why we are doing it.

Chairman SHAW. I would like to re-read two paragraphs of my opening statement. Our focus today, however, is to find common ground in advance of major reform to begin improving the program by enhancing Social Security benefits for women, assuring seniors that promised benefits will be paid, and better educating the public. This Subcommittee has a history of working on a bipartisan basis to change people's lives by removing barriers so that individuals with disabilities could return to work, removing the earnings penalties for seniors, and combating waste, fraud, and abuse.

Now, the reason, and I would like to say this for the benefit of everybody here, there were 10 witnesses on the other side, and I am really looking forward to the Democratic witnesses because I am sure that there must be one of them out there that has a plan to save Social Security, and I am looking forward to them bringing that plan to this Subcommittee where we can have open and thorough discussion of it. Because of that and because so many Members will be leaving today because the House is through voting for the entire week, I have set Wednesday aside so that we can come in and hear from the Members.

Also, just one comment with regard to the lockbox. It was never signed into law by the President because it was filibustered in the Senate by Mr. Daschle. Now, I think that all of us like to talk about the lockbox, but I think it is also important to say that even if it had become law, there were two important exceptions in that. One was the fact that if we went to war, the lockbox no longer would apply, or in the case of economic problems, and we certainly have a double-header going here today.

Ms. Barnhart, I would like to--

Mr. MATSUI. If I may, Mr. Chairman--

Chairman SHAW. Yes.

Mr. MATSUI. Just to make a point of clarification, on the 25th of February, just 3 days ago, we received from your staff a tentative witness list and Mr. DeMint, it says, will endorse certificate legislation in his testimony, sponsor of H.R. 3135, and then--

Chairman SHAW. And I am sure he is going to be here Wednesday, just as--

Mr. MATSUI. No, I understand that, but all of a sudden, since 7:00 last night, now we are talking about another issue. I mean--

Chairman SHAW. No, at 7:00 last night, I offered to come in early this morning and have all of these witnesses by starting the hearing earlier, and as an accommodation to you, we decided to put the thing over until next week.

Mr. MATSUI. No, that is fine. We have no problem with that. But I think what we are talking about here is the subject of the hearing, and there is no question--

Chairman SHAW. Well, this hearing will be continued--

Mr. MATSUI. The subject of this hearing was going to be on the whole issue of the certificates of guarantee. I do not know what changed your mind. It is wonderful that you have, because I do not think they mean anything, but the fact of the matter is that some witnesses may want to talk about this.

Chairman SHAW. Well, I do not know what I changed my mind on, but I am hopeful that we will have a constructive hearing this morning and that we can try to depoliticize this issue, at least long enough to save Social Security for our kids and our grandkids and not get bogged down on this.

I would like to welcome the new Commissioner of Social Security. This will be her first appearance before this Subcommittee, and I hope you will have a favorable impression of us. We are expecting great things from you, and believe it or not, despite some of the rhetoric that you have heard already this morning, we do try to work together on important issues, and we recognize the importance of the work that is before you. We are certainly looking forward to your testimony. Welcome.

STATEMENT OF THE HON. JO ANNE B. BARNHART, COMMISSIONER, SOCIAL SECURITY ADMINISTRATION

Ms. BARNHART. Thank you very much, Mr. Chairman. Mr. Chairman, Congressman Matsui, and Members of the Subcommittee, I thank you for this opportunity to speak with you today on some important issues.

We are now preparing for a national discussion about how to ensure that the Social Security system is financially sound when today's younger workers are ready to retire, but there are also some short-term topics to address. One is the importance of Social Security to women.

The Social Security benefit formula has been structured to provide a higher replacement rate to low earners since the program's inception in 1935. And this feature is particularly important for women, who tend to have shorter careers and to earn less, on average, than men. Also, because women tend to live longer than men, Social Security's automatic cost-of-living adjustments, or COLAs, can be vital for maintaining purchasing power for women. For example, a $100 monthly payment that began in 1975 would today be $347.

Social Security benefits for family members of retired, disabled, and deceased workers also can be especially important for women. Women are more likely than men to receive spouses' or widows' benefits because their lower earnings often mean that their benefits as a spouse or a widow are higher than the workers' benefits that they would receive based on their own earnings record.

Divorced women also benefit greatly from Social Security protection. Today, a woman who was in a marriage that lasted at least 10 years could be entitled to retirement benefits based on her ex-spouse's work record. Before Congress changed this provision in 1977, 20 years of marriage were needed.

Today, consideration is being given to possible incremental changes that would affect women. Some changes would affect larger groups of women and have a high cost. Other changes would be targeted to more limited groups and have smaller costs. I believe that any high-cost proposal should be considered in the context of comprehensive program reform. Given that the Social Security program is not in long-range actuarial balance, it seems appropriate that significant changes to the program should be evaluated when we are considering other elements in the future modernization of Social Security.

But lower-cost proposals could be targeted to relatively small groups, and for the most part, proposals for incremental change are well targeted to address concerns of small groups of people, most of them women. For the women affected, these changes could make a substantial difference in their economic security. I would like to give you just one example of such a situation, if I may.

One such proposal would address the requirement for disabled widow or widowers' benefits. The law as enacted in 1968 states that a disability must occur no later than 7 years after the workers' death or after a surviving spouse child and care benefits were payable. The intention was to provide disability protection for widowers or widows until they have a reasonable opportunity to earn disability protection on their own. However, sometimes now a worker who is disabled after age 50 may actually need to work up to 10 years in order to be fully insured, so that would argue for lengthening or eliminating the time period.

This is only one example. We would be glad to work with the Subcommittee as you consider such proposals that would improve the protection afforded women under Social Security.

Another issue I would like to discuss is the Social Security statement. As you know, the statement gives estimates of Social Security retirement, disability, and survivor benefits that workers and their families could be eligible to receive. The statement also provides information about Social Security's future financing, and it points out changes that will be needed. It is not easy to communicate complicated financial information to a diverse public in a way that is understandable, but Social Security has worked hard to ensure that the Social Security statement does that.

During my confirmation process, the issue of the statement came up time and again. Members from both sides of the aisle asked about my plans for the statement, and I consistently stated my intention and my firm belief that I would ensure that the statements serve as a factual document for use in individuals' financial planning for the future.

I am in the process now of reviewing the current statement, and I do expect to make some revisions in content, but I would like today to repeat my commitment to ensure that it is a factual document about how the program operates, how the program is funded, and the level of benefits that the individual receiving the statement can expect to receive.

Although reasonable people can disagree about how best to restore Social Security's long-term solvency, I do believe there is clear agreement that benefits of current beneficiaries are to be preserved and protected. Indeed, in President Bush's principles for reform, his very first principle is that modernization must not change Social Security benefits for retirees and near-retirees.

I understand the motivation of many Members of Congress to give current Social Security beneficiaries a written reassurance that they will continue to receive their full benefits. However, I believe I would not be doing my job as Commissioner if I did not raise what I consider to be valid and real concerns.

For example, would such a written reassurance be legally binding on future Congresses and would it require the government to use general revenue transfers to fill such assurances when if, absent any action by the Congress, the trust funds become exhausted? Also, I am concerned about possible unintended consequences, such as creating undue alarm, particularly among those who are nearing retirement age but who do not receive a written notice in a given year.

Also, as Commissioner, I must note that sending notices to 46 million beneficiaries would take millions of dollars from administrative funds that could be used in other ways, such as processing claims, working redeterminations, or handling public inquiries, and the experience at Social Security has shown that notices actually generate more workload for our field offices and our toll-free number. At a time that we are struggling to deal with current workloads and maintain a high level of service, this would be an extra workload.

Social Security touches the lives of most Americans. The very range of issues that we are discussing today is really just one indication of the range of circumstances of those who benefit now from Social Security and will continue to benefit in the future.

Mr. Chairman, Mr. Matsui, Members of the Subcommittee, I thank you again for allowing me this opportunity to testify, and I appreciate the opportunity to discuss the issues we have before us today, and I will be happy to try and answer any questions that any of you may have for me.

[The prepared statement of Ms. Barnhart follows:]

Chairman SHAW. Commissioner, I would like to just clear up one thing. Mr. Matsui talked about it and you touched on it in the latter part of your remarks. The Republican Conference has not taken any position with regard to the issue of the certificates. There are some Members that have come up with the idea, and it was a point of discussion. It was never intended to be a major part of the discussion for this particular meeting. I think this particular meeting is really dealing with major things that need to be done that actually will affect the financial well-being of people on Social Security, particularly women.

I would like to also say that if this matter is going to be brought up on suspension any time in the near future, nobody has told me about it, and I am Chairman of the Subcommittee, so I assume that if that decision were going to be made or were in the process, that I would be informed. So we are not spending administrative funds at this particular point.

You spoke of this in your remarks, but I think it is very important that we really underscore it, and that is that the President has said that there shall not be any benefit cuts for those retired or near retirement when it comes to Social Security reform. What is the best way to assure retirees that their benefits will not be cut and what is the Social Security Administration (SSA) doing to assure seniors that their benefits are safe?

Ms. BARNHART. Mr. Chairman, I think that is such an important question, and actually, I think that many of the things that you spoke to in your opening statement speak to that.

I think the first thing is, as we pursue this discussion and the debate about reform for Social Security in the future, it is important that it be factual. As you and Mr. Matsui said, I think bipartisanship is extremely important. And I think, quite frankly, for all of us on all sides, we need to avoid engaging in volatile rhetoric which sometimes causes alarm among senior citizens and most definitely current beneficiaries.

I do appreciate your restatement of the President's principle. It was the first of his principles, that modernization must not change Social Security benefits for retirees or near-retirees, and I would hope that we would continue as an Administration to make that a point of constant reminder as this debate and the discussion about the future of Social Security continues.

Regarding any other overt-type action in terms of reassuring current retirees, I do think that the very fact that the Congress and the Administration are working together to solve the future financing issues for the Social Security program will be reassuring to current beneficiaries, not only for themselves but also for future generations, for their children and their grandchildren. I know I am very fortunate to have both of my parents still with me, as well as my in-laws. I have a 13-year-old son. They are much more concerned about what is going to happen when Niles retires than about themselves right now. I do think that if they think he is taken care of, they will not be worrying about themselves. So I think those are important things.

In terms of providing some sort of communication, we do put out a cost-of-living notice to all of our current retirees and beneficiaries every year and that might prove to be an appropriate forum for some sort of reassurance or language, but I would really have to look at that.

Chairman SHAW. You are thinking of your 13-year-old son. I am thinking of my 13 grandchildren.

[Laughter.]

Chairman SHAW. I do not think that number is going to keep up with your son's age as he gets older.

[Laughter.]

Chairman SHAW. But I would like to be able to, working with Mr. Matsui and others, to extend the President's comments, and that is that there will be no benefit cuts for those retirees today or tomorrow, so that your 13-year-old son, who will not be facing retirement for many years, and my 13 grandkids can also be assured that they will have the same Social Security benefits as I will have as a person who is nearing age 65.

I think it is also terribly important for us to recognize, in 14 years, 14 years from now, there will not be enough Federal Insurance Contributions Act (FICA) taxes coming in to pay the benefits and you will be coming to the U.S. Department of the Treasury with your Treasury bills and start cashing them in. You will need to do this in order to keep pace with the benefits that have to be paid in Social Security, and the Congress is going to have to figure out where it is going to get the money in order to redeem these Treasury bills so that you or your successor will continue to pay those particular benefits.

I know you are not going to be out of Treasury bills for 30-some years, but you cannot send Treasury bills to the retirees. You have got to send them cash money. This means, and I look at this as within 14 years, we have got to start planning on how we are going to pay those benefits 14 years from now. Time really moves awfully quickly, and I am really hopeful that we can reach some type of a bipartisan agreement.

This is very similar to when I went through welfare reform. It was not until we got the Democrats aboard that we were able to pass a bill. I Chaired the Human Resources Subcommittee, and we wrote a very good bill and President Clinton came aboard and I think most of the Democrats on this Subcommittee came aboard, and as a result, that has been one of the most successful programs and successful pieces of legislation that we had, and in the end, it was truly bipartisan and the American people had confidence in it and it worked.

The same rule of thumb has got to apply here. The Republicans cannot go it alone in drawing a Social Security reform bill and the Democrats cannot go it alone. We have got to work together to do it, not only because we will get a better product that way, but we will also have the confidence of the American people and the seniors that we have produced a good product. And as you said, we have got to take the political rhetoric out of it and work together in order to get this done.

Mr. Matsui?

Mr. MATSUI. Thank you very much, Mr. Chairman.

I appreciate very much your comments, Commissioner, in terms of the whole issue of the certificate because these are the same concerns that many of my colleagues, and I have been raising about it and so I appreciate the fact that you raised a number of different red flag issues about it and perhaps that will slow this process down, because again, I think your observation about unduly alarming the American senior citizen community could be one consequence of that.

I do want to congratulate you, as well, for being Commissioner. We worked together under prior administrations, and I have always enjoyed working with you.

Ms. BARNHART. Thank you very much.

Mr. MATSUI. We are talking about women and senior citizens and obviously the whole issue of income security. Women make, on the average, unfortunately, 70 percent of what the male counterpart makes, is that correct pretty much?

Ms. BARNHART. It is true that women make significantly less than men as a percentage, yes.

Mr. MATSUI. And so over the lifetime of one's earnings, women will accumulate less in one's account if we have privatizing part or all of Social Security, is that a generally correct observation, in terms of the amount of money accumulated, same occupation, same income level, same kinds of jobs?

Ms. BARNHART. I--

Mr. MATSUI. I know it is hard to generalize--

Ms. BARNHART. It is.

Mr. MATSUI. But generally, I think most people would logically say yes to that.

Ms. BARNHART. It is hard to generalize, but today, women definitely have less in pensions. They participate to a lower degree in private pensions. Forty-seven percent of women are in a private pension plan, whereas, for men, the rate of participation in a pension plan is 53 percent.

Mr. MATSUI. Right. It is really astonishing, because when I came to Congress in 1979, women made approximately 60 percent of what the male counterpart made, and now it is only 70 percent, so there was not much progress over the last 20-plus years.

Women, on the average, work 14 years less than their male counterparts. Now, that may change for this coming and current generation of women, but at least historically over the last 30, 40 years or so, because women entered the child-bearing period, women have historically spent more time caring for their elderly parents, both the husband's and theirs, and so they work, on average, at least from a historical pattern, 14 years less than their male counterparts. That also has an impact on the amount of money they would accumulate from private Social Security account, is that correct?

Ms. BARNHART. And it does also, Mr. Matsui, with regard to Social Security today, although there is some adjustment in terms of dropping off the lowest 5 years, and, in fact, some of the proposals on the table to help women deal specifically with the child care situation.

Mr. MATSUI. Right. So women on the front end actually work less and they make less than their male counterparts and so they will have less in their accounts when they are retiring, even though they may be the same age as their male counterparts.

Now, on the other side of it, women live approximately 6 to 8 years longer than men, on average, is that correct?

Ms. BARNHART. Actually, the latest statistics I have on that is that women who today are 65 are expected to live 19.1 years and men are expected to live 15.7 years. Those are the exact numbers, about 4 years.

Mr. MATSUI. Four years, five years?

Ms. BARNHART. Yes.

Mr. MATSUI. Okay. So it is about 4 or 5 years, but women do live longer than men, on average.

Now, in terms of women, if you have private accounts, and I know this is not necessarily an area that you are an expert on because you are administering a program and it is probably better if someone from Treasury or perhaps the U.S. Department of Health and Human Services respond, but when the accounts are accumulated at the end and you begin to receive your income from those accounts, whether you annuitize them or not, I do not know of any accounts like that that are indexed for inflation, is that correct?

Ms. BARNHART. I would not want to mislead the Subcommittee. I mean, you very correctly cited this is not my main area of expertise--

Mr. MATSUI. And I appreciate that--

Ms. BARNHART. And I am really not trying to beg the issue with you, but really, just to be clear about it, I really could not speak to that.

Mr. MATSUI. Right.

Ms. BARNHART. But I would be more than happy to find out, and I would be happy to respond to any of these things in the record on behalf of the Administration, Mr. Matsui.

Mr. MATSUI. And I am not trying to put you on the spot or anything like that because I understand your situation. I do know for a fact, because I checked with a lot of insurance companies and actuaries, that there is no such policy that you can convert a trust account made up of private Social Security accounts and then set those up into an income-bearing account that takes into consideration inflation. It is just too speculative, most of these insurance actuaries say.

And because women live longer, then, the value of their accounts reduce, if they are private accounts, over a period of time of their life more than the average male, is that correct? You cannot answer that.

Ms. BARNHART. I certainly understand basic mathematical concepts. I get where you are going with that.

Mr. MATSUI. The only reason I am raising this is because this is a hearing on women and there are a lot of my colleagues on the other side of the aisle, even the President is talking about privatizing Social Security, and I think we need to come to grips with this issue. We need to talk about this issue and debate it over the next few months until we actually try to address this issue from a legislative perspective, because women will be hurt by privatization because they do not work as long as men, they make less than men, and then, obviously, they live longer and so their accounts will not, obviously, sustain them. If they live 5 years longer, at a 4-percent interest rate, that is a 20-percent reduction in the level of their benefits.

So these hearings are important because we need to talk about these options that are being raised, whether it is privatization or other options that many of my colleagues are talking about now, and there is no question that privatization will do significant damage to women in terms of income security and retirement benefits.

Chairman SHAW. Would the gentleman yield?

Mr. MATSUI. No. Did you want to comment?

Ms. BARNHART. I just want to say one thing, just generally speaking. While I am not an expert on each of the proposals, and there are many, as you know, not only those that the Commission has published in its report but also that Members of Congress have put forth. But it is my understanding that most of the proposals for reform do look at maintaining some of the, I guess I would call them equity establishers for women. I cannot speak to the specifics of those but would be happy to provide that kind of analysis for you for the record if that would be helpful. It is my understanding some of the reform proposals would continue many of the provisions built into Social Security today.

Mr. MATSUI. And let me talk about that, because I have analyzed Mr. Armey's proposal at length, and he has been saying that this is a bold approach. I am sure you have looked at that. Mr. Armey's proposal would require, believe it or not, an infusion of general fund monies into the Social Security fund of $20 trillion over the next 75 years, $20 trillion. I mean, it is mind boggling. I told that to Mr. Gephardt this morning, and he did not believe me. It also would require the Social Security trust account to actually borrow from the so-called private accounts, and how they get set up, it is a wonder, about $21 trillion.

So I do not know, maybe it is credible, maybe some folks think that that is credible because we are running a deficit now, we are not running surpluses, and even when we had surpluses, it was not in the trillions, $20 trillion. I mean, these proposals are fine, but someone is going to have to tell me how we are going to pay for them. Mr. Shaw has a proposal that will cost $8 trillion--

Chairman SHAW. That sounds like a deal.

Mr. MATSUI. Three-point-six trillion dollars plus loss of interest because it will be borrowing from the equity markets. So someone has to tell us how we are going to pay for it. That is why we need to bring those bills to the Floor and vote on them instead of just talking about them. We need to actually vote on these pieces of legislation. The President's proposal, his three different plans that came from this Commission, all of them require significant cuts, 4 to 6 percent cuts in some benefits in plan two, infusion of $6 trillion worth of general fund monies. These are not credible plans, and that is why when we talk about them, we have to talk about them with some skepticism.

Ms. BARNHART. If I may just make one point of clarification, and that is that under Commission proposals, as I understand the situation, there are three possible ways to approach solvency.

At this point, where I sit, I do not see any of those as the President's plan specifically. He has, to your point, Mr. Matsui, laid out six principles for reform that do include the establishment of voluntary personal accounts and these Commission approaches are various ways to get there. I look forward, frankly, to providing whatever expertise we can from the Social Security Administration, from our actuaries. As you know, the actuaries do analyses of legislation for you, other Members, as well as for the Commission. Our actuaries, in fact, did a very lengthy analysis that is included as an appendix in the Commission report that speaks to some of the issues you have raised here today in terms of the long-term financing implications. But I look forward to being a part of providing whatever kind of expertise we can to inform that discussion and debate as we move forward to resolve the situation.

Mr. MATSUI. If I may--I am sorry, Mr. Chairman--

Chairman SHAW. You have already exceeded 5 minutes.

Mr. MATSUI. Did you not say that if the President is not embracing these plans, then does he have any other plan to speak of?

Ms. BARNHART. Again, from where I sit, Mr. Matsui, my understanding is the Commission laid out the three different approaches. They are three different models, as they call them. They suggest these are possible approaches that could be used and have called for a year of debate and discussion. My impression is that is what we are doing now. We are starting the debate and discussion. There are a whole range of proposals, including the one from the Chairman and others, that will be looked at and discussed, and that at this point in time, the Administration does not have a specific plan.

Mr. MATSUI. Okay.

Ms. BARNHART. That is the clarification I wanted to make.

Mr. MATSUI. That is extremely helpful, and I really appreciate that because I have been criticized for not having a plan and the President does have one, and so obviously he does not have one and I do not have one, so we are equal.

Chairman SHAW. I do.

[Laughter.]

Mr. MATSUI. Thank you.

Chairman SHAW. I would welcome you aboard. I do want to point out that the Commission did recommend increasing benefits to widows, increasing minimum benefits, and providing for accounts to be equally divided between the spouses upon divorce. The bill that I have out there, which is out there for discussion, and I would welcome such discussion, does increase the women's benefits, and it does protect against all risk and it does guarantee, as much as Congress can guarantee, that the benefits will remain the same, and it does not in any way privatize Social Security. In fact, it leaves it totally intact in its existing state, and we simply add on an added segment to it.

To do nothing and to be without a plan means that the benefits are going to be reduced by over 30 percent or that taxes are going to have to be increased and run a deficit of well over $20 trillion, so I think the math is very simple. Do you spend a little over $3 trillion to solve the problem over a long period of time or do you go in deficit over $21 trillion? Such a deficit would really bring our economy down. Or do you reduce the benefits?

I am totally against reducing the benefits when I know we can solve the problem. The simple math is there. We had, when Social Security started, 40 workers per retiree. Now, we are down to a little over three. Before long, it is going to be over two. You cannot sustain a pay-as-you-go (PAYGO) system with two workers per retiree. It is that simple. Other countries are facing the problem and I hope we do, too.

Mr. Johnson? And, by the way, I was very lenient with the Ranking Member. I let him go twice the allotted time. But I am going to enforce the 5-minute rule from this point forward.

Mr. JOHNSON. Are you going to start it over? It is already going.

Chairman SHAW. Yes, I will add your 15 seconds back on.

[Laughter.]

Mr. JOHNSON. I was glad to hear your mortality tables on men and women. I just saw my doctor. He said I was going to be 100. I can hardly wait to get there. You guys are going to really have to foot the bill on Social Security.

You know, back in 1977, Congress created pension offsets. I hear more about that from women in my district than anything else, and the windfall elimination provision. I think they became effective in 1983. Obviously, it is to prevent individuals who have a pension earned outside of Social Security to benefit from the high replacement rates meant for low income. It is a static formula, in my view, and I do not think it is treating people right to make that offset. I wonder if you would comment on that, one, and two, can we work with you to fix it?

Ms. BARNHART. We would certainly be happy to work with the Subcommittee to resolve any technical issues that arise from pursuing this. As I am sure you know, it has changed over time. Originally, the offset under the government pension offset (GPO) was 100 percent of the pension. Now, it is two-thirds. It may well be time to take a look at it, and we would be happy to provide whatever information we can as you consider that provision.

Mr. JOHNSON. Are you looking at anything in that regard?

Ms. BARNHART. At the current time, we are looking at a number of different proposals but we do not have any particular package we are putting forward because we really believe that anything we do that would have a substantial effect on the cost of Social Security needs to be done in the context of reform. I do think that includes the provisions for women as well as anyone else that we would look at for changes for the future.

We already have a situation, as has been pointed out, where the trust funds will be exhausted in 2038. We actually have to begin to use interest from the bonds in 2016. So adding to that long-term financial liability at this point without considering the context of reform is something we would rather not do.

For some of the changes, and particularly for the pension offset, the estimated cost for legislation you all have considered that has been introduced by the Chairman was $7.7 billion over 10 years. I think that is something we would want to update. We want to work with you on providing cost estimates and talk about the implications for the future.

Mr. JOHNSON. Do you think it is fair for a woman who works in another job and earns a retirement and pays into Social Security and considers that a retirement, for her to lose some of her Social Security just because she worked in another job?

Ms. BARNHART. I think that really looking back to the intent of the proposal when it was first enacted, the idea was to treat people who worked in non-covered employment comparably to those who worked in covered employment. As I say, there have been changes made over time.

It is my understanding when Congress originally enacted the offset, it was 100 percent. Then years later, Congress took a look at it and decided that two-thirds of the government pension was approximately equal to a Social Security benefit, which is the reason that was selected, and so it may well be time to take a look at that decision and update those figures from that perspective.

Mr. JOHNSON. But you did not answer my question. Do you think it is fair?

Ms. BARNHART. You know, it is interesting, because I have asked similar questions myself, in all candor, talking with my staff as we looked at some of these provisions just trying to understand the motivation for their original passage and how we continue with them and so forth. I think cases can be made on both sides, quite frankly, because you can also have a situation where someone works just the minimum amount they need to in order to be eligible for a Social Security benefit to augment their pension, and that is where the WEP, or the windfall elimination provision, comes into play.

So I do think we have to look at establishing a balance. I think America is founded on the principle that if you work, you should be rewarded according to the work that you are doing and you should reap the benefits of that work. So from that standpoint, I understand your concern about if you are working, should you not get it. But at the same time, I think we have to look at it from the standpoint of the windfall side, as well.

I think one of the things that I have definitely learned over the years, Mr. Johnson, is that there is absolutely nothing in Social Security that is simple and straightforward and not complex. I would be happy to work with you and your staff on sorting out some of these issues.

Mr. JOHNSON. Thank you, ma'am. Thank you, Mr. Chairman.

Chairman SHAW. Mr. Lewis?

Mr. LEWIS. Yes. Commissioner, the Social Security statement that is being sent out now, you mentioned that there may be some revisions to that statement. What kind of revisions are you talking about?

Ms. BARNHART. Specifically, I have been looking at the statement myself and working on the statement. We are not talking major changes. Let me just start by saying that the kinds of changes I am looking at range from everything from taking the table of contents which is in the lower right-hand corner and moving it up where people can see it easier and referencing the fact that it says--"see what is inside" right now with a little arrow. I want to have, "see what is inside," and then put "your personal information," "your individual information," something that makes people want to open that statement up and look at it and realize that it has things that are specifically relevant to them.

I am also looking at some of the charts that we present in there in terms of the benefits that can be expected, I do think that it is important to say, "under current law," that those are the benefits that would be available under current law so that people are aware of that.

One of the other things is--it is kind of hard to describe it--when you open it up, there is a table on the right, and right now, there is a paragraph where the information related to the fact that Social Security is more than just a retirement program but is, in fact, a disability program as well as a survivor program. I have bulleted that out so that it pops out a little more and makes it clear, as opposed to just kind of all being fuzzed up in one paragraph.

And the final thing is the statement right now includes language that describes the financing situation as we look to the future, about 2016, about 2038, and obviously that is updated depending on the trustees' reports every year, and I am looking at trying to make that clearer. I will tell you, I tried to read the statement from the standpoint of an average person who does not live inside the beltway and does not come to hearings like this and engage in these types of discussions and I ask myself would I really understand what this is telling me, because I do think it is important for people to understand.

At the same time, I am being very careful to make sure that I am not engaging in any kind of rhetoric that would alarm people, because I do think we have a real responsibility, and particularly as Commissioner of Social Security, I have a real responsibility in anything I send out, that my name is signed to, to make it factual, to make it to the point, to serve to reassure appropriately and not unduly alarm people.

Mr. LEWIS. You know, one of the things that I find traveling through the district town hall meetings and so forth is that a lot of the recipients, they do not understand how the system works. They do not understand it is a pay-as-you-go. They think they are paying into a retirement fund that is their fund, it is their account, and they are going to be paid back out of that account. They do not understand that the reason Social Security is in jeopardy is because we do not have 14 people paying into the program now, we only have 3, and that is diminishing very quickly.

I wonder if there has been any polling or any information derived from recipients about how much they understand how the program works.

Ms. BARNHART. We do have an annual performance survey that is done. It is called the Public Understanding Measurement System (PUMS). I have been in this job about 11 weeks now. I was on the Social Security Advisory Board for 4 years prior to coming in, but I just want to clarify, I am still learning about everything in detail.

Mr. LEWIS. Sure.

Ms. BARNHART. The PUMS system does a questionnaire of a statistically valid number of individuals in 52 different jurisdictions and it asks, I think, 14 questions, and if the individuals answer 8 of the 14 questions correctly, then it is considered that they understand about Social Security.

I will tell you, being perfectly honest about the situation, I have started to look at that as a measurement because I am not sure that the 14 questions really get at the intricacies and the issues related to Social Security. I have actually asked my staff to take a look at whether or not we should not augment this to some extent by doing a longer survey with a nationally valid statistical sample that would allow us to probe issues a little more deeply, because quite frankly, I have had similar reactions that you have. I have actually received calls since I was Commissioner with people asking me when they were going to get the check for their husband's remaining Social Security or their father's remaining Social Security because they died shortly after they retired, and I had to explain to them that that was not going to be the case, other than the $255-death benefit. So I understand exactly what you are talking about.

Mr. LEWIS. Thank you.

Chairman SHAW. It would be interesting to send that questionnaire to Congress and see how many of us get it right.

[Laughter.]

Chairman SHAW. Mr. Doggett?

Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, Commissioner. I think there is no doubt that even in your relatively brief service, that you are already having a big impact.

When the House Majority Leader, the leader of all of our Republican colleagues here, comes out in favor of this political gimmick of sending out the certificate to all of those currently receiving Social Security, and it is pretty clear from all the discussions here that there is going to be a major effort to force that through the House perhaps even without an opportunity for us to offer an amendment or discuss it for more than 20 minutes a side, I have no doubt that your candid comments suggesting the problems associated with that certificate, filed in your written testimony and repeated again this morning, contribute to what is obviously a backing down on advancing that very ill-advised proposal.

But I do want to center not on Mr. Armey's history going back to 1984, at least, of antagonism to Social Security, of which this is only the most recent chapter, this whole certificate idea, on one word that you mentioned that comes up again and again. It has come up in questions on both sides this morning, and that is the word "alarm."

You indicate in your testimony that one of your concerns about this ill-advised certificate gimmick is that it would create undue alarm among those nearing retirement who do not receive such a notice. As I understand it, the Armey-DeMint proposal would only have sent the certificates to the people who get a Social Security check now, not someone who is 61 or 60 or as young as I am, at 55, who might be nearing the point of being eligible for Social Security but not actually receiving a check now. Is that your understanding of the proposal?

Ms. BARNHART. That is my understanding of the proposal as introduced, yes.

Mr. DOGGETT. And so it would have provided no guarantee, even as meaningless as the guarantee might have been, to the 60-year-old, the 61-year-old, the 55-year-old. But in focusing on the matter of undue alarm, I want to refer you back to that part of your testimony that refers to the first principle for reform of the Bush program, which is that there is no goal to change Social Security benefits for retirees and near-retirees.

Now, Secretary Thompson has told this Committee in response to questions I asked him that the near-retirees mean people about my age and older, people that are 55 and older, maybe you go as low as the lower 50s. Under the President's principle of reform, he is offering no guarantee of Social Security benefits to anyone not my age. In other words, if you are someone who has been paying in as a worker to Social Security for 20 or 30 years but you do not get up to the near-retiree level, under the principles the President has announced, there is no guarantee whatsoever that you will continue to get your Social Security benefits. In fact, I believe the guarantee is that you will see your benefits cut under those proposals.

If you could put the chart back up, I think the chart showing the problems with the reversal in our progress toward paying down the debt is troubling enough, but one of the specifics that I wanted to ask you about that Mitch Daniels confirmed to our Committee in his testimony is that the President's budget has not included a dollar--as troubling as it is, with the deficits as big as they are projected to be, it has not included $1 for the transition cost of moving to a private system, has it, the budget that we have up before us this year?

Ms. BARNHART. My understanding, quite frankly, as I said to Mr. Matsui earlier, is that at this point, the President has put forth his principles for reform.

Mr. DOGGETT. Right.

Ms. BARNHART. There is no specific proposal.

Mr. DOGGETT. He has not picked which of the three horses he will run with to privatize the system--

Ms. BARNHART. Or--

Mr. DOGGETT. But under all three of them, the transition costs over 10 years have been estimated at somewhere around $1 trillion, and when you look at those charts, Mr. Matsui, as usual, has taken a fairly conservative approach, and he has not included the additional $1 trillion of red that will result from transitioning to any of these proposals.

I understand that the President does not want to pick his plan until after the fall elections are over rather than debating it in advance, but we are talking about a plan under any of these, or under Mr. Shaw's approach, that involves significant transition costs that are going to add even more to that red line and I cannot believe, whether you add those transition costs or you stick just with the conservative chart Mr. Matsui has up there, that our ability to preserve and protect Social Security for your 13-year-old grandchild is strengthened by that kind of approach to deficit spending and not reducing the debt. Thank you.

Chairman SHAW. The time of the gentleman has expired.

You know, it is interesting to look at that chart. I cannot dispute the accuracy of it, but it would certainly be more interesting if you put under it when the Democrats had control of the spending and when the Republicans had control of the spending.

Mr. Hayworth?

Mr. HAYWORTH. Mr. Chairman, I appreciate that. You know, it is kind of interesting to hear the Commissioner talk about the effort to reduce incendiary rhetoric, and I know that some of us here from time to time get a bit impassioned, but it is interesting to see the incendiary rhetoric transferred to the heading of the audio-visuals our friends offer.

I listened with interest to my friends from Texas and from California, and what is interesting, I think, needs amplification and repetition. My friend, the Ranking Member, after going through what he believed to be the deficiencies of the observations and principles the White House has offered, made it clear that he had no plan. My friend from Texas, again hyper-critical of the principles, made it clear there was no plan.

I think we all enjoy debates and rhetorical one-upsmanship, and we can do that, and indeed, there are forums on television to do that, but we are here in Subcommittee today. Perhaps it would be appropriate to try and resist the temptation of street theater and actually try to work together to solve the problem.

Someone once said, it is not a shame that youth is wasted on the young. I guess we could offer the same observation, is it not a shame that policy is always predicated on politics, and yet in a free society, admittedly imperfect but noble in its intent in freedom, there are the inevitable observations.

So perhaps it would be nice, and again, Mr. Chairman, just to point out, as you touched on it, when you as the Chairman of the Subcommittee and the previous Chairman of the Committee on Ways and Means, Mr. Archer of Texas, provided a plan, we reached out to our friends across the aisle, far from the roar of the greasepaint, the smell of the crowd. We sat down and went over some detailed plans and legislation, so plans are there and it would be nice if the minority would proffer a plan so that we can discuss and find consensus to the questions today.

Commissioner Barnhart, thank you for coming and offering your points of view. We appreciate your efforts.

My friend from Texas, Mr. Johnson, touched on the challenges that some women face, indeed, talked about the challenges of pension offset. As we deal with the changing roles of women in society and the changing needs of retirement, are there changes that can be made for the better affecting women that may not have an astronomical cost? Is there some low-hanging fruit and some policy initiatives we ought to study that can be of immediate assistance to women?

Ms. BARNHART. I think there are at least a few things. I could give you a couple of examples. One is, right now, we have a provision that requires that after a divorce, a divorced spouse must wait for 2 years in order to be eligible for benefits if the other spouse has not yet filed for benefits. In cases where the ex-spouse remarries within that 2-year period--the purpose of that 2-year wait, by the way, was to make sure that people were not engaging in so-called "sham" divorces. Sadly, we do have to take care and watch for those situations.

But in the case where the other spouse actually remarries, it is quite clear it is not a sham divorce because they obviously are not going to get married again. They have married someone else. I think that is an example of one of the things that we could do.

Right now, a disabled widow must be at least 50 to apply for benefits. Well, there is nothing magic about 50 being the age at which one can become disabled, and so I do think that you can obviously become disabled at a younger age. I think, certainly as we look to the baby boom population and the disability rolls are expected to increase, or applications for disability, 30 percent in the coming decade, I think that is one that we probably need to take a look at.

We have some examples. Those are a couple. There are some items like that that have so-called negligible or relatively very low costs, but I think if the Subcommittee is so inclined, we could work with you in terms of moving forward.

Mr. HAYWORTH. Commissioner Barnhart, I think that is very encouraging, and let the record show, and again, even given where we are on the calendar and the inherent temptation to play up differences, to put it diplomatically, maybe we can work in this fashion in a non-partisan way to say, okay, here are some common sense measures where we can find common ground and move immediately to make improvements. It is in that spirit I look forward to working with you and to my colleagues to my left.

Thank you, and thank you, Mr. Chairman.

Chairman SHAW. Thank you. Mr. Becerra?

Mr. BECERRA. Thank you, Mr. Chairman, and Commissioner Barnhart, thank you very much. Congratulations, by the way, and good luck to you as you continue forward.

Ms. BARNHART. Thank you very much.

Mr. BECERRA. Please know that we are very much looking forward to working with you as you move forward.

Ms. BARNHART. I appreciate that.

Mr. BECERRA. I want to first compliment you on your responses to some of the questions, because they are difficult questions that are being asked and sometimes it is not a clear black and white answer. It is tough, and we are probably going to put you on the spot on occasion because we are on the spot, as well, and we are trying to find what the correct answer is, so we appreciate your efforts to try to give us as straight an answer as you can and also one that is also consistent with where we need to go with Social Security.

Let me ask you a bit about the Social Security statement, the contribution statement. You mentioned that you wanted to make sure that whatever information was conveyed was factual. Please comment on the following. As far as I can tell, other than the contribution history of a worker, is there anything else that you can tell me that would be factual information with complete certainty? In other words, other than what they have already given, can we tell them something else that would be 100 percent factual?

Ms. BARNHART. You make a good point. We do include their earnings record, and that is actually one of the primary functions of the statement. I think that is so important as you point that out, because really, it is for people to make adjustments, to look at it and say, these are not the right earnings. That is very--

Mr. BECERRA. An employee may argue that you did not count a particular year's worth or work or something else, but we will know if, indeed, that was there because factually we can determine that.

Ms. BARNHART. Right, and we can make that adjustment prior to retirement, which simply speeds up benefits on the back end, so to speak.

We also provide information about the status of the trust funds, and so I think that needs to be factual, and it is now. As I said, I am just attempting to make it clearer, easier to understand, because it is very tricky describing when interest is going to be used and when trust funds will be exhausted and those kinds of things.

Mr. BECERRA. Let me stop you on that.

Ms. BARNHART. Yes.

Mr. BECERRA. When you say the status of the fund, the trust fund, you are again talking about what we know has come in, where you are talking about hard and fast numbers, factual numbers. You are not talking about speculation here, that we are expecting these amounts to come in. We are expecting to have 130 million workers who will contribute, on average, this amount. You are talking about what did come in from the number of workers that we did have.

Ms. BARNHART. We are actually talking about based on the actuaries' report and the trustees' report, is what we are talking about, which becomes basically the definitive document, put together largely by our actuarial staff and has been extremely accurate over the years. I have asked actually to look at a 25- and 50-year history of the accuracy and they do a superb job of that. It is updated every year, as you know.

And then we do put what you could expect your benefits to be, and that is the place where I thought that I needed to footnote that and cite, "under current law," basically, these are your benefits--

Mr. BECERRA. Correct.

Ms. BARNHART. Because that is the fact. I mean, that is what you are speaking to. I do not want to put a lot of information in the statement that requires so many caveats that it confuses people even further. I want to put what people will be interested in. What someone is going to be interested in knowing, I think, when they are making Social Security contributions is how much they are contributing, what wages it is based on, and what they think they are going to get.

Mr. BECERRA. Based on their past work experience.

Ms. BARNHART. That is right.

Mr. BECERRA. The projection is based on past experience.

Ms. BARNHART. That is exactly right, because we have to flat-line out from the current year to the future because we have no basis for assuming that they are going to make more or less.

Mr. BECERRA. Ten years ago when I got here, we were being told that the Social Security Trust Fund would be completely exhausted by about the year 2030 or so, 2032. A few years later, with the economy beginning to churn, we were told, well, 2034, and then we were given a different estimate a year or two later of 2035, and now we are told that 2037 or so. All those estimates are changing because of different economic conditions.

Ms. BARNHART. Right.

Mr. BECERRA. So if we were to put in a statement, you can expect to receive X amount, we are only giving them an expectation. It is not a factual piece of information. You are giving them a projection based on your best actuarial guess.

Ms. BARNHART. And based on current law.

Mr. BECERRA. And as you said, you do not want to alarm seniors, and I think most seniors who are not within the beltway here at these hearings probably would not understand how 1 year the Social Security Trust Fund is going to last until 2030 and another year it is going to last until 2037 and what does that mean for their benefits.

Having said that, can you give me a sense if you agree with the previous statements made by the Social Security Administration, I think 2 years ago when they were here before us testifying on making changes to the Social Security statement, where they agreed with the U.S. General Accounting Office (GAO), our auditing and inspection arm of Congress, wherein they also said that there was no need to make changes to the Social Security statement.

Ms. BARNHART. Well, actually, the General Accounting Office--and I was on the Social Security Advisory Board at that time--my understanding was the GAO, in fact, told Social Security they did need to make the statement simpler than they made it in the beginning--

Mr. BECERRA. Simpler, that is right.

Ms. BARNHART. And they worked to do that, and believe me, that is the primary principle for me--factual, simple, easy to understand. The information related to the trust funds that I am talking about is in there now. It is just a matter of trying to put it in language that is a little easier to understand.

One of the things I should explain is, I do think it is important, too, to construct the statement in such a way so when there are changes, when the trustee report comes out, that those dates, if they change, that that may be inserted in there. In other words, we do not put out all statements once a year, I mean, at one time. We put out statements on a rolling basis, approximately 3 months before the person's birthday. So we have opportunities throughout the year to update if we get better numbers, you know, if we get something that is--for example, when the trustee report comes out in March, if it makes changes--

Mr. BECERRA. So my statement may look different from someone else's statement, and we will have to figure out why it is that there are differences.

Ms. BARNHART. It might. And that is why people call. I do not know if you were in the room when I made the comment that one of the issues about any notice we put out is that it really increases our workload because people call the 800 number. We estimate that every time we put out a notice to all the beneficiaries, we get about a quarter-of-a-million more phone calls in the weeks immediately following the notice, which adds substantially to our workload, precisely for the reasons, as an example, that you are bringing up now, and then we answer those questions. Whenever we put out a notice, our tele-service center representatives get something that says, this is what we put out so when people call in, you will understand, because that does happen. It absolutely happens.

Chairman SHAW. The time of the gentleman has expired.

Mr. BECERRA. Thank you. Thank you, Mr. Chairman.

Chairman SHAW. Mr. Collins?

Mr. COLLINS. Thank you, Mr. Chairman, and thank you, Commissioner. It is a pleasure to hear you today and have you here.

I am reminded, as I hear a lot of talk here today about the comment that the former Commissioner made at the President's summit on Social Security several years ago, probably 4 or 5 years ago, when he referred to the matter of trust, and it is a matter of trust. It is a matter of lack of trust. The people have a lack of trust in the Congress, and at that time in the Administration, to actually address problems that will be facing Social Security in the future and some of the problems they face already. Until we stop some of the rhetoric, we will never be able to gain that trust well enough to actually address the situation.

Some of the rhetoric we always hear is that the Congress, particularly the Republicans, in their budgetary process and in their funding and in their tax provisions are spending the Social Security Trust Funds. Nothing could be further from the truth. As those dollars come in through the payroll taxes, they are credited to the Social Security Trust Fund. Now, you can either leave those funds laying dormant or you can, at the wisdom of the Congress a few years back, invest those into interest-bearing accounts, and that is what happens. We invest them into government securities. They are probably the most responsible security in the world that you can invest in, because we have people all over the world that invest in our securities, so that it can draw interest and increase the amount of funds that are in the trust fund.

Under the benefits structure, as the benefits come due and are needed, securities are redeemed and payments are made. The problem is that we all know that within the next 15 years, we will reach a peak in income versus outgo or cash flow, and we will go into a deficit cash flow, meaning we will be redeeming more securities than we have funds coming in through cash flow.

As I talk to people at home, and I love to talk to seniors about Social Security. I go looking for them. I do not run from the issue. I never have. I have been in the Congress, this is my 10th year. I have been on this Subcommittee, I have been on the Committee on Ways and Means since 1995. When I first came on it, no one really wanted to be on it because it was not a sexy Committee then. But now that we are getting into the situation of the trust funds and the rhetoric over the trust funds and the problems that Social Security faces, it is a fun Committee.

It is one that, as I told President Clinton several years ago, one that I am very interested in because Social Security is my old age pension. I do not belong to a pension program. I have an IRA, and based on the decline in the market, it is worth about 40 percent of what it was 2 years ago. Of course, I have got faith if we can get some people in this town to listen to us and build this economy back, it will more than flourish.

But when I tell people and explain to them, the real problem we are facing with cash flow is today, we have 3.3 workers to 1 beneficiary. As we move forward over the next 3 decades, that is going to change to be two workers to every beneficiary. I joke with young people when they are in the audience with some seniors and tell them, be prepared. I am going to move in with you in a few years because you and your wife will be responsible for me. Jokingly, a young man said, "Are you a good babysitter?" I said, "No, I will be your baby."

But as I talk to people, I tell them, too, there are three age groups that we must look at as we move forward with reform, and reform will have to happen. One, those who are current beneficiaries. Nothing will happen to their benefits. They are there, guaranteed by law. The Social Security law is an entitlement. Then there is my generation, 57, getting close. I hope I make it. There will be no change for my generation. If there is, it will be my option, but I doubt there will even be an option so that we do not frighten people of my generation. But it is the generations behind me, the third age group, that we have to look to and develop a plan that will be a viable plan for them.

And that is the reason that it is so important that we lay down the rhetoric and develop a trust, a trust among ourselves that we can actually openly talk about Social Security, talk about Medicare. As I say, I do not run from either one. I go looking for people to talk to them about it, about both. But until we establish that trust, we will not be able to address the issue.

Transition costs, yes, there will be, and that is the reason it is so important, the sooner we do this, the sooner we put together a program that will be a viable Social Security program and know the costs, the better we all will be.

Certificate of guarantee, we do not need that. The guarantee is in the law today. The guarantee is in the Congress and its willingness to work together to establish trust, establish trust among the people and move forward with reform that will work. Thank you for your work.

Ms. BARNHART. Thank you.

Chairman SHAW. Commissioner, we thank you very much for spending this time with us today. I thank you for testifying before the Committee of the Congress. I think we behaved ourselves rather well on your maiden voyage before this Committee. We appreciate it and we certainly look forward to tapping into your resources, your knowledge of Social Security and your background in order to try to save Social Security, not only to improve it for women and today's beneficiaries but also to try to extend it so that your 13-year-old boy and my 13 grandkids will enjoy the benefits. And also, I would not want Mr. Collins moving in with me.

[Laughter.]

Chairman SHAW. And my kids do not want me moving in with them, I can assure you of that.

[Laughter.]

Chairman SHAW. Thank you very much for being with us. It is an honor to have you.

Ms. BARNHART. Thank you, Mr. Chairman and Mr. Matsui. I have always enjoyed my appearances at the Subcommittee, and I particularly look forward to working with the Subcommittee in my new capacity as Commissioner. Thank you.

Chairman SHAW. Thank you.

Chairman SHAW. The next panel, we do have a rather large panel: Anna Janis, who is a Member of the United Seniors Association; Frank Atwater, who is President of the National Association of Retired Federal Employees; Niesha Wolfe, who is the Chief Executive Officer of Niesha M. Wolfe CPA Firm and Member of the Women Impacting Public Policy in Oklahoma City; Hans Riemer, who is a Senior Policy Advisor at the Institute for America's Future; Nancy Pfotenhauer, who is the President and Chief Executive Officer of the Independent Women's Forum; Joan Entmacher, who is the Vice President and Director, Family Economic Security, National Women's Law Center; and David John, who is a Senior Policy Analyst at the Heritage Foundation.

Welcome, all of you. You may proceed as you see fit. Anyone whose name I have mispronounced, you can correct it. It will appear correctly in the record. We have your written statement. Because of the time problems that we have at this particular time, I am going to strictly enforce the rule, so brevity is appreciated.

Ms. Janis?

STATEMENT OF ANNA JANIS, NATIONAL GRASSROOTS LEADER, UNITED SENIORS ASSOCIATION

Ms. JANIS. I would like to begin by thanking you, Mr. Chairman, for holding this hearing on ways to improve Social Security for women, seniors, and working Americans. As a National Grassroots Leader of United Seniors Association, I commend you for your energetic, constant support in strengthening Social Security. I encourage you in your leadership as Congress considers ways to improve and strengthen Social Security for seniors, our children, and our grandchildren. United Seniors Association stands for uniting the generations for America's future.

My name is Anna Janis. I am retired, and I live in Louisville, Colorado. Mr. Chairman, I am deeply concerned about the future of Social Security after 2016. I rely on my Social Security for 67 percent of my income. The remaining 33 percent is derived from certificate of deposit interest. Since I am in the 65-plus age group, I may not see the day when Social Security pays out more than it takes in. However, I am still concerned about its consequences for my retirement, not only for the financial loss but also the loss of freedom, independence, and control of my destiny.

I must admit that I did not think about Social Security and retirement until I was forced to do so at the age of 51. I am like millions of women who face similar or worse situations. It was necessary for me to enter the job market for the next 14 years until retirement and assume the obligation of a daughter entering college and a son entering high school. I realized that I could meet this commitment and plan for my retirement because the Social Security system was well funded.

Widows and widowers do face a dilemma. Under any fair and rational system, a person who dies after years of contributing to the system would still receive substantial benefits. But the current Social Security system takes just the opposite approach. The death benefits are not enough to even pay for funeral expenses, and then in some cases there are limited survivors' benefits.

My experience has made me very passionate to preserve Social Security, especially to have some peace of mind that I can count on receiving my Social Security check in the future. The need is urgent and must be addressed immediately.

I know that comprehensive reform is going to take some time and should not be rushed into hastily. However, I believe it is time for Congress to give seniors the peace of mind they deserve by giving them a written guarantee for their Social Security benefits. Such a guarantee would reassure beneficiaries without making meaningful reform of the system more difficult or expensive.

I am disheartened that after paying Social Security taxes over my lifetime that I have no legal right to my benefits. Unfortunately, the U.S. Supreme Court ruled in Fleming v. Nestor that Americans have no legal right to their Social Security benefits.

I am aware that legislation has been introduced that would provide me with a written guarantee that nothing will jeopardize my Social Security benefits, not just for me but for all the seniors so they will know they can depend on Social Security for their income.

Another problem is those who get divorced. If a wife chooses to be a homemaker, she only qualifies for Social Security if she is married 10 years to a husband who is qualified. While this might have made some sense at one time, it makes no sense today when so many marriages end in divorce. I have heard that the average marriage only lasts about 7 years, 3 years short of the 10 required to qualify for Social Security.

Suppose a young woman gets married shortly after high school, works as a homemaker for 9 years, and gets divorced. Then she works for a few years, and being young, remarries, but in 9 years divorces again. She could easily be in her early 40s and still not qualify for Social Security. If she were to become disabled, she would not qualify for disability benefits under Social Security. The situation strikes me as unfair. At the very least, Congress should allow the time a homemaker is married to a worker paying into Social Security to count toward her qualifying time.

All of these problems are exacerbated by the financial crisis facing Social Security. You know that in about 15 years, Social Security will have to start paying out more than it takes in. That makes a lot of older workers and seniors nervous. The biggest disservice to seniors is to do nothing. Facts are facts. Eventually, the trust fund will be exhausted and the income from payroll taxes will only be enough to cover 73 percent of benefits. The problem will continue to get worse. There must be a sustainable plan not only for seniors but for our children and their children.

The only proposal that will assure that Congress does not raid the Social Security surplus is enactment of personal retirement accounts. We must move from the present debt-building system to one that is wealth-building. These accounts could occur in insurance premiums that pay a substantial death benefit rather than the low $255 Social Security actually pays, and the account balance would go to the surviving spouse because he or she would have a private property right to the money. Contributions could be split between the husband and wife, either at the time they are made or in the case of a divorce. Splitting the funds means a homemaker would get her fair share rather than being denigrated to a second-class citizen status.

Chairman SHAW. Your time has expired.

Ms. JANIS. Okay. I just had the conclusion, so that is fine. Thank you, sir.

Chairman SHAW. Thank you.

[The prepared statement of Ms. Janis follows:]

Mr. LEWIS. [Presiding.] Mr. Atwater?

STATEMENT OF FRANK G. ATWATER, NATIONAL PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF RETIRED FEDERAL EMPLOYEES

Mr. ATWATER. Mr. Chairman, Mr. Matsui, and other Members of the Subcommittee, I am Frank G. Atwater, National President and Chief Executive Offier of the National Association of Retired Federal Employees, NARFE, and I am testifying today on behalf of NARFE's more than 400,000 members and representing 2.4 million Federal retirees.

I would like to first commend you, Chairman Shaw, for stepping up to the challenge of making serious proposals for reforming Social Security. Although your bill, H.R. 3497, is so comprehensive that there are surely aspects of it that will not be resolved in this Congress, I do agree that we cannot afford to wait any longer to address some changes which have considerable support for reform now.

One of the issues which your bill addresses is the government pension offset, or the GPO. NARFE has long sought to reform this provision of the law which has denied many of our older members the economic dignity they had been led to expect in retirement.

I, therefore, appreciate your invitation to appear before you today both to reiterate NARFE's support and to urge the Subcommittee's immediate action on reform of the GPO and provisions which would enhance benefits for women and other retirees.

When Social Security was originally enacted in 1935, it provided the same benefits to workers with and without spouses and provided no survivor benefits. In 1939, spousal and survivor benefits were added to provide extra protection to workers with families. But in the past 2 decades, some spouses and survivors have been shortchanged on this "extra protection."

The GPO went into effect in 1983. Since then, it has affected over 340,000 Federal, State, and local retirees. This figure grows by approximately 15,000 each year. The GPO reduces or eliminates the Social Security spousal or survivor benefit to which an affected retiree may be eligible. Two-thirds of the monthly government annuity that a public servant has earned is offset against whatever Social Security spouse or survivor benefit might be payable. By all accounts, the two-thirds is an arbitrary percentage. As such, we believe it can and should be reexamined and relaxed.

Of the approximately 340,000 affected beneficiaries, about 80 percent receive no benefit at all, but I think it is crucial to recognize that almost 70 percent of the 340,000 affected beneficiaries are women.

Mr. Chairman and Members of this Subcommittee, I know, as I am sure many of you do, that the harshness of the current GPO causes both fears and tears among thousands of older retirees. Fears for their financial futures and tears of frustration that Congress has not acted to reform this provision, despite widespread support for doing so.

There are today several bills before Congress that would offer relief to the hundreds of thousands of former teachers, cafeteria workers, postal workers, VA nurses, Social Security employees, and others who worked long and hard to help support their families. In fact, more than 300 Members of this Congress have cosponsored one or more of the pending bills. The Chairman's own Social Security reform bill proposes reducing the current two-thirds offset amount to a one-third offset.

My written testimony cites examples of what this particular change, a one-third offset versus a two-thirds offset, might make in the monthly income of an affected widow. In the interest of time, I will not read those two examples, but I can tell you that this change would help many.

At a hearing before this panel on June 27, 2000, Mrs. Ruth Pickard, a longtime NARFE member and a constituent of yours, Chairman Shaw, was with me. She spoke of raising her children and working to make ends meet, 24 years with the U.S. Postal Service and 24 years in the private sector. She continues to work today at age 75 because she says she cannot afford to stop. And, she continues to pay Social Security taxes on her wages, but she will never reap the benefits of these taxes.

The current GPO prevents her from getting any spousal benefit because two-thirds of the amount of her Federal annuity totally eliminates that Social Security benefit. She gets her own benefit, but even that is reduced by another offset that we heard about this morning. The windfall elimination provision of the WEP also affects her. Your proposal, Mr. Chairman, with the reduction of a two-thirds to one-third GPO, could quite possibly allow her to receive her spousal Social Security benefit, which could provide her with a higher benefit than she currently receives from her own work.

Although not here with me today, Ruth joins me in thanking you, Mr. Chairman, for realizing the need of GPO reform. Social Security actuaries project that implementation of the one-third GPO provision would increase the size of the Old-Age Survivors and Disability Insurance actuarial deficit by an amount estimated at 0.02 percent of the taxable payroll.

The Social Security system has endured and will continue to endure some serious challenges over the next century. None of us can predict what this program or our economy will be like 75 years from now and probably none of us will be around for that time, either. One thing is certain. Changes are inevitable, and since we know that some of our seniors need help right now, I believe that we must make those changes right now.

In an advisory announcement of this hearing, Chairman Shaw, you stated, "Information about Social Security's benefits and its future is out there, but some question whether such information is sufficient or widely understood. We should begin now to improve women's benefits, reassure seniors that their promised benefits are secured, and better educate Americans about Social Security."

On behalf of the some 400,000 members of NARFE, Mr. Chairman, I am offering to assist in the effective dissemination of factual information about Social Security and provide this panel and you, sir, with any information that you might need that would help to take care of the GPO. Thank you very much, Mr. Chairman.

Chairman SHAW. [Presiding.] Mr. Atwater, you went over, but you were saying nice things about the Chairman so that is all right.

[Laughter.]

Mr. ATWATER. I had a couple more things to say, Mr. Chairman, but I kept seeing you wanting to tap that.

Chairman SHAW. I was tapping it.

Mr. ATWATER. Thank you very much, sir.

[The prepared statement of Mr. Atwater follows:]

Chairman SHAW. Ms. Wolfe?

STATEMENT OF NIESHA M. WOLFE, CHIEF EXECUTIVE OFFICER, NIESHA M. WOLFE CPA FIRM, CLARKSVILLE, TENNESSEE, AND MEMBER, WOMEN IMPACTING PUBLIC POLICY, OKLAHOMA CITY, OKLAHOMA

Ms. WOLFE. If I say nice things about you, do I get an extra minute, also?

[Laughter.]

Ms. WOLFE. Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is Niesha Wolfe, and I am the owner of a certified public accounting firm in Clarksville, Tennessee. I am also a Member of WIPP, Women Impacting Public Policy, and today I am presenting testimony on behalf of WIPP's 250,000 members. WIPP is a bipartisan policy organization that advocates for women in business.

Obviously, the stakes for women in the Social Security reform debate are extremely high. As has been said many times here today, women are more likely to live in poverty during their retirement years than men. Sorry, guys, but I guess we are definitely going to live longer than you all are. I remind my husband about that all the time. And also, too, women are comparatively more likely to rely on Social Security to provide the majority of their retirement income.

Because of time constraints, let me just skip to our proposals and what we recommend. Education, this has been mentioned here before, that is kind of a no brainer. As we visit, the leaders of WIPP visit with women business owners around the country, we realize, like myself, that we are first-generation business owners. And therefore, even though I consider myself learned in this particular area, I realize that so many women business owners, even though we are multi-tasked, we have not educated ourselves on our retirement and Social Security so we do not understand it. So education, I think, is very important.

PRA, personal retirement accounts, we feel definitely that we should be allowed some sort of say-so over these individually-directed PRAs. We talked about the cash imbalance in Social Security, so I will not hammer that, but we strongly urge personal accounts versus government direct investment. An account that is modeled after the Thrift Savings Plan would protect property rights over personal account balances in the event of divorce, which we have talked about, and this would result in a level of protection that is greater than that present in the current system. These accounts are safe and easy to manage. They should offer three basic investment choices, a stock index fund, a corporate bond fund, and a government bond fund. Any of these would allow the owner to earn more than what the current Social Security system pays in current taxes.

Thirdly, I cannot say this strongly enough, personally, I can get involved in this one. We strongly oppose an increase in the payroll taxes. I am sure any of you that have owned a business or have friends that own businesses, which probably would include everyone in this room, know that no matter what your bottom line is, you always have to pay payroll taxes. My business also involves helping people get out of those wonderful dreaded penalties and interest because they are one, two, sometimes even a year late paying their Social Security taxes. It is an onerous thing. It is something that we all pay. We do not mind paying it. I think we would be a little bit happier writing that check if we knew we had some personal responsibility and some decision making over that. If we increase the FICA tax, I can personally give you a percentage of my clients that would go out of business. There is no doubt about it.

We need to guarantee a safety net or minimum government benefit for all retirees. It should be very simple to develop a personal retirement account plan that includes a safety net with the same guarantee level of retirement benefits that today Social Security promises. The big difference, and we stated this here many times, is that this reform plan would have assets to meet its obligations, and we have all read the papers in the last couple of months and we know that does not always happen, that we have assets.

Five, preserve the benefits of retirees and near-retirees. This has been said over and over again. We know we are facing a crisis and we need to change this so that we have a savings component of the Social Security system.

Six, we oppose general revenue transfers, which will primarily be income taxes, to Social Security if there are no structural reforms. And last, we do not believe that the government should invest in the stock market.

We are definitely not advocating getting rid of Social Security. We believe that Social Security should be preserved so future generations of women are protected from poverty. A viable Social Security proposal will reduce the projected growth of tax burdens upon future generations, for your 13 grandkids. I do not have any yet. Hopefully, I will have some soon, so it should protect mine, too.

The proposal structure must be fair and equitable with a rate of return that enables the total benefits to equal the total tax contributions.

Thank you so much for allowing me the opportunity to present these ideas to your Subcommittee. The members of Women Impacting Public Policy stand ready to support any real structural meaningful reform in the system and hope to work with you in the future. Thank you.

[The prepared statement of Ms. Wolfe follows:]

Chairman SHAW. Thank you, Ms. Wolfe. Mr. Riemer?

STATEMENT OF HANS RIEMER, SENIOR POLICY ANALYST AND DIRECTOR, SOCIAL SECURITY INFORMATION PROJECT, INSTITUTE FOR AMERICA'S FUTURE

Mr. RIEMER. Chairman Shaw and Members of the Subcommittee on behalf of the Institute for America's Future, thank you for the opportunity to testify today.

The Institute for America's Future is a public policy organization focused on the needs of America's working families, and we are firmly opposed to privatizing Social Security, America's most important safety net. Under privatization, a large amount of money would be taken out of Social Security in order to set up investments for younger workers. This drain on Social Security caused by privatization is a dire threat to beneficiaries, both current and future.

In response to this, the House leadership would issue a certificate to current beneficiaries pledging that their benefits will not be cut, but this promise is an empty one and a misleading one, much like the promise made to put the Social Security Trust Fund in a lockbox. Indeed, all Americans have reason to be suspicious of empty promises about Social Security from Congress and the Administration. So far, just about every pledge has been broken.

First, the House leadership has already broken its promise to protect the Social Security Trust Fund and the new budget shreds this promise entirely. Without question, the Nation's pressing needs to respond to the attacks of September 11 reordered our priorities and erased our short-term surplus. But the new White House budget proposes over $600 billion in new tax cuts, $1 trillion when the accounting gimmicks are removed, paid for by draining additional Social Security surpluses over the next 10 years.

In breaking this lockbox, the budget now uses retirement funds to hide mounting debts, an Enron-style accounting practice that must change. It would be generous to say that the new budget proposals fail to address the challenge of the baby boom generation's retirement. In reality, the budget's questionable accounting practices are setting the country up for a wave of fiscal crises.

Second, the promise to protect benefits for current recipients while privatization drains the trust fund does not add up. Privatization would take about $1 trillion out of the trust funds over the next 10 years. This money, however, is actually the reserve fund designed to pay benefits for those currently retired and about to retire, benefits that are also promised to be protected. It is not possible to spend that money twice. Keeping your promise, therefore, requires large surpluses or new revenues, neither of which can be found in the current budget. There is no reason, therefore, to take the promise seriously.

Third, the Bush Commission proposed very large cuts in Social Security benefits and a disguised increase in the retirement age. The Bush Commission's recent proposals for Social Security privatization include very large cuts in guaranteed benefits for today's workers, as much as 40 percent for future retirees. The Commission also proposed a disguised increase in the retirement age, which could delay when workers become eligible for full benefits even beyond 70 years old. The Bush Commission cuts in benefits, it should be noted, affect everyone, even those who do not choose investment accounts, despite promises that changes would be voluntary. Moreover, the Bush Commission proposals, the same large benefit cuts proposed affect disability and survivors' recipients, despite promises to protect them. This is truly an ominous precedent for the future.

Fourth, the Enron debacle illustrates the importance of having a strong safety net in retirement. Investment in private equities is an inherently risky proposition, and for most, it is a necessary one. Very few have access to any sort of defined benefit plan in the private sector. In such an environment, it is even more important than ever to maintain Social Security as a guaranteed benefit. Workers need a strong safety net to fall back on. As the Enron case so dramatically illustrates, 401(k)s are vulnerable to substantial losses. If Social Security were privatized, however, the basic level of guaranteed benefit would not even be enough to keep most workers out of poverty.

The appropriate question for considering the future of Social Security is, what level of guaranteed benefit is necessary in order to enable workers to maintain a decent standard of living as they grow old? In my view, that level is what Social Security currently promises, nothing less. You cannot cut back on Social Security in order to make room for privatization and still have a system that promises workers that after a lifetime of hard work, they will be able to live their quiet years in some dignity.

Fifth, the best recipe for addressing Social Security is still bipartisan dialogue. As much as some in the leadership might wish, Social Security reform is unlikely to occur in a divisive, partisan environment. By pushing forward with a narrow agenda and using gimmicks such as the guarantee certificates, advocates of privatization have undermined prospects that all sides will see themselves as participating in a meaningful policy dialogue. Yet, it is not too late for the President and the leadership in both the House and the Senate to set aside preconditions and work towards common agreement. Indeed, that is the only way that we will ever see meaningful progress towards strengthening Social Security for the future.

Thank you for the opportunity to present my views today.

[The prepared statement of Mr. Riemer follows:]

Chairman SHAW. Thank you. I am going to have to leave here, and I am going to turn the gavel over to Mr. Hayworth. I am breaking with my own rules here, but I want to know your definition of privatization.

Mr. RIEMER. Certainly. Privatization is where money that would normally go into the Social Security Trust Fund is invested by workers instead.

Chairman SHAW. Okay. You have no objection if the trust fund is left alone, all the money goes into the trust fund with the Federal Government through a refundable tax credit out of its own general fund, investing in individual retirement accounts for American workers without in any way disturbing the trust fund?

Mr. RIEMER. If the accounts are designed to supplement Social Security, I am in favor.

Chairman SHAW. You may be surprised, sir, but you agree with me.

[Laughter.]

Chairman SHAW. Ms. Pfotenhauer, thank you very much.

STATEMENT OF NANCY MITCHELL PFOTENHAUER, PRESIDENT, INDEPENDENT WOMEN'S FORUM

Ms. PFOTENHAUER. Good afternoon. Mr. Chairman, distinguished Members of the Subcommittee, my name is Nancy Mitchell Pfotenhauer, and I am President of the Independent Women's Forum. On behalf of IWF, I would like to thank you for the opportunity to appear before you today and for your attention to this very important issue.

As you know by my submitted testimony, I am an economist by training with 15 years' experience in the U.S. Senate, the White House, and the private sector. My professional and personal interest in this issue dates back to the late 1980s, when I worked for Senator William Armstrong, who had Chaired a Finance Committee bipartisan task force charged with making recommendations to improve the Social Security system at that time. And while the subcommittee work engaged my mind, it was actually the casework that made its way to me that ignited my passion for this issue.

You are probably aware that most Senate D.C. offices do not deal with very much casework. Most of it is handled back in the State, and it is handled by staff who are closer to the constituents and closer to the problems, so only the really hard cases filter through to the Washington office. And despite a probably overly broad issue portfolio, all of the casework that landed on my lap had to do with Social Security and all of those cases concerned women.

Now, rarely in my professional career have I felt such a profound combination of impotency and despair at my inability to do anything to help these women. Despite tremendous efforts by our office, Senator Moynihan's office, and the good people at the Social Security Administration, we were powerless to solve their problems, so I thank you genuinely for your attention to these issues and your willingness to do something to mitigate the situation facing our elderly poor, specifically women.

We are all aware of the sad story the statistics tell us about the plight of elderly women, so in the interest of time, I will not repeat them here. As you know, women are financially disadvantaged under the Social Security system because we tend to work fewer years, earn less, and live longer than men. Married women, who sacrifice time with their families in order to help meet financial needs, are rewarded by this sacrifice by paying billions of dollars into a Social Security system that will disproportionately undercompensate them because of the dual entitlement rule. And as a married woman who balances the competing pressures of a full-time job with 5 children under the age of 14, let me tell you, this sounds like a pretty bad deal.

Women who have to take time out to care for a child or a sick parent will suffer because this lowers their overall earnings upon which benefits are calculated. If a woman outlives her husband, as she is likely to do, her overall household benefit will fall dramatically, despite the fact that her overall expenses may not. Any woman who works outside the home, as referenced above, by choice or necessity, loses the ability to qualify for both a spousal benefit and an individual benefit despite the fact that she has earned both.

A few things could be done to mitigate these problems relatively quickly. Specifically, the Subcommittee should increase widows' benefits from 100 percent of the deceased workers' benefits to 75 percent of the couples' benefits.

We should allow women with disabilities of any age to qualify for benefits based on the deceased worker's earnings. This helps widows with disabilities who may have insufficient wages to qualify for disability benefits.

Thirdly, we should remove the restriction that forces women who have already gone through the economic and personal dislocation of a divorce to wait 2 years to receive spousal benefits if their spouse remarries.

And finally, we should explore options to mitigate the earnings dip that affects benefit calculations if a woman takes time out of the workforce to care for her children.

In closing, the Independent Women's Forum believes that the ultimate answer for women lies in comprehensive reform of the Social Security system. We do not believe any of the problems articulated above occurred through any malintent on the part of the architects of Social Security as we know it today. As such, we think the safest type of reform will allow women to earn their own cash nest egg, assuming there are safety net provisions that protect them. However, we think there is a way to help women now, and we applaud the Subcommittee for taking such steps. Thank you.

[The prepared statement of Ms. Pfotenhauer follows:]

Mr. HAYWORTH. [Presiding.] Thank you for your testimony. Ms. Entmacher?

Ms. ENTMACHER. Thank you. I appreciate the opportunity to testify before you today on behalf of the National Women's Law Center. There are three issues that were on the agenda for today's hearing: First, the proposal by some in Congress to issue certificates to retirees assuring them that their benefits would be paid; second, proposals by some other Members to send workers a very different message about what they will get from Social Security; and third, ways to increase Social Security benefits for women. All of these issues are intertwined with proposals to privatize Social Security, so my testimony will discuss that, as well.

One of the announced goals for this hearing is to consider ways of "assuring seniors that promised benefits will be paid." Unfortunately, instead of considering steps that really would strengthen Social Security, some Members of Congress would focus on proposals to have the Secretary of the Treasury issue guarantee certificates to retirees. Americans, especially women who rely more than men on Social Security and its unique protections, are increasingly and justifiably concerned about what the Administration and some Members of Congress have in mind for Social Security.

Primarily because of the tax cuts passed last year, the promise that this House made right about this time last year of saving Social Security reserves to strengthen Social Security has been broken and will be broken, not just this year nor next year but for all the 10 years in the Administration's forecast. Yet, the Administration and some Members of this House not only refuse to consider delaying the parts of last year's tax cuts that have yet to take effect and benefit only the wealthiest taxpayers, but are proposing to accelerate those tax cuts, make them permanent, and add some new ones.

The proposals to privatize Social Security on top of the tax cuts that have taken up so much of the surplus poses a double threat. Privatization does not strengthen Social Security, it weakens it by diverting money needed to pay promised benefits into private accounts. The plans proposed by the Commission appointed by President Bush to develop a plan to privatize Social Security illustrate the risks that privatization poses for women.

If you look at the two plans that at least purport to move toward long-term solvency, you see that even if you assume that the large revenue transfers are needed are made in those plans, there are very deep cuts in core Social Security benefits. Now that we have the actuaries' analysis of those plans, we can see in more detail.

Under plan two, for those who retire in 2075, core Social Security benefits for low earners would be cut 34.5 percent. For medium, high, and maximum earners, core Social Security benefits would be cut 45.9 percent. A few things to note about those cuts. First, they apply to everyone. Participation in accounts may be voluntary. Participation in the cuts is mandatory.

Point two, everybody means everybody. The Commission said that it would protect the benefits of disabled workers. However, the Commission acknowledged that these reductions in the benefit formula would apply to disabled workers, as well. If those workers were protected, the cuts for retirees would be deeper.

Three, the Commission talked about an improved minimum benefit, but that improvement does not mean they get more than they would get under current law, it means that their benefits are cut a little less, only by 34.5 percent instead of by 45.9 percent. But to be fair, we have to add to those reduced secure Social Security benefits the annuitized value of the private account that workers would get if they invested in a 50-percent equity account and achieved the average return that the actuaries used to project returns. Low earners would get a combined benefit 10 percent lower than current law with their private account. Medium earners would get a combined benefit 20 percent lower than current law. And high earners would get a benefit 25 percent lower than current law, with their private account income and reduced benefit combined. Overall reductions in retirement income would be deeper for couples where the lower earner earned substantially less.

Retirees and their children and grandchildren have reason to be concerned about what privatization would mean for them, and a guarantee certificate that can be changed by a future Congress is not going to reassure them of anything. Such certificates, according to the Congressional Research Service, would be worthless except as something to hang on the wall next to the Enron stock certificate.

The irony is that at the same time as some in Congress are considering mailing these certificates to retirees, there are also proposals that would change the information that is provided to current workers and send a very different message than the certificate sent to retirees. Some bills would require that the statements say that trust fund balances do not consist of real economic assets and contain highly misleading information about rate of return.

I want to say just a couple of words about improvements in benefits for women. There have been a number of improvements discussed that would carry relatively low cost. In addition, an improvement could be made to improve the Social Security benefits of the very poorest elders, most of whom are women, without any cost to the Social Security Trust Fund by increasing the disregard in the Supplemental Security Income (SSI) program under the jurisdiction of the Human Resources Subcommittee. If those subcommittees can work together, we can achieve a way to immediately get some real relief to beneficiaries by allowing them to keep more than a pitiful $20 a month of their Social Security benefits. Thank you.

[The prepared statement of Ms. Entmacher follows:]

Mr. HAYWORTH. Thank you. Mr. John?

STATEMENT OF DAVID C. JOHN, RESEARCH FELLOW, HERITAGE FOUNDATION

Mr. JOHN. Thank you, and thank you to both the Subcommittee and to their staff for putting this hearing together. This is a very valuable information gathering session.

I have mentioned various of the other issues in my written testimony. In my spoken testimony, I am only going to comment on the guarantee certificates, which I strongly support.

Seniors deserve retirement security and the simple fact is that seniors today have got it. The youngest person who could get a certificate such as those proposed under various pieces of legislation is 62 today. They will be 78 at the time that Social Security starts running cash flow benefits in 2016, and they will be 98 before the last of the bonds in the Social Security Trust Fund run out. Essentially, the money is there to pay them their benefits.

However, as any of us who have done Social Security events in places outside the beltway know the audience is primarily senior citizens and the first thing they want to know is, what is all of this reform going to do to my benefits? The certificates would give them some ease. There is no need to scare these people. There is no reason to allow political campaigns to raise unnecessary and nasty worries.

The certificates would work very simply. Anyone who is already retired would receive a certificate that, among other things, listed what their monthly benefit is and that they would receive an accurate annual cost-of-living allowance as determined by the Bureau of Labor Statistics or the Social Security Administration. As other people retired, they would receive those certificates also. The cost, according to the Congressional Budget Office (CBO), is about $10 million in the first year and $1 million annually after that.

Let me address a couple of points here. These certificates would not change the trust fund. Essentially, when the trust fund starts to run out of government bonds, Congress would have to make some decisions about what it is going to do in order to keep the promises contained in those certificates.

Second, is it a legal document? Well, under current law, you have a legal right to your Social Security benefits and that is what the certificates would say. You have a legal right to a specific amount of Social Security benefits based on your earnings record, which would also be stated on the certificates.

Now, it is very true constitutionally that a future Congress could change those benefits. However, it is one thing for a future Congress to make a change in benefits and try to hide it by wording things in a particular way so it does not seem like one, and it is something else when you have made an explicit promise on paper with a dollar amount of benefits. If Congress does that sort of thing, any law that changes retirees' benefits should be subtitled, "The Politicians' Full Unemployment Act," because that is what is going to happen.

So, in a sense, there is a moral right that seniors have right now to their benefits having paid Social Security taxes over a working lifetime and that moral right is what is asserted in this certificate.

Now, it has been suggested, why do we not give guarantee certificates to everyone? Well, the simple fact is that until someone has actually applied for retirement benefits, we do not know what their earnings record is. You have to have a complete earnings record before SSA can set a dollar amount for your Social Security benefits. Second, you cannot issue certificates for other programs like Medicare because Medicare does not guarantee you a certain dollar amount for your taxes. Medicare payments come out on an episodic basis as needed. The fact is that my 81-year-old father was kept alive last year when he had some heart problems by technology that did not exist when he retired in 1986. What level of benefits would a Medicare guarantee cover?

Now, let me just address one other point here. Is this some sort of a meaningless guarantee? No. It has a legal force. It has a moral force.

There have been irresponsible attacks, such as the idea that the lockbox was raided last year. The simple fact is that Social Security was supposed to receive a certain level of trust fund bonds and it did. The fact that the money after the trust fund bonds were issued was spent on the war on terrorism has absolutely nothing to do with the trust fund's future ability to pay Social Security benefits.

As a matter of fact, this is American history. For a few years, the Social Security surplus was used to reduce the government debt, but otherwise it has paid for the war in Vietnam, it has paid for the war on poverty, and now it is paying for the war on terrorism. As I try to instruct my daughter when she is learning how to budget, the fact that you have paid down your Visa bill has absolutely nothing to do with your car payment. The fact that you have paid down some of the Federal debt has absolutely nothing to do with the ability to pay benefits when Social Security starts to run cash flow deficits.

These certificates would be much more valuable, combined with changes in the annual Social Security Statements so we send a dual message. To senior citizens, you are safe. Congress is not going to touch your benefits. To younger workers, according to the Social Security actuaries, you face some problems in being able to get your full benefits. We need to talk about resolving them. Thank you.

[The prepared statement of Mr. John follows:]

Mr. HAYWORTH. Mr. John, we thank you for your testimony, as well.

Indeed, to all our witnesses, again let me reiterate our thanks for your presence here today and for your testimony.

Mr. Atwater, thank you, sir. I can assure you that members of NARFE in the Sixth Congressional District of Arizona are a lot who are not shy in the least of communicating--

[Laughter.]

Mr. HAYWORTH. And to let you know the grassroots works quite well. I hear from folks, so be assured that the input is there, I think for almost every Member of Congress.

Mr. ATWATER. Thank you very much.

Mr. HAYWORTH. Just one question. You mentioned Chairman Shaw's plan, and again, just to amplify what that would do, that would take the current two-thirds reduction down to one-third?

Mr. ATWATER. One-third, that is correct.

Mr. HAYWORTH. As if often the case in government, once we get away from the roar of the greasepaint and the smell of the crowd and the kind of debating society that we run from time to time, we have to make some hard decisions. Not to describe this as a sliding scale, but is the position that you have immutable or could that be subject to revision if we have to hammer something out?

Mr. ATWATER. Well, you know, there are numerous bills on the subject right now that are pending and none of them have come to the Floor. But we are encouraged by the Chairman's bill because he did put something in his omnibus bill that included the GPO provision, and that is, of course, one of the things that we have been very interested in for a number of years, and we are hoping that we could get that maybe pushed along to get something done in this 107th Congress. No, it is not the final thing, but we certainly would welcome that.

Mr. HAYWORTH. So that is really a goal that you see immediately based on what Chairman Shaw has offered in his omnibus bill?

Mr. ATWATER. Yes. We think that that is a goal, and we have been pushing GPO for a number of years, and hopefully that GPO would be passed maybe separate from everything to benefit these widows and women that are just getting by on $300 or $400 a month.

Mr. HAYWORTH. It is a very real problem and I thought my colleague from Texas, Mr. Johnson, made the point very well with the Commissioner, as you have, and we appreciate the ongoing dialogue we will have with members of your organization.

Ms. Pfotenhauer, you also offered a thought about how to handle benefits. I would like you to amplify that and restate that and take a look at that 75 percent of the couples' benefit and how would that inure if there is an average or some information, or how would that inure to the benefit of the widow.

Ms. PFOTENHAUER. As I think many of us know, since we have mentioned frequently today that women tend to outlive men, so the wives are outliving their husbands, once a spouse dies, the remaining survivor goes down to an individual benefit and what she gets then is reduced substantially, and, of course, her fixed costs have not been commensurately reduced. So we believe that we need to increase the widows' benefits from 100 percent of the deceased workers' benefit to 75 percent of the couples' benefit, and we think that that will have a dramatic and real impact, even if it is not on hundreds of thousands of lives.

I know that in Congress, we are frequently asked to make a decision that is going to affect the most people. Here, I think we should make a decision about a matter that can be done relatively quickly, relatively cheaply, and affect those who need it the most.

Mr. HAYWORTH. Thank you for that.

It was interesting, Ms. Wolfe, to hear your reminder to us about the whole notion of payroll taxes and the challenges that businesses face. Despite some of the other testimony and the convenient Enronizing of political rhetoric, I think it is worth noting that most jobs in our society in the private sector come from--it is almost a disservice to call it small business, it is essential business, and the challenges that are afoot there for entrepreneurs and payroll taxes.

You might be interested, in the mists of my memory, and I am sure staff will hasten to correct me, when I first arrived here, a previous Administration offered a budget plan and it was quite candid from the Office of Management and Budget looking into the future, dealing with the question of Social Security. And what has been left unsaid is your very cautionary note on payroll taxes. By the estimates of the previous administration's own budgeters, the children and grandchildren we have talked about, if nothing is done to save this system, would face, if memory serves, I think an 80-percent increase in payroll taxes.

Clearly, no matter how impassioned the advocates of the radical redistribution of funds in our society may offer that type of advocacy, I do not think that can hold up really for anybody. So your admonishment is one that I think we can all remember and sets the stage for us to work on a bipartisan basis.

Sure enough, Ms. Hildred, great with the calculator, tells me I was a little bit wrong.

[Laughter.]

Mr. HAYWORTH. But I am in the ballpark when it talks about an extreme increase, 50 percent. I do not think that is much more palatable for anybody, to face a 50-percent payroll tax increase. Thanks to the staff for helping to find those figures. Thank you again for your testimony.

Now we turn to my friend, the Ranking Member, from California.

Mr. MATSUI. Thank you, Mr. Chairman. Mr. Chairman, just for the record, I want to make a clarification. If I understood what you were saying, in time of war, obviously we may move into the surplus, and these are CBO numbers that we put in percentages. Reevaluation of the economic projections that occurred in January of this year, from January 2000, was 42 percent in the reduction of the surplus. The tax cut of May or June of last year was 41 percent of the surplus. Additional government spending approved by both the House and the Senate and also the President was 8 percent, and the war effort was only 9 percent of the total surplus.

So the war really had nothing to do with the loss of the surplus over the 10-year period, from $5.6 trillion to a projected surplus now of a little over $1 trillion, and we have not even gotten through this year yet. So I just call your attention to that.

Mr. JOHN. But, sir, it also did not change Social Security.

Mr. MATSUI. Sir?

Mr. JOHN. It also did not change Social Security at all.

Mr. MATSUI. I understand that. I also want to ask you, you are acknowledging the fact that these certificates of guarantee that you referred to, and I think Mr. DeMint and Mr. Armey introduced legislation to that effect, you acknowledge the fact that it confers no additional legal or contractual right on the recipient. You were talking about a moral right?

Mr. JOHN. What it does is to emphasize the existing legal right that an individual has to their benefits, and it also makes it exceedingly hard for a future Congress to change that without certain types of fallout.

Mr. MATSUI. And you are acknowledging the fact that after we send those certificates out, a Congress with the President's consent, obviously, can make a change weeks later, days later, or whenever we have the time to do so, is that right?

Mr. JOHN. Congress could make the change as long as they are willing to face the consequences.

Mr. MATSUI. I understand that, but we are talking about--I mean, I think we like to do things that have legal ramifications, and I just want to make sure I understand. I understand what you are saying, but what I am trying to acknowledge is the fact that this confers no additional legal right, because that is what our CRS report has said and that is what almost everyone who has looked at this has acknowledged. So I just want to make sure I understand your testimony.

Mr. JOHN. The CRS report also said that it conferred a substantial guarantee or a substantial additional--I will have to give you the exact wording. But the simple fact of the matter is that very few Americans have law books in their homes. If they receive a certificate informing them what the current law is, they are much better informed than they are now.

Mr. MATSUI. Let me just ask you, have you had a chance at the Heritage Foundation, with your involvement, obviously you are involved with Social Security--

Mr. JOHN. Yes.

Mr. MATSUI. Have you had a chance to review Mr. Armey's recent legislation that he introduced last month?

Mr. JOHN. I have, yes.

Mr. MATSUI. And have you costed it out?

Mr. JOHN. The costing according to SSA is approximately $6.8 trillion, and those are real dollars, 2002 dollars.

Mr. MATSUI. I do not think that is right. I think it is about $21.3 trillion over--

Mr. JOHN. Is that in 2002 dollars?

Mr. MATSUI. No, I am talking about in current dollars, right.

Mr. JOHN. All right. In 2002 dollars, according to Steve Goss's memo, it comes to approximately $6.8 trillion in additional revenue transfers.

Mr. MATSUI. Let me ask Mr. Riemer to comment. You have had a chance to review Mr. Armey's proposal?

Mr. RIEMER. Yes, I have.

Mr. MATSUI. Could you give us the breakdown on the cost here?

Mr. RIEMER. Certainly. My understanding is that the bill borrows $21.3 trillion from the individual accounts that it sets up, and on top of this, it actually has to have a subsidy of about $20.4 trillion from the general budget. And in spite of all that, it actually fails to restore solvency to the program.

Mr. MATSUI. Right. It does not create solvency. Mr. Shaw is not here, so I am just going to ask you briefly, what is the cost of Mr. Shaw's plan in terms of general fund borrowing over, let us say, 50 years?

Mr. RIEMER. I am actually not familiar with that number. It is quite large and I am sure--

Mr. MATSUI. Ms. Entmacher, I think you know it.

Ms. ENTMACHER. The cost of the plan, if it is all borrowed, is an additional $8 trillion to the national debt. If we did it by raising revenue or cutting other programs, the cost goes down to $3.6 trillion, the difference being the interest costs.

Mr. MATSUI. These are trillion dollars?

Ms. ENTMACHER. Trillion dollars.

Mr. MATSUI. Trillion dollars.

Ms. ENTMACHER. Yes.

Mr. MATSUI. I do not think any of you could answer this, but I do not think we have that money available at this time, and we are not projecting that money to be available any time soon.

Mr. John, maybe you can use your organization to try to find out where that money could come from, because obviously we need to solve this problem. At Heritage, you could really do us a big service if you could come up with some way we can fund either Mr. Armey's proposal or Mr. Shaw's or even one of the three proposals in the President's Commission, because I think that would really do us a wonderful favor.

Mr. JOHN. Mr. Matsui, we have a budget model and we also have a Social Security model, pretty much the only Social Security Trust Fund model outside of SSA, and we would be delighted to sit down with you and your staff. We would also like to work out where the $22.2 trillion that Social Security has in unfunded liability, according to Steve Goss, comes from.

Mr. MATSUI. The unfunded liability is about $10 trillion.

Mr. JOHN. Well, we are going to disagree on numbers, I think.

Mr. MATSUI. I know these are pretty accurate. They come from the actuary.

Mr. JOHN. Well, so do mine, actually.

Mr. MATSUI. Everybody can look at things differently, but thank you. Yes, if I may--

Ms. ENTMACHER. Yes. Actually, there are a few suggestions that we make in our testimony. The first point to emphasize is that the long-term cost of the tax cut is actually twice as big as the long-term 75-year shortfall in Social Security, and we actually, because they both involve older people, focused on just the estate tax. If instead of repealing the estate tax, as some in Congress have proposed doing, we would have 0.88 of taxable payroll available for the next 75 years, that would eliminate nearly half of the long-term shortfall in Social Security and would fund all of the improvements in women's benefits that have been talked about many times over. So the matter is one of choices and priorities.

Mr. MATSUI. That is what it is.

Mr. HAYWORTH. Thank you very much.

Mr. MATSUI. Thank you.

Mr. HAYWORTH. To echo priorities, again, with all the talk of plans, the Chair would again humbly request the minority to put forward a plan that we can work together to solve the problem, because right now, no plan means benefit cuts of at least 33 percent, and as I mentioned earlier, a tax increase of 50 percent. That is untenable, no matter the attraction some in this room may have for tax increases.

The gentleman from Kentucky.

Mr. MATSUI. If the gentleman would just yield for a minute, since he referred--

Mr. HAYWORTH. The gentleman from Kentucky.

Mr. MATSUI. I will reclaim my time--

Mr. HAYWORTH. I was very generous with time.

Mr. MATSUI. Let me just respond to you, because--

Mr. HAYWORTH. I am sorry. I have the gavel. We are going to observe the edicts--

Mr. MATSUI. I understand that--

Mr. HAYWORTH. The gentleman from Kentucky.

Mr. MATSUI. But will the gentleman please put his bill to the Floor so we can vote on it?

Mr. HAYWORTH. When the gentleman comes forward with a plan, we can all move together. The first respect is definition of terms, and having been generous with the time, again, we will not take time away from the gentleman from Kentucky. You have your 5 minutes, sir.

Mr. LEWIS. Thank you, Mr. Chairman. I find myself in a bind. My parents are 85 years old. They depend on Social Security. I have a son that is 30 years old. He is employed in a manufacturing company, he and his wife both. They make between them about $60,000 a year. And then I have all those other relatives that are in the Baby Boom generation that are going to be facing retirement before long. For some reason, because I have an "R" in front of my name, I am a Republican, then I am out and Republicans are out to destroy the Social Security system.

I remember a few Christmases ago, as I was leaving my mother's home after Christmas, she stood on the front porch and she said, "Watch out after my Social Security." So there is a concern out there with senior citizens because the rhetoric here puts fear in their hearts that their Social Security may not be valid and solid because politicians here want to use it as a political football. I think that is a shame. It is a disgrace.

Democrats do not have the monopoly on compassion in this country. I am compassionate about my mother and my father. I am compassionate about my son. I am compassionate about the fact that some day, they may have to pay 50 percent more in payroll taxes, and my grandkids. I think it is time we stopped the foolishness here and we worked together to solve the problem.

My question to Mr. Riemer and Ms. Entmacher, what is your solution? We know there is a problem. I am certainly willing to listen, but not to political rhetoric that you have no answers, just criticism. Do we want to go down the road and wait until the last minute, and as the Chairman just mentioned, put our kids in that position?

I am compassionate about this. I want to save Social Security. It is a good program. It has worked very well for my grandparents, now for my mom and dad. I hope it will work well for me and my generation, and I hope it will work well for my kids and grandkids.

But I just get sick of this. Every time we have a hearing, every time we try to do anything, it is bickering back and forth about a political agenda, charts and all this stuff that mean absolutely nothing to those people out there that when they hear this political debate, they are afraid about losing their Social Security, and my mother and father are two that are concerned about that. We know that it is going to be solid for them. We do not know how solid it is going to be for the Baby Boom generation. And we certainly know that there are going to be real problems for our kids and grandkids.

So let us try to get some answers, not politics as usual. What is your proposal?

Ms. ENTMACHER. If you would like an answer, I thought I tried to provide one in response to Mr. Matsui's question.

Mr. LEWIS. What is it?

Ms. ENTMACHER. First, if you take a look at the tax cut that was passed last year--

Mr. LEWIS. That tax cut has absolutely nothing to do with Social Security.

Ms. ENTMACHER. It has--

Mr. LEWIS. Did we cut payroll taxes? Did we cut payroll taxes?

Ms. ENTMACHER. If you will let me finish, I will try to answer your follow-up question.

Mr. LEWIS. It had nothing to do with Social Security.

Ms. ENTMACHER. It does because the plans that are being proposed, the Commission's plan, Mr. Shaw's plan to an even larger extent, and Mr. Armey's plan to an even greater extent than that, all use general revenues to move to private accounts. Everyone who is debating the future of Social Security is talking about using general revenues to fund private accounts or fund Social Security. Somewhere, they are taking money from the general revenue part of the budget into the Social Security system to deal with the financing gap.

Now, there is a disagreement about whether that extra money should go into private accounts or if it should go into Social Security, but everyone is talking about taking money from the general revenue side of the budget and using it in some way, and the ways are different--

Mr. LEWIS. And that is true, but what is your answer?

Ms. ENTMACHER. I would say, take a look at the tax cut. When the tax cut was passed last year, assurances were made that we could save every dollar in the trust fund to strengthen Social Security--

Mr. LEWIS. Look, the Social Security Trust Fund, not the surplus, but the Social Security Trust Fund is still in the same shape today as it was before the tax cut.

Ms. ENTMACHER. But the issue is, you then have money, and then we get into a discussion about should that extra money that we are willing to invest in Social Security go into individual private accounts, where individuals bear the risk of how their investment performs, or should it be given to Social Security, let us say for diversified investment by a board that could invest part of that money into the same kinds of securities that people are saying individuals can put their dollar in at lower individual risk. That is the nature of debate. That is why the general revenue side and the tax cut is so relevant.

And let me go further. Let me suggest that one of the things that has been happening in the last 20 years is that the tax structure within Social Security has become more regressive, and I am not looking to increase the payroll tax rate on anyone, but more and more of the earnings of the highest earners in America are not taxed. If you make more than $85,000 a year in this country--

Mr. LEWIS. Wait a minute--

Ms. ENTMACHER. You pay zero Social Security tax.

Mr. LEWIS. Those individuals are paying the huge majority of the taxes in this country today. I mean, they are--

Ms. ENTMACHER. Not if the tax cuts continue to go through. But historically, the amount of payroll that has been taxed has been much higher. It has been up at about 90 percent historically. Because the earnings growth in this society has been so much higher for people at the top than people at the bottom, who have actually lost wages in real terms, more and more of the high earnings are escaping Social Security taxation. If you restore that level of taxation to the 90th percentile, you could close a significant portion of the solvency gap.

Mr. LEWIS. See, here is another dilemma. I do not think my kids want to give up their tax cut on their $60,000 a year.

Ms. ENTMACHER. Well--

Mr. HAYWORTH. That is very interesting. I would intervene here as the Chair, and I thank you for the vigorous discussion. I appreciate Ms. Entmacher laying out a plan that, in terms of philosophical moorings, talks about the government taking over investment in private business. So you have, rather than global crossing, U.S. crossing and a radical change where the government picks winners and losers, and also a radical increase in payroll taxes for people who commit the crime of succeeding in society through their hard work and ingenuity.

The gentleman from California, Mr. Becerra.

Mr. BECERRA. I thank the Chairman for yielding the time.

Let me begin by thanking all of you for your testimony and your patience in being here. To Mr. Atwater, continue to have your troops go out there and talk to each and every one of us. I hope you succeed in your efforts. I believe at the end, Congress will reform the way we treat those pensioners who have received money through Social Security or should receive money through Social Security and through a separate pension, so I congratulate you on those efforts, so continue with that.

Mr. ATWATER. Thank you very much. You can be sure we will.

Mr. BECERRA. I know you will, and I am encouraging you to do more.

Mr. ATWATER. Thank you.

Mr. BECERRA. Rather than get into a whole lot of things, because I think we all have a lot to do, including catch some flights, let me just mention a couple of things.

I want to congratulate Ms. Entmacher for her efforts to try to give an answer, because quite honestly, I think you hit right on the money on what our biggest problem is. We know we are going to have a difficulty in about 30 years for Social Security, yet what we are doing now is not making it easier to deal with that problem in 30 years. We are making it more difficult by diverting monies now to tax cuts, the chart showed, that go to major corporations like Enron to the tune of over $300 million at the expense of men and women who are working right now, contributing money, would love to have those guarantee certificates, but it is no different than the piece of paper that the legislation about a lockbox was written on. It is just a piece of paper.

Ultimately, it is what each Member of Congress and the President does, we all do, to guarantee that in 30 years, the monies will be made available, and certainly, and this is where, Mr. John, I would disagree with something that you said, that when you talk to your daughter about paying down a Visa, it has nothing to do with a car payment, absolutely, it does, maybe not directly, but if she continues to rack up charges on that Visa account, she is going to have a lot harder time finding the money to pay her car payments on time. And the more we do as a government to act like any rational family to pay down our car payment or our Visa payment so we can take care of our other debts, the better off we will be.

We could have used a ton of the money that went out in tax cuts and used it to pay down the national debt. The more we pay down the national debt, the more in 30 years we will have monies to do things in our general fund that will let us go ahead and address the needs, not just of our Social Security recipients, but our kids who have to go to school, our seniors who have to seek out medical care, to increase our transportation infrastructure, and it just seems that if we want to be wise, while we may not believe we have got the silver bullet yet or have the final solution on what we need to do for Social Security, in the meantime, let us not make it worse and divest ourselves of whatever money we had.

When Chairman Shaw introduced his plan last session of Congress, we were talking about tremendous surpluses and it was clear that the Shaw plan would have to use those surpluses and the trillions of dollars to pay for that transitional cost of going towards privatized Social Security. We do not have that surplus the way we thought we did, and not only that, but we have a lot less of it because of these tax cuts that have passed and some of these tax cut proposals that are pending.

So, quite honestly, this debate does not get any easier the more we start diverting monies towards some tax cuts that, for the most part, do not help the kids of the Members of this body. Most of those tax cuts will go to others. Certainly, those kids--I know my kids are not looking at seeing my estate taxes cut because I will not pay any estate taxes. I do not make enough money to be among the 2 percent wealthiest Americans to ever be able to benefit from an estate tax repeal because only 2 percent of every American who passes on will ever pay any of these estate taxes. But yet the $50 billion we use on an annual basis by having eliminated or repealed the estate tax will be gone forever, not available in the future for Social Security or anything else.

It was an interesting discussion. I appreciated your time and your comments, and I hope that we will continue to hear from you, because whether it is trying to make sure that people who paid into a Social Security trust account and are also paying into another pension fund should be entitled to receive what they paid for or whether it is trying to make sure that women ultimately are treated better by our system, even though it tries to treat people who are low income well, it does not do enough for women, ultimately, we have to do it by being frugal and sensible now so we resolve it in the future.

I will yield back my time, Mr. Chairman, and again, thank the panel for being here.

Mr. HAYWORTH. We thank the gentleman from California, as again we reiterate our thanks to all the witnesses. One thing is certain. There are major differences of opinion and the date on the calendar draws nigh to November 5, so I guess the rhetoric will sharpen rather than lessen. Nevertheless, the Subcommittee will work together, hopefully in a nonpartisan fashion, to act on many of the recommendations you offer, and as Chairman Shaw promised before he had to leave, I guess we get together again on Wednesday.

Again, thanks to the witnesses and those who joined us and this hearing is adjourned.

[Whereupon, at 1:37 p.m., the hearing was adjourned, to reconvene on Wednesday, March 6, 2002, at 10:00 a.m.]

SOCIAL SECURITY IMPROVEMENTS FOR WOMEN, SENIORS, AND WORKING AMERICANS

Wednesday, March 6, 2002

House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.

The Subcommittee met, pursuant to notice, at 10:04 a.m., in room B-318 Rayburn House Office Building, Hon. E. Clay Shaw, Jr. (Chairman of the Subcommittee) presiding.

Chairman SHAW. Good morning. Without objection, I will put my opening statement into the record and proceed immediately with the Majority Leader, with Mr. Armey.

[The opening statement of Chairman Shaw follows:]

Chairman SHAW. As everyone knows, your entire statement will be made a part of the record, and you may proceed as you see fit. I will, after your testimony, Mr. Armey, proceed to questioning. I know there is going to be a vote at 10:30, so we will go to questioning of you, and then we will get to the other Members.

So, Jennifer, we will be getting to you probably after the vote, but we will be proceeding, and we will lead off with Ms. Dunn immediately following Mr. Armey.

STATEMENT OF THE HON. RICHARD K. ARMEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND MAJORITY LEADER, U.S. HOUSE OF REPRESENTATIVES

Mr. ARMEY. Thank you, Mr. Chairman, and I will try to be brief and to the point.

First of all, I want to thank you for holding this debate. There is no doubt that today America requires some serious policy debate on the subject of Social Security, and Social Security reform is made imperative today by the fiduciary circumstances of Social Security itself. Probably, and if I may, Mr. Chairman, point out through my adult lifetime there has probably been nothing more seemly in all of political discourse in America than the manner in which this Nation has debated Social Security. The fact of the matter is, any effort that has ever been made that I have perceived in my adult lifetime to seriously discuss Social Security from a policy perspective has been knocked down by reckless political diatribes, and the Nation has been able to afford that up to this point, because up till this point the Nation could entertain the belief that they would always have more receipts coming in out of current payroll taxes than disbursements to beneficiaries, but it is absolutely, unequivocally clear today, beyond anybody's ability to doubt it, that in the near term future most people agree by 2016 Social Security will be required by its current structure to pay out more than what is received in payroll tax receipts.

This is a serious matter, and one that we should, as this Subcommittee has clearly indicated it is prepared to, begin to examine now and get prepared to deal with this as soon as possible. It would be most naive to not recognize this circumstance and inexcusably reckless to deny it if it is recognized.

This is the situation very clearly. First of all, we must remember one fundamental fact, no American citizen ever has nor ever will receive a dime of Social Security benefit that is not received from current tax payments by their children. That is exactly what will happen in the year 2016. In the year 2016, we have a placebo by which we can console ourselves with the notion that we are still financially solvent by virtue of the trust fund, but the fact of the matter is, even if you make up for the shortfalls between the years 2016, and most people agree by 2038, you are going to make up that difference out of general revenue.

So you basically have three circumstances, decisions that must be come to in 2016. Cut Social Security benefits for then current recipients. Let me emphasize, I know of no one who wants to do this. I know some who have felt it is desirable to do it, but I want to be as clear as I can be, I know personally that it is not necessary, nor desirable to face this dilemma by cutting retirement benefits for any senior citizen in America. Let me be emphatic about that. It is not necessary, and it is not desirable. I not only do not advocate that, but I will not tolerate it. Personally, I would consider it a moral affront to reduce benefits for seniors. I hope that is clear, and I hope it is clear enough so that tonight I will not hear about my secret plan to cut benefits. That kind of statement is purely darn asinine and mean spirited, and I resent it with a passion, because I have had to listen to it since 1964, and it is the worst kind of political irresponsibility. I know of no need to, nor is it in any way desirable to cut seniors' benefits. I repudiate any effort to do so as irresponsible, and I will not tolerate it because I see it as a moral affront. I hope that is clear. Now I can say it again, it is not.

Now, I may speak for my party. I believe I do for the most part speak for the Republican Party in that.

The other alternative might be to raise payroll taxes on our children. I do not believe it is necessary, nor do I believe it is desirable to raise payroll taxes on our children to meet this contingency in the year 2016. I have five young adult children. I was just recently blessed with even one more, grandchild. These young people today in their 20s and 30s have enough to do without us raising their payroll taxes to solve this problem. It is not necessary, it is not desirable. So let me say in the most unequivocal terms I can: I do not see any need for a plan to raise taxes on these young people, and I would repudiate any plan that does so.

Now then, there is another option. The fact of the matter is we must prepare ourselves to deal with a cash flow problem that can be unmanageable if we do nothing between now and 2016 or potentially manageable if we do something. There are a lot of plans out there. We have a lot of people who have done some serious adult thinking in this matter, and I want to personally express my appreciation for that. That is to say they have thought about Social Security as something other than a political cudgel to beat their opponents over the heads with. I should mention Clay Shaw, Jim Kolbe and Charlie Stenholm, Nick Smith have plans. And the other body, Senator Gramm has a plan.

My own personal plan, which is not a secret plan, since I have cosponsored it. It exists in legislative language and is a bill before this House. I prefer to call the DeMint Plan. That is my personal favorite. In the DeMint Plan, it is not necessary to cut benefits to seniors, nor is it necessary to raise taxes on our children. What we do in this plan is recognize the power of the private capital markets, recognize the security of the private capital markets, and allow American working seniors or American workers, depending upon their income level, to take anywhere from 3 to 8 percent of the now 12.4 percent of their earnings that is taken in payroll taxes for Social Security, and divert those taxes to personal retirement accounts that are safe, secure, and well constructed. It is the belief of actuarials, including the Social Security's own actuary, that as people do that, they will be able to grow the value of these accounts anywhere from four to six times as fast as the current return on Social Security which is paltry. And that as they do that, when they reach retirement age, they will possibly the Social Security requirement out of those private retirement funds, or insofar as the Social Security guarantee is not fulfilled by that, the obligation of the Social Security Fund to their retirement will be considerably less. As you go through time, those who opt in voluntarily to this plan--and I remind you it is a voluntary opt in--those who opt in voluntarily at a younger age will more certainly meet the Social Security guarantees out of their private retirement accounts, and having done so, alleviate the rest of us from what is now unfunded liabilities of the deficient Social Security, quote "trust fund" that we are going to face in the future.

This is a good plan. It has been well examined. There is nothing secret about it, and it is not a plan to cut taxes.

My final plea for this body is let it begin here in this group with this Subcommittee, duly-elected people in Congress in a appropriately constituted committee and subcommittee of the House of Representatives, given the authority to hold jurisdiction over this most serious and morally obliging area of public policy. Let it begin in here, that there be zero tolerance for irresponsible politics and whole insistence on serious adult policy discussions. It is time for the politics to end, and for serious policy debate to begin on this subject. We cannot delay it any longer.

Those are my comments.

[The prepared statement of Mr. Armey follows:]

Chairman SHAW. I would like the record to reflect that I have been very lenient with the gavel. In fact, I have allowed Mr. Armey to go for almost 10 minutes.

Mr. ARMEY. Oh, I am sorry.

Chairman SHAW. And, I would also like to say that I will certainly afford the same courtesy to Mr. Gephardt should he ever choose to come before this Subcommittee and have an open and full debate on Social Security.

Mr. STARK. Well, he sent me.

Chairman SHAW. Well, I will never deny, Mr. Stark, that you can be a junkyard dog. But I will say that I am reading some--

Mr. CARDIN. Mr. Chairman, is Speaker Hastert planning to come before us with a program?

Chairman SHAW. I have no idea, but we have our Majority Leader, and I would welcome the Minority Leader.

Mr. CARDIN. Just wondering.

Chairman SHAW. And let me continue, if you will. I am amazed, last night after the House finished its regular business and the Republicans went off to the National Republican Congressional Committee dinner, Mr. Gephardt did take to the Floor. I wish I were on the Hill at the time, or I would have gone down and tried to join him. And I just want to read a couple of things that he said, which I think are really much below the dignity of the office that he holds in a great political party.

And that is, he says, "Republicans are refusing to have a full and fair debate on their schemes of privatization. Do they have something to hide?" And then later in his talk he said, "And you better believe that there are millions of people out there who care about Social Security, and are concerned, and rightly concerned, about secret Republican plans to wait until after the election to put forward plans that will cut their benefits."

Nothing could be further from the truth. During the last Congress, I went and personally went over with Mr. Archer a plan with Mr. Gephardt. We spoke for some time. We asked him to get back to us. I went down to the White House. Bill Archer went over this plan--it was the Archer-Shaw plan at the time--went over this plan with the President, and the President's comment, after hearing it, he says, "Gee, this sounds like we wrote it," speaking of Democrats.

When I went to the White House for the signing of the bill, the Social Security bill--I believe it was the one that allowed people over 65 to work without being penalized, a bill that I was very proud of and the President was very proud to sign--I said to the President, "Now let's do the rest of reform." And he looked at me and he said, "You get the leadership on the Hill to go forward on the Democrat side," he said, "and I'll be there." They never did, and he never did.

I have sent my plan, which is in the bill form. It is not a secret plan, as yours is not. I have sent it over to Mr. Daschle. The wall of silence is deafening. I have never seen anything like it. I will have a full and complete hearing on any plan that the Democrat leadership will bring in here. I would like to do that. I think that what we should do is to try to work together to reconcile these plans.

Secret plan? Is it a secret plan of the Democrats to run out of money in 2016 and cut benefits? I don't think so. But that is what is going to happen if we don't do something, if we don't get off the dime. And the politics of this thing are purely disgraceful. We are talking about the safety net of the most fragile part of our population. It is keeping millions of seniors out of poverty. We can do better but we cannot go it alone. One political party cannot go it alone. The Democrats cannot go it alone, the Republicans cannot go it alone. We have got to get together. I don't know how many times I have to put out my hand and ask for help, and ask for a bipartisan approach to this most important problem, and I am met with nothing but silence, and then people taking on the Floor on nights when they know that Republicans are not here and making irresponsible statements. I think it is below the dignity of this body, and it is certainly below the responsibility, the awesome responsibility that we have in this Congress, and particularly in this Subcommittee, to do something about Social Security.

If the Democrats don't want personal savings accounts in addition to the existing system--and I say in addition because my plan doesn't touch the existing system at all; I leave the trust fund, everything totally alone--then fine. Let's have their plan, but there is no controversy here as to when we are going to run out of cash. We are going to run out of cash in 2016. There will be no surplus, and the Social Security Trust Fund is going to have to turn to the Treasury to get money to pay off the Treasury bills. The Treasury bills will be completely gone in 2038. The program will be bankrupt. It will no longer be able to meet its responsibility.

So I applaud everyone who is coming forward with a plan. Some I disagree with. Some I agree with in part. Some I totally agree with. But nevertheless, I think it is so important that we come forward with a plan, and then we try to pick apart each other's plans. There is nothing wrong with that. Partisanship is one of the things that makes us great in this country because we examine ideas, we dissect them, we tear them apart, and we point out the flaws. And a matter of fact, through the hearings that we have had on Social Security since I have Chaired this Subcommittee, have been the foundation for writing the plan that I have put forward. Mr. Rangel said something to me about, "Gee, you wrote the plan." And I said back to him, I said, "We wrote the plan because I took into consideration and thought every criticism that I have heard before this Subcommittee and have tried to answer it in the plan."

Now, do the most conservative Members of this body like my plan? No. Do the most liberal like it? No. So it must be a pretty good plan. I think mine is right in the middle. But anyway, I am still looking for someone in a leadership position, either in the Committee on Ways and Means or in the hierarchy of the Democrat Party, on either side, in the Senate or in the House of Representatives, to come forward and work with me in order to try to get this thing done. I think that it is truly unfortunate that we find ourselves, and we find me being in this position of just pleading for some bipartisan cooperation on this, because I am very, very concerned.

And this is not just a problem in this country. Other countries have faced up to this. Over in the U.K., United Kingdom, Labor pushed through the plan that they have, and they are trying to work through it. But a pay-as-you-go system cannot work when you are finding that you are going to be looking at a time very shortly when there are only going to be two workers per retiree. There is just simply not enough cash coming into the system in order to take care of the benefits. So I would hope that we can work together. Mr. Matsui and I have worked together on a number of things. I would welcome his assistance. I would welcome his plan, as well as Mr. Gephardt's, Mr. Rangel's, or anyone else on this Subcommittee, the full Committee, or on the leadership of the Democrat Party.

Mr. Matsui?

Mr. MATSUI. Thank you, Mr. Chairman. Let me just say this. We welcome the opportunity to sit down with anyone in your party, including the President, to talk about this issue.

I might just read a September 27, 1994, appearance by Mr. Armey on CNN "Crossfire." Mike Kinsley asked Mr. Armey, "Are you going to take the pledge? Are you going to promise not to cut people's Social Security benefits to meet these promises?" Mr. Armey said, "No, I'm not going to make such promises." The next day on September 28 on CSPAN the Majority Leader said, "I would never have created Social Security in the first place."

And so this isn't really about demagoguery. What this is really about is making sure that we protect the benefits. We saw what happened with Enron. We know exactly the situation there, and people need, obviously, a safety net, and we want to make sure that there is a defined benefit program at the end of the day for somebody who reaches 62 or 65 years old, that they are going to have those benefits available to them.

And I might just point out, you know, Mr. Armey, for the first time I wish you were running for reelection because I thought your promises were very firm about protecting the current level of benefits for Social Security recipients. Unfortunately, you are not going to be here in 2003 when the President plans to take this program up again, and it will be left up to others, and as a result of that, we can't rely on your commitment and your promise, because we are not taking this issue up this year. We are going to take it up after the election.

And I have to say, Mr. Armey, you have a plan, the Chair of the Subcommittee has a plan, the President has come up with three plans which his Social Security Commissioner disavowed last week. Why don't we bring those bills to the Floor so we can have a debate on them, and let's vote on them. Send them to the U.S. Senate if you have 219 votes. We would love to have those issues come up. The problem is, you know your plans are not credible.

Mr. Armey, you have come up with a certificate of guarantee that CRS and everyone else says has no force of law. In fact, even your Heritage Foundation gentleman who testified last week said it doesn't have the force of law, it is just a moral issue. And so, it doesn't have any rationale at all except maybe to kind of cloak the issue in terms of what you really plan to do. And that is the frustration I think that a lot of Americans have about this. Your plan, for example, borrows from the general fund $21 billion. And in addition to that, it has the Social Security Trust Fund borrowing $20.3 trillion, and that is not even paid after 75 years, and so you have some real holes to pick up on your plan.

Now you will say that yes your plan will pay it back in terms of the general fund money after 75 years, but the fact of the matter is, we don't know what it is going to look like 75 years from now. Seventy-five years ago, 1927, Lindbergh flew over the Atlantic. We don't even remember things like that. There was no such thing as Enron Field in baseball 1927. So here we are talking about 75 years in the future. We could end up having a catastrophic situation because in the first 30 years, your plan and Mr. DeMint's plan, surprisingly for somebody who is fiscally conservative, borrows $9.5 trillion from the general fund. Now, since we have had the tax cut, since we have had reexaminations and reevaluations of economic projections, obviously that money does not exist any more.

So I would like you to put your plan on the Floor of the House so we can debate this issue, find out how we can fiscally responsibly pay for the borrowing that is going to occur over the next 30 years, because you have not explained that, nor has Mr. Shaw. We had a meeting, and I was part of that meeting, with Speaker Hastert, in which myself and Mr. Gephardt, Mr. Shaw, Mr. Archer, and Mr. Rangel appeared. And in Mr. Shaw's plan, I think it was the year 2037, he borrows from the general fund $11.7 trillion. And when the Speaker heard that, he said, "Well, how do we pay for that?" And that is when everything disbanded and that is when we realized that Mr. Shaw's plan was not credible. Mr. Shaw should put his plan on the Floor of the House so we can vote this. Send it over to the U.S. Senate, have the Senate debate this issue. But, unfortunately, you are never going to bring this bill to the Floor of the House because you know it is not credible, you know you can't pay for it, and you know you can't make the budget balance as a result of it.

Now let me just conclude by making one other--you made a lot of statements, but I will keep my remarks under 5 minutes, Mr. Chairman. In terms of this certificate of guarantee, the only question I have to ask, Mr. Armey, is that if a person--because it is a valuable right--loses her certificate, will they be able to reapply and get another certificate, or is the paper not really worth anything? Because those certificates obviously have some value. So if someone loses it or it is ruined in a flood or something like that, is it expected that they will reapply and the Social Security Administration will give them another one?

Secondly, will it have the individual's name on it, or will it just be a piece of paper that just says, "We guarantee your benefits?" Will it talk about the amount of money that individual will receive? Do we have any of these things that you could tell us about in terms of what the certificate will say and the value of the certificate, and whether or not, if after 2037, general fund monies will be used to pay for it, if we haven't fixed the system? And all of us want to fix the system. For anyone to suggest that we are not going to fix the system is irresponsible, and we are going to fix the system. I wish you were around, because obviously you want to protect these benefits, but you are leaving at the end of this year, and I feel very badly about that now, given your commitment to Social Security.

Mr. ARMEY. Thank you. You have covered a lot of ground. Let me just say in 1994 Michael Kinsley asked me to give him an ironclad guarantee on a subject I don't understand. I am not in the habit of doing that. If I understood in 1994 what I understand now about what is possible in terms of fixing this system, I would have said, "You are damn right, Mr. Kinsley, and can you get anybody from your party to do the same?" Had I known what I know now, I wouldn't have had a doubt about it.

I would not have constructed Social Security the way it was constructed in 1936. Had I constructed Social Security in 1936, I would have put the investments by the individuals into private capital markets where they could have been safe, secure, and could have grown, and incidentally could have grown a stronger America instead of a bigger government. That would have been a better plan in 1936. Unfortunately, we didn't have that plan in 1936.

Enron has got nothing to do with Social Security. All Enron proves is that your mother was right when you were 12 years old and she told you not to put all your eggs in one basket. That is all it means. And to bring Enron into this Social Security discussion is nothing but demagoguery.

The certificate shouldn't be necessary. If we didn't have politicians running around America trying to scare the hell out of every senior citizen every 2 years to get their votes, it wouldn't be necessary to talk about guaranteeing senior citizens.

Mr. MATSUI. Time is running out but--

Mr. ARMEY. That is unfortunate. Let me complete it.

Mr. MATSUI. Commissioner Barnhart actually said that by sending these certificates, you are going to scare senior citizens. I think her point of view, being the Administrator of Social Security and having been on the Commission, the Actuarial Commission on Social Security, she probably has a little bit more insight into what senior citizens are thinking than perhaps you do and perhaps even I do, so I would go along with her observations about these certificates frightening senior citizens.

Mr. ARMEY. Well, let me just say by virtue of the actuarial assessments given by the Social Security Administration's own people, the DeMint plan would have $7 trillion over the next 75 years in transition costs if we acted on this kind of a belief. And I quote, I have said and I continue to maintain that incremental changes that do not alter the fundamental insurance-based structure of Social Security or its role as a secure foundation of retirement incomes are needed to extend the solvency of Social Security. If I believed that and acted on that, then I would be saying I am prepared to take $22 trillion worth of transfer from general review to make up for the inevitable shortfalls. That was your belief that you said to me on September 7. As you know, the first thing you have got to do is quit being naive about the dilemma. It is real. It is coming. We have got to face it. I am just saying you will face it either with a good plan that reduces the final transition bill to $7 trillion, or you can face the whole $22 trillion which will be completely unmanageable and will force you to take steps that I find unacceptable.

Mr. MATSUI. Do you know how we are going to get the $9.5 trillion over the next 30 years?

Mr. ARMEY. Do you know how we are going to get the $22 trillion if we do what you have been suggesting, which is nothing, but stick your head in the sand and pretend all is copasetic? This is a serious matter.

Mr. MATSUI. It is a very serious matter, and I hope you treat it seriously--

Chairman SHAW. If both gentleman would yield--

Mr. MATSUI. But I don't think you are really doing it with certificates--

Chairman SHAW. Hey, hey. If both gentleman would yield, we are going to have to recess in order to make this vote, and perhaps when we get back, Mr. Matsui will explain how he voted on a resolution calling for Social Security without cutting future retiree benefits and without tax increases, how he proposes to pay for it--

Mr. MATSUI. By not privatizing the system.

Chairman SHAW. As he and I both--well--

Mr. MATSUI. By not privatizing the system. Privatizing the system is going to create a huge hole interested Social Security system. You know it. We all know it.

Chairman SHAW. I will be glad to--

Mr. MATSUI. In fact it will actually create about a 54-percent reduction in benefits for those that will--someone is going to have to explain that, Mr. Chairman.

Chairman SHAW. If you can do it without borrowing, I will be your next campaign manager for whatever you plan to run for.

We will be in recess just long enough to catch this one vote.

[Recess.]

Chairman SHAW. We will now go to the Committee on Ways and Means panel, and I will call Members in the order they came in. Mr. Stark said he could not--

Mr. MCDERMOTT. He is not coming back.

Chairman SHAW. He is not coming back, and he asked that we make his statement a part of the record, and without objection, we will. Ms. Dunn, you may proceed.

[The statement of Mr. Stark follows:]

Statement of the Hon. Fortney Pete Stark, a Representative in Congress from the State of California

Thank you Chairman Shaw for the opportunity to testify today before the Ways and Means Social Security Subcommittee.

It’s unfortunate that the Majority proposes one gimmick after another to try to inoculate themselves from the public backlash against their efforts to privatize Social Security. I assume the Majority engages in gimmicks because it cannot pass meaningful legislation to make Social Security solvent. Here are just some of the gimmicks I’m referring to:

Gimmick #1

First, the House passed H. Con. Res. 282, Keeping the Social Security Promise Initiative, putting the Congress on record as opposing Social Security benefits cuts. Although a nice gesture, resolutions do nothing to protect the Social Security benefits of current and future beneficiaries.

Gimmick #2

Second, Representative Dick Armey has proposed that the government provide “guarantee certificates” to current Social Security beneficiaries. These “guarantee certificates” are worthless pieces of paper. They guarantee nothing, protect nothing and do nothing. If these certificates were a real guarantee, however, they would protect fewer Americans than current law. These certificates would only be given to current beneficiaries, leaving anyone not on the rolls out in the cold.

If we are going down the route of certificates, however, why not make them legally binding and guarantee benefits to everyone who becomes eligible for Social Security? The certificates under H.R. 3135, Representative Armey & DeMint’s bill, are not binding. Future Congresses, therefore, could repeal these “guarantees.”

And why stop with Social Security? If this legislation moves forward, I will offer an amendment to provide Medicare Guarantee certificates to every American guarantying them access to fee for service Medicare once they turn 65. Now that’s a guarantee the American public would support.

Gimmick #3

The third gimmick and falsehood promulgated by the House Majority is idea that privatization is the savior of Social Security.

The Enron debacle is a clear example of why that is not true. Let’s just ask some of the Enron employees if they wish they had their Social Security benefits in the stock market.

Recent surveys show that people are already delaying retirement because of stock market losses. Dumping Social Security benefits into stocks isn’t going to make retirement more secure. In fact, it may well do the opposite.

Social Security protects against the risk of death or disability, the risk of low lifetime earnings, the risk of unexpectedly long life, and the risk of inflation. Individual accounts would not accumulate enough money to protect most of those who become disabled or families who lose a provider.

All Social Security privatization proposals reduce guaranteed Social Security benefits. The President’s handpicked Social Security commission proposed cutting benefits for future retirees by 30-46 percent, reducing disability and survivor benefits, raising the retirement age, and drawing on general revenues.

Because of last year’s tax cut, Congress couldn’t pay for the transition to a private account Social Security system even if we wanted to! All the Social Security bills that propose individual accounts and do not cut benefits end up dipping into the general revenue fund to pay for them. If that is what Congress needs to do to make the Social Security system solvent, then Congress should directly transfer general revenue funds into the Social Security Trust Fund. This is what I proposed in the last Congress. This proposal would be simpler administratively and would cut out high priced individual account managers who charge expensive fees.

Under privatization, lower-wage workers (which disproportionately includes minorities and women) would trade in their progressive Social Security benefit for a regressive individual account benefit. This occurs because individual savings accounts, which are based on a flat percentage of earnings (i.e. a non-progressive structure), would be substituted for Social Security benefits, which are calculated on a progressive basis.

I ask the House Majority to have a little respect for the American people and stop trying to dupe them out of their Social Security benefits with gimmicks.

If President Bush and the House Majority want to replace current guaranteed Social Security benefits for some risky individual account benefit, then they should have some pride in their proposal and honestly share the details with the American people.

STATEMENT OF THE HON. JENNIFER DUNN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Ms. DUNN. Thank you very much, Mr. Chairman. I appreciate your holding this hearing. I know that you are going to hear from a number of Members, but I would like to bring up a point that I don't want overlooked. When Barbara Kennelly, who is a dear friend and colleague of all of us, left this panel, she reminded us, "Don't forget the women." And so I feel personally that my job is to call attention to the role of women, how they are treated under the Social Security Act.

Let me start by saying that there is no more important retirement program for women than Social Security. Since its beginning, it has been a critical safety net that protects many older women from poverty. Any reform proposal needs to offer women the peace of mind they desperately need and deserve as they enter retirement. Despite its past successes, Social Security faces an enormous challenge as we enter the 21st century. The program that worked so well in the past, now shortchanges many women due to a combination of outdated societal assumptions and a coming demographic crunch. Millions of working women will contribute payroll taxes without seeing any value added to their benefit.

The spousal benefit under Social Security entitles the spouse, who is usually the wife, to 50 percent of the other spouse's benefit whether or not she worked outside the home, and that is the key element. If a woman contributes payroll taxes, in other words, she has worked and is married throughout her working life, and earns a benefit higher than the amount equal to 50 percent of her husband's benefit at retirement, she gets to keep her benefit. According to the Social Security actuaries, however, this only occurs 37 percent of the time. So a married woman working as an occupational therapist, who averages about $27,000 a year in salary, could pay roughly $70,000 in Social Security taxes through the course of her career. Yet because of her husband's high-salary history, she would receive the same benefit as if she had not worked at all. And thus in my mind, my colleagues, the $70,000 is all tax money. It is all wasted. It is all thrown away from her payroll taxes.

Obviously, with over 70 percent of mothers now working outside the home the current system is not an accurate reflection of the time, the money, and the effort women put into their own careers. Working women are also penalized by the benefits formula. Since Social Security benefits are based on an average of the individual's highest earnings over 35 years, women who leave the workforce temporarily, perhaps to raise a family, will have zeroes for those years, and they will be factored into the calculation for the 35 years on which Social Security benefits are based at retirement.

For example in my own situation, a woman earning a good salary as a computer systems analyst, who takes 8 years off to care for my children, will lose thousands of dollars in future benefits if I continue to be married and I continue to work. In my opinion, there is no more regressive public policy toward a working woman than a system that penalizes her for taking time out of her career to nurture a young child.

For women under 35 the problems with Social Security are magnified. They are trapped in an arrangement that is virtually guaranteed to give them less than what they put in. As they contribute more and more money to Social Security, their promised benefits continue to shrink. In the short run, we can alleviate some of the inequity by revising the rules governing benefit calculations, especially those that harm divorced women and widows. Small changes in these areas will go a long way in helping women, and these changes are addressed in some of the legislation that you will hear testimony on today.

In the long run we need to convert a Nation of beneficiaries into a Nation of owners and savers, and I believe that this will happen through the use of personal savings accounts. Personal accounts are not a panacea for all that ails the Social Security system, I admit, but they can be an important step in the right direction.

Social Security in its current form does nothing to encourage savings and investment, the two pillars of a safe and secure retirement. And for women, personal accounts offer an opportunity to receive more from a system that has historically given them less. Personal accounts will help them to build financial assets and cultivate a sense of proprietorship.

As former Senator Daniel Patrick Moynihan has recommended, these accounts could take the form of the thrift savings plan that so many of us, Members of Congress and others, currently enjoy. These plans are diversified in a broad range of bonds and equities to minimize risk for elder workers and retirees. In fact, during the last 12 months when the broader stock market has dipped, the two more conservative investment funds in our thrift savings have grown by 5.4 percent and 7.7 percent respectively, not bad when you consider that the rate of the return for the district I represent under current Social Security is under 2 percent.

Last year President Bush's bipartisan Commission on saving Social Security released a report containing several suggested reforms that would restore fiscal integrity to the program. The merits of the ideas certainly are being debated. Honorable people can disagree about what is the best course of action. What can't be disputed, however, is the need to act. If we fail to address these problems, our inaction will be tough to justify to the future generation who will ultimately bear the burden.

And I request that all the Members of this Subcommittee and other colleagues as we begin debate on this issue, don't forget the women.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Dunn follows:]

Chairman SHAW. Thank you, Ms. Dunn. Mr. Pomeroy?

STATEMENT OF THE HON. EARL POMEROY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH DAKOTA

Mr. POMEROY. Mr. Chairman, I thank you for this hearing and the opportunity to have a vigorous debate on this topic.

I am frankly--and I want to be professionally polite to my colleagues. I think that we are debating sincerely held beliefs, but honest to God, Mr. Chairman, I am staggered by the suggestion that the existing Social Security program is unfair to women. Women will live on average 7 years longer than men. They will be in and out of the workforce. They will have lower earnings history, on average. A system of social insurance reflected in Social Security that replaces at the lower wage earner and a greater percentage of income, and makes that payment absolutely assured month after month for as long as a person shall live, is the very thing that it literally the lifeline for millions of women living out their last years in retirement in the status as single people, most often widows.

In addition to that, women have had particular benefit from two other features of the program, and these benefits often are not given appropriate focus as we talk about Social Security and the privatizers try to make it sound like it is some kind of savings account for retirement. There are very important attendant protections represented in survivors' benefits and represented in disability benefits.

Now, it is, I believe, disproportionately women who benefit from the survivors' benefit. A person, right in mid-career, falls over dead, leaves the other spouse, again disproportionately women, sometimes at home, utterly without revenue stream. I know what I speak of on this one, Mr. Chairman, because it happened to my family. My dad died of a heart attack abruptly, totally without any prior indication, when he was 57 years old. My mom was a homemaker without employment skills. My brother and I were teenagers, and we received the survivors benefit, and it helped our family through the most difficult time we ever encountered. I frankly don't know what we would have done without it. And my mom was able to get some job training, and get into the workforce, and my brother and I were able to save the payments that came in and get a college education, and everything that we have been able to do is because the revenue from Social Security allowed it to happen for our family. So these insurance benefits are extraordinarily important.

In addition to that, there are disability benefits. So if you are in the workforce and you become disabled, unable to make your check, you will be able to access through the Social Security program this disability benefit. I used to be an insurance commissioner, and I will tell you that both the survivors benefit and the disability benefits, if you had to privately insure them to cover those risks would cost a bunch of money. There is the value of the--it is estimated that for a 27-year-old worker with a spouse and two children, Social Security provides the equivalent of a $403,000 life insurance policy. If you try, and for that same 27-year-old worker, put a tab on what their disability policy might be valued, it would be $353,000.

So those that want to talk about 2 percent returns and how terrible it is that we are not accruing these benefits, I really do think they need also to talk about the full array of protections that a person enjoys under Social Security and the hard dollar value that represents to American households.

The final aspect, we are going to have our disagreements pretty deeply felt on the structure of Social Security, but what confounds me, Mr. Chairman, is that we are having this debate at a time when this Congress has committed itself to spending money coming in for Social Security on unrelated functions of government. You spoke well of, eloquently about meeting at the White House last year with the prior Administration. The difference between then and now is literally a $4-trillion projection in total revenues coming in between then and now. It has been the most stunning financial turnaround in the history of this country. Now we are taking cash coming in for Social Security, and we are spending it on unrelated functions of government.

Now, whether you are a privatizer or whether you are a system protector, it seems to me that we could all agree this is bad business. We have got to save Social Security dollars for Social Security. It is only going to make our unfunded liability more difficult if we are spending the money on unrelated functions of government. That is why I am kind of offended by notions of paper certificates and all the folderol and the rhetoric. Let's join together and first get back to the position where we are lock boxing those Social Security revenues, not spending them on unrelated functions of government. Once we have gotten them done--we ought to be able to get that done together--then we can talk about how best to structure the system going forward.

Thank you, Mr. Chairman, and Members of the Subcommittee.

Mr. BRADY. Earl, can I ask you a question about your chart?

Mr. POMEROY. Yes.

Chairman SHAW. Let's wait until we get finished the--we will get back to it and everyone will get the chance. If we don't, we are just going to end up without--Mr. McDermott?

STATEMENT OF THE HON. JIM MCDERMOTT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. MCDERMOTT. Thank you, Mr. Chairman.

I am 116th in seniority in the Congress, so there is about 300 and some odd below me. Seventy-five percent of this Congress has never seen, since they have been in Congress, anything but things going up, and it is great timing to talk about privatizing Social Security just when things are going down or there is a real bump in the road, because it gives people some time to contemplate about what we are really doing here. What is really aggravating to me about this is that it sounds a lot like the Contract on America. That was the contract that stipulated, we would have a balanced budget and guaranteed that we would have honest budgeting and so forth, and we just had a President run who said he would not spend one thin dime of Social Security on other things. Now, we are clearly not given that. It reminds me of, I don't know, it may be just part of the country or something, but you know, Lyndon Johnson told us we wouldn't have anybody going on the ground in Vietnam. That is what he told the Senate. And George Bush said, "Read my lips. There won't be any increase in taxes," and then we got a second George Bush who says, "I can cut taxes, and I can balance the budget" and do all this stuff, and clearly it is not happening. And then you have Enron, that promises to their people a pension, and look what happened to them? And now we have the Majority Leader here, promising seniors with a piece of paper. Now, I don't know how much you are going to spend on that paper. The estimate we have is $47 million. We sent out those cards for people to get their tax refunds, and everybody would know that it came from the Republicans.

Well, we are going to do it again. I suppose you put some sealing wax on there, maybe a little gold seal off in the corner and say, "This is your certificate that says you are entitled to a Social Security retirement." What is cynical about that is that there are very few people who are going to get it. Most people are under 65 and this doesn't work for you if you're under 65. So I know the senior citizens are out there, and they are just sitting there at home, you know, kind of rocking in the rocking chair, and they are going to be so excited to get this thing from you, because they will know that it is for you, but anybody else in this country isn't going to get one, because you are not guaranteeing that to anybody else. And I think that is really a cynical kind of thing to be doing to the American public.

Now, Social Security is not an investment and Earl Pomeroy put his thumb on what I was going to say, but I am going to say it again because it needs to be said. It is social insurance. If you are talking about Social Security, you are talking about survivors benefits and you are talking about disability. None of us could afford, most workers in this country could not afford to buy a disability policy that would run for the rest of their life. The cost of that would be prohibitive. The same thing is true on survivors benefits. And people get that, and if you mess with this system and say, "Now put your money out there and see what you get in the end," you are taking away some fundamental things that most of us don't want to think about. You know, when you buy insurance you don't think about your house burning down, your car getting in a wreck, or you getting injured. You don't hope that you are going to collect, but you feel comfortable because you know you have that policy, and people have this policy and somehow it has been turned into an investment that you only get 2 percent on.

Now, the other problem with this thing--there are many problems--but one of them is, between January 1973 and September 1974, the stock market went down by 43 percent. Now, if you got a defined contribution and you have been putting your money in there, and suddenly for a year things go down and it took 10 years, took until 1982, to get back to where people were in 1972. So if you are 65 in 1973 and you got all this money in that thrift savings plan, and all of us here lost 40 percent or so, so nobody here can say he--well, there are a couple of you who were in the old plan, so you don't count, but all the rest of us, we are in that thrift savings plan, and it evaporated.

You are not in that one?

Chairman SHAW. I am in it. I was just asked. We could be in it but--

Mr. MCDERMOTT. Which one was smart and stayed in that one?

Chairman SHAW. But I am going to tell you, those of us who had enough sense to mix it between bonds and stocks didn't lose 40 percent.

Mr. MCDERMOTT. I see. And that is the point. That is exactly the point. All of these estimates are given as though everybody is going to put all their money in the stock market. And smart investing doesn't do that. Those people don't know whether they should put some in the stock market and some in bonds and some in government instruments. I mean, if you went through the Members of Congress and looked at how we put our money in the thrift savings plan, you would learn something about the American public, because we don't know which one to put it in. We walk around on the Floor saying to one another, "Where is your money? Where is your money? Have you moved your money out of this into that?" And you are saying to people all over this country that we are going to put you in the same boat that we are in. Now, I suppose that is pretty good sense, but this is not the only time we had this. We had this fall in March 2000 to April 2001, the stock market fell again by 30 percent.

Chairman SHAW. Try to wrap up.

Mr. MCDERMOTT. Let me just say one last thing. I grew up in Chicago, and we learned very early in Chicago, about 5 years old, never touch the third rail up there on the elevated. And Ms. Dunn knows as well as I do that some senators in 1986 reached out and touched that third rail, and they didn't come back. And I hope that you push this. I want you to run out there and throw yourself on that third rail and hold it.

[Laughter.]

Mr. MCDERMOTT. Because you are asking for it. People are not stupid. They look at Enron, and they know that the people in Enron, the only thing those people have is their Social Security.

Thank you.

[The prepared statement of Mr. McDermott follows:]

Chairman SHAW. Mr. Foley?

STATEMENT OF THE HON. MARK FOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. FOLEY. Thank you very much, Mr. Chairman.

I kind of regret that we always have to have a Social Security discussion and start pointing fingers at who is going to destroy it first. My grandmother came to this country from Poland. Her husband had died, and she raised two children on her own, my mother and her sister, and she depended on that Social Security check. I know most Republicans like me have parents and grandparents who depend on that Social Security check. So for people to infer somehow as Republicans that we came here to undermine and ruin the futures of seniors is absolute bull, and I reject it, and I reject the politics of it. I am tired of hearing about Enron because a few crooks stole out of that company and destroyed that company. Nobody makes the analogy, if they had invested $100 or $1,000 in GE where they would be today or a $1,000 in Johnson & Johnson.

All we are trying to talk about is a reasonable debate of seeing how we can fix this vital valuable program. Even the "Palm Beach Post Times" editorialized positively about a program Congressman Shaw designed on Social Security. This is a newspaper that is liberally based, if you will, and definitely doesn't usually support Republican proposals, but indicated, after studying Mr. Shaw's proposal, that it deserved merit and deserved consideration.

I thank Mr. Shaw, the Subcommittee Chairman, and my Florida colleagues on the Committee on Ways and Means. I represent the seventh oldest population Medicare district in America. The American people, those receiving benefits as well as those paying into the system, have legitimate concerns as to the future solvency of the system and the delivery of the promised benefits. That is the reason I am here today. The Chairman and both represent congressional districts with large senior populations. In addition, it is imperative that Congress and the Administration reassure American workers that their future benefits from the system are secure.

As the Members of the Subcommittee know, the Social Security system needs improvement to avoid insolvency, and frankly, the system needs to address inadequacies in how it treats women who left the workforce to care for their children. That is why I applaud the Chairman, Mr. Shaw, and the Subcommittee for boldly addressing this politically sensitive issue.

The Social Security system cannot cope with the upcoming demographic time bomb facing our country when the baby boom generation reaches retirement age. The Social Security trustees estimate cash flow deficits in the system starting in 2016 with a bankruptcy date of 2038. It is also estimated that the system will only be able to pay 73 percent of promised benefits. Absent any major reform, the Nation will be faced with a series of unpleasant choices, benefit cuts, tax heists, increased borrowing, or cuts to other governmental programs.

We must look at ways to improve the system such as creating optional, optional, optional--can I repeat that enough--personal retirement accounts as a supplement to the traditional benefit system. My colleague mentioned 401(k) plan that we have in Congress. I don't see any Member of Congress rejecting the government's assistance in creating a personal savings account for our future. Why not at least explore the potential, explore the potential of allowing seniors to make choices?

Mr. Kolbe, Mr. Stenholm, and others have creative ideas that bear discussion. That doesn't mean we accept them. It doesn't mean we embrace them. But to sit here and bury our heads in the sand afraid of that third rail is misfeasance, nonfeasance, and malfeasance. In these personal accounts, workers, not the government, should be able to choose where to invest a portion, a portion of their retirement savings. The system must be structured in terms of preventing fraud and unsound investments like Enron.

As I mentioned earlier, benefits for women must be changed to effect realities in today's society. Women are heavily dependent on Social Security benefits during retirement because they often have little or no pension savings or other sources of income. Any plan must improve benefits to adjust to the unique situations that affect divorced spouses and disabled widows. Without reform we are potentially committing the Nation to a massive new debt burden, tax increases, and benefit cuts. I urge the Subcommittee to move quickly on major reform.

Again, I thank the Chairman, and I thank each Member for being willing to talk about something so vitally important to the Nation. It is about fiscal stability. It is about financial security. It is about not only this generation now on Social Security, but kids born as we speak today. I think if Democrats and Republicans are serious about trying to fix the system, we can. It doesn't have to be who runs this House. It is about who helps the seniors now and in the future.

Thank you.

[The prepared statement of Mr. Foley follows:]

Chairman SHAW. Thank you, Mark, and thank all of you for being here, and for testifying before your colleagues of this Subcommittee.

Mark, I agree with everything that you said, and particularly your statement regarding nonfeasance and malfeasance.

Dr. McDermott, we were not sent here to get reelected. We were sent here for responsible government. But you are absolutely right, Social Security is the third rail of politics, and if it is misrepresented, many of us might not come back. But if the truth be known, the third rail of politics may very well switch to those that do nothing, that choose to do nothing. The problem that we have is that in 2016 we are not going to be able to have enough cash to honor the obligation that we have to America's retirees. It is just that simple.

Mr. MCDERMOTT. Mr. Chairman, I agree with you, but I don't think sending out a certificate--

Chairman SHAW. So we need to work together. Let me comment too on the other thing. I don't know of any of the plans that involve personal retirement accounts, and the one that I have as a supplement, it doesn't take anything out of the trust fund, it doesn't touch it, as Mr. Foley correctly characterized. It requires pre-approved investment houses. It required wide diversification of investment, and it requires a 60/40 split between stocks and bonds, and quite frankly, that is why I have that in my own thrift savings account, because I think that is just the responsible way to go. And it allows American workers to choose and change that investment house in accordance with the performance that they have. Labor unions can set it up, and if they qualify and they are approved by the Social Security Administration and the panel set up, they can very well administer these funds for their workers. The workers are not taxed for this. This comes out of the general fund, which brings me to the question of how we are using the surplus.

The tax cut was responsible for 12 percent of the loss of revenue. Expenditures were responsible for about 15 percent. The rest of it was because of drop in revenue. Now what--

Mr. POMEROY. Mr. Chairman, what time frame does that reflect?

Chairman SHAW. Well, that is the last budget. Now, the problem--

Mr. POMEROY. Not 10 years. Ten years I guess the figure is about 42-percent tax cut.

Chairman SHAW. Well, I am just telling you where we are as far as this particular surplus is concerned.

Now, the President has been mischaracterized here because when he was on the campaign trail, what he was saying was that without a recession, without a war, and without a national disaster, that he was committed to preserving the surplus, and he had the trifecta. He got them all.

So at this point, is balancing the budget and protecting the surplus important? You are darn right it is.

But is it more important to properly equip our soldiers in time of war? Yes. Is it more important to get people back to work and stimulate the economy so you can get our revenue back up? Of course it is. It is the responsible thing to do, and I think that is the question that we are going to be facing when we try to pass a budget this year, and I think it is going to be tough because people are going to get beat over the head. People are saying we are going to be going into the Social Security surplus. But I don't see how it can be avoided this year and meet our responsibility and commitment to do the things that we have to do. It would be a crime and certainly a blot on this Congress if we were not to properly supply our soldiers.

Now, if we can do all of this and protect the surplus, we should do that, but we have got to first of all get America back to work, and we have got to be sure that we are using the maximum effort of the might of this government in order to prosecute the war that we are presently involved in.

Yes, sir?

Mr. POMEROY. May I respond, Mr. Chairman?

Chairman SHAW. Yes, sir, please. I am not sure you disagree with me. I hope not.

Mr. POMEROY. I think that we need to prosecute the war, and I acknowledge that the turndown in the economy certainly impacted budget projections, but the major factor over the next 10 years was the tax cut passed last May.

I thought it was very interesting when the House passed a sense of Congress a few weeks ago that all future--that kind of reaffirmed commitment to all future phase-ins of the tax cut must be implemented as initially enacted. Now, we can't bind a future Congress, but it was a place for the majority to once again go on record and affirm all aspects of that tax cut now that we know that that will mean the continued expenditure of Social Security money on other functions of government. Now that we know that basically that tax cut precipitates a raid on Social Security Trust Funds, that only makes--

Chairman SHAW. No, it does not.

Mr. POMEROY. That only makes the situation--

Chairman SHAW. Wait. Is the trust fund affected by this?

Mr. POMEROY. Well, Mr. Chairman--

Chairman SHAW. Is the trust fund affected by this? Are there less Treasury--is there cash in the trust fund? Of course not. Are there going to be less Treasury bills in the trust fund? No. So it has no effect on the trust fund.

Mr. POMEROY. On the balance sheet of this country I believe it is absolutely dollar-for-dollar impact. If you take cash coming in for Social Security, Mr. Chairman, and you spend it, it is gone. If you take cash coming in for Social Security and you pay off debt you improve the financial position of the country--

Chairman SHAW. Reclaiming my time. Mr. Pomeroy, if we were to say that deficit spending was raiding the trust fund with the 40 years of deficit spending that this country went to before the Republicans took control of this country, there would be no trust fund.

Mr. POMEROY. Mr. Chairman, I joined you last year in voting for lock boxes so we didn't raid the trust fund any more, and--

Chairman SHAW. Didn't have anything to do with the trust fund.

Mr. POMEROY. I am absolutely sick about the fact that these deficits put us back in a raid on the trust fund.

Chairman SHAW. I hope you understand how the trust fund operates, but it does not have any cash in it. There is no money in the trust fund. It is simply Treasury bills drawn on the Treasury for the monies that goes as a way of surplus into the general fund.

Mr. POMEROY. Mr. Chairman, you have been indulgent with this debate, and I appreciate it, because I think it is so important. Cash coming in from Social Security that is not applied on reducing the debt held by the public, that is instead just plain old spent on other functions of government, will in the end make it harder for us to meet our commitments on Social Security. And I think regardless of whether you want to go with your plan or whether or not you want to stick with the kind of guarantees we now have, we all could agree on that. We are spending this money, and it is going to make it worse.

Now, the President has proposed, Mr. Chairman, in his budget, compounding the problem even further by making the tax cuts permanent, you actually have a $4-trillion impact next decade--and if someone would turn that poster around please--that is absolutely putting us on a course for a fiscal train wreck because as you can see with the line in red, the Social Security revenues coming in tail off, as you have noted, but the loss in revenues to the general fund accelerate next decade by making the tax cuts permanent to the tune of $4 trillion. So at a time when even the Majority Leader is talking about the subsidy from the general fund revenues into Social Security, we don't have the general fund revenues because they are gone.

Chairman SHAW. Don't try to make this a cause and effect. The tax cut that the Congress gave the American people has nothing to do with the surplus going down. The surplus is going down because the baby boomers are coming into the--Mr. Pomeroy, certainly you understand--

Mr. POMEROY. Mr. Chairman, how can you say that we--we just cut the heck out of revenues of this country and that has got nothing to do with the surplus going away? It caused the surplus to go away, and over 10 years it is undeniable that it is the single biggest cause of why we are spending Social Security dollars to run the rest of the government.

Chairman SHAW. The surplus is a surplus regardless of whether we spend it or don't spend it. The surplus remains the same. Now you can argue that they are spending the surplus, but the surplus is defined as that monies that comes into the Social Security Trust Fund that is not needed to pay out benefits, and that goes into the general fund.

Now, if we spend it or if we cut down on general revenue by way of tax cuts and go into the surplus, then that is certainly an argument that you can make. But the decrease in the surplus itself has nothing to do with the tax cut. The surplus is actually going to go away in 2016 because there won't be enough cash coming in to the trust fund to pay benefits. And that has nothing to do with the tax cut. It has absolutely nothing to do with the tax cut.

Mr. POMEROY. Mr. Chairman, because of the tax cut we don't have revenues that we used to have in the general fund, and in fact, the general fund--

Chairman SHAW. That is correct.

Mr. POMEROY. Doesn't operate in balance any more, and when the general fund isn't in balance, you have got to find the cash elsewhere. Unfortunately, we are finding the cash from the monies coming for Social Security. We take it in on Social Security, we ship it over, and it is spent on unrelated functions of government. Now in the end, that will make it harder for us to meet our commitment to Social Security.

Chairman SHAW. I think your reasoning is circular because the tax cut has nothing to do with the size of the Social Security surplus. Now you can argue that you are going to have to spend more of it because of the tax cut, and that is a legitimate argument if revenues don't turn around. That is a legitimate argument, but the--

Mr. POMEROY. Mr. Chairman, do we agree that if you are spending Social Security dollars on something other than Social Security, you are making your problem worse. Do we agree on that?

Chairman SHAW. Well, I agree to the point that if we have more revenue, we will have to go in debt less in order to take care of our commitments under Social Security, but in any event, we are going to have to go in the red. Every plan that is out there does it.

I am going to yield now to--

Mr. POMEROY. Thank you, Mr. Chairman.

Mr. MCDERMOTT. Could I just ask one question before we move off? You say we are going to go in the red. One of the things I don't understand about your plan is where do you get the $120 billion in the first year to start your program? I mean, if you are allowing the money coming in to be diverted into the private, it is going to pay people who are already in the system--

Chairman SHAW. It comes out of general revenue.

Mr. MCDERMOTT. But--

Chairman SHAW. General revenue.

Mr. MCDERMOTT. One hundred twenty billion dollars more?

Chairman SHAW. Is that the figure, $120 billion, first year? It is about $80 billion, but it does--it is $80 billion. It comes out of the--in my plan it comes out of general revenue.

Mr. MCDERMOTT. So we would be going further in debt to get that $80 billion because the revenue isn't coming in. I mean, we are going to be in debt--

Chairman SHAW. Well, according to where the projections are. But let me say this, and I think this is very important, that the Social Security surplus will be used to put in these individual accounts, which is what--and nobody can argue with the fact that what is wrong with using Social Security money to save Social Security instead of dumping it into the general fund? And I think that is a very good idea, and I think it makes perfect sense.

You know, if you are paying into a private pension plan, the corporation is administering, they are not going to pay their general--they can't spend it on anything they want to. They should spend it to invest in you and your pension fund, and that is exactly the same philosophy that we are using.

Now, beginning in about 10 years, 8 or 10 years, there won't be that surplus, and at that time we are going to have to go into general revenue for a period of time. But it is projected, under the plan that I have out there, that over 75 years it will actually produce a surplus.

Mr. Matsui?

Mr. MATSUI. Thank you, Mr. Chairman. If I could just--

Chairman SHAW. Look at it. You might like it.

Mr. MCDERMOTT. I won't be here in 75 years.

Mr. MATSUI. I hope that is not on my time.

Chairman SHAW. Our grandkids will.

Mr. MATSUI. Mr. Chairman, here is what the problem is. Here is the Office of the Actuary, Social Security Administration, December 10, 2001. So this is a report that is about 4 months old, and there may be some update, but it has not changed, much difference.

If the Shaw bill came into effect this year for being effective in 2003, the first year borrowing would be $109 billion. And then the second year borrowing in 2004 would be $111 billion--

Chairman SHAW. Would the gentleman yield for a second on that? Because I want to agree with you. Yes, I misspoke. It was $80 billion under the other one, and the reason it is up to $109 billion is that we put 3 percent in for low paid wage earners, so your lower economic people actually would get a better hit than the higher income people.

Mr. MATSUI. If this could not be on my time, I would appreciate that. And then in year five it is $359 billion. Year 2006, which is only 4 years from now, it is $637 billion and so it accumulates to--in the next 20-plus years, about $3.6 trillion. If there is no funds to pay for it, and you have to borrow it, it comes to $8 trillion. So in the next 30 years your bill will cost the general fund plus the interest costs in there, $8 trillion. I need to know how you are going to come up with that money, because we should really put your bill--Mr. Foley supports it--we should put that bill on the Floor of the House in the next couple weeks so we can debate it and then vote on it, because if in fact it is a bill you support, then we should really move forward.

Mr. Armey and Mr. DeMint have a bill that will cost $22 trillion over the next 75 years, and $8 trillion over--$9.5 trillion over the next 30 years. We should put their bill on the Floor so we can vote on that bill as well. We need to vote on these bills that you have introduced and you are saying it is so wonderful, so we can find out where the support level is. This is what the frustration is.

And let me mention, Mr. Pomeroy, you are absolutely right, we can't look at Social Security in terms of 1 year. You can't talk about what the cost of--you know, the percentage of the reduction of the surplus in 1 year, because Social Security is a 75-year program. We all agree with that.

The cost of the war on terrorism plus the defense spending increases that are being projected is 8 percent--this is CBO numbers--additional spending 9 percent. The estimates on the budget numbers is 43 percent, and you know, that should be--people should be held accountable for that because a 10-year cycle, you are supposed to take into consideration recession. You can't just say, oh, a recession occurred, so we have to reevaluate these numbers. These numbers should go on for the next 10 years, and there is going to be a drop in the economy. That should be taken into consideration, but the tax cut is 41 percent of the reduction in the surplus over the next 10 years. And it is going to be more than that because the President wants to make this thing permanent, as Mr. Pomeroy said. And you couple that with the fact that your bill costs $8 trillion over the next 30 years, and your number, $637 billion--where are you going to get the money to pay for your bill?

And that is why we need really to debate this. You need to put your bill on the Floor of the House so we can debate it, vote on it, and send it to the U.S. Senate. That is what we really need to do. I mean, will you do that for us so we can actually get this out there? Because I think, frankly, as Mr. McDermott, Mr. Pomeroy, and others have said, the real problem we have is that after the election you guys are going to move on Social Security, and with the $8 trillion you are not going to have, so you are probably going to have to cut benefits, and that is what we are really concerned about, because you won't have the money to pay for your program and the privatization, you are going to move ahead on privatization anyway, and they you are going to have to cut benefits.

That is what the frustration that we have is, and that is why you have got to bring your plan out now before the election so we can debate. Just take it off the table so it is not part of an election debate.

Now, let me just conclude by asking Mr. McDermott one question, if I may. What do you believe in terms of the whole issues of Mr. Shaw's plan? Could you go into that in some detail?

[Laughter.]

Mr. MCDERMOTT. How many hours do I have?

Everybody likes the idea of having choice and all, but the whole reason we had Social Security put together in the first place was because people weren't able to take care of themselves, and we decided as a society we would do that. And this individual accounts is basically splitting this up and saying, "If you're smart, you'll do well, and if you're not so smart, you won't do so well." And if you do not guarantee that basic benefit--

Chairman SHAW. Well, I do. You had better--

Mr. MCDERMOTT. I understand that, but you also have to come up with $100 billion to start this thing. If you are willing to tax to get that kind of money, I am willing to do it. Everybody in here gets the same tax cut. Every May everybody stops paying their Social Security tax because we all get up to the line of whatever it is, $49,000 or--I have forgotten the number--$60,000, $80--well, whatever it is--and suddenly we don't have to pay that tax any more. If we raise that up a little bit and put it up to $125,000 or something, why, you know, we would have money. There is a lot of ways you can deal with this problem if you are serious and you want some additional dough, but if you are just going to try and take it out of the general fund, it simply is not possible.

Chairman SHAW. Well, I would like to tell the gentleman, for the next 10 years under the Shaw plan, we only use up half the surplus, so--

Mr. MCDERMOTT. Half of the surplus?

Chairman SHAW. Half of the Social Security surplus. So I ask you the question. What is wrong with taking the surplus--now you can say, okay, fine, but you have already spent the surplus. Well, that is deficit spending. So if we say, let's set the Social Security surplus aside and use it to save Social Security instead of spending it on something else, and if we are going in the red and we are borrowing more money, let's have an honest debate upon that, and I think Mr. Pomeroy will be satisfied in that regard.

But the program that I have put forward is, one, it is strictly voluntary. I think everybody is going to take it though. I can't imagine anybody turning it down. The investments, or some investment houses are going to do better than others, but they are going to be pre-approved investment houses. Nobody is going to manage their own money because most people just simply haven't had enough experience in order to do that.

Mr. MCDERMOTT. How do you deal with the problem though of the Federal Government on the one hand regulating Commerce and the Security and Exchange Commission (SEC) and all of this over here, and on the other hand you got everybody's pension in your pocket? You are going to have the Federal Government trying to control what is going on.

Chairman SHAW. We don't. No, I am getting the Federal Government out of it. Now, you will hear from Jerry Nadler. He is here.

Mr. MCDERMOTT. You are willing to let us have no SEC?

Chairman SHAW. He is going to be testifying, and he wants the government to directly invest, and I am looking forward to his testimony in that regard. But to do nothing involves, over the next 75 years a $20-trillion deficit. We can't go forward with that.

Mr. MCDERMOTT. We didn't have an SEC before.

Chairman SHAW. Now, everyone agrees the cost of doing nothing is unacceptable, unacceptable. If anybody here--are you for just continuing the same program and not doing anything?

Mr. MCDERMOTT. No, we are going to have to do something, but we--

Chairman SHAW. Now, Mr. Matsui--

Mr. MCDERMOTT. What is coming in we ought to--

Chairman SHAW. Mr. Matsui is asking me why don't I put this down on the Floor? Well, we are hearing the argument. We are seeing right now exactly what is going to happen. We know right well. All of us have been in politics. You explained it as the third rail of politics. And the question is, will we be able to get the story out so that people really understand? People, once they understand, they are going to demand it. We have already started having hearings on college campuses, and we are going to have more. I want the young people to know. Young people should be madder than hell about what is going on because they are going to--they are the ones that are going to suffer.

Mr. MCDERMOTT. Are you going to send them a certificate? No, you are not. You are only going to send a certificate to old people. Send it to the 21 year olds--

Chairman SHAW. I am going to give to the younger workers--

Mr. MCDERMOTT. They won't believe it.

Chairman SHAW. Something that they have and they can own and will be inheritable wealth. And you know something else? This is the only chance to accumulate any wealth that poor people will ever have in this country. Why can't we join together and do this? There is nothing wrong with this. It is the right thing to do. And if the Democrats have a better plan, I will have a hearing on it, and I will adopt it. There is no question about it. But doing nothing is unacceptable. We have got to do it in a bipartisan way. We have got to have the American people to trust us on this rather than having the daylight scared out of them that we are spending their Social Security dollars on the shaky stock market. I mean, this is--fine, come up with a better answer. I will be glad to listen to it.

The problem is, there is none. No one is coming up with a better answer. If they have one, let's go with it. What is the order of witnesses? Mr. Hayworth?

Mr. HAYWORTH. Thank you, Mr. Chairman.

Well, this has been an interesting morning, because the desire of the Majority Leader was quickly laid aside. Perhaps the calendar has presented a new reality. The circumstances in which we find ourselves were irreparably changed by September 11, but it seems there are more folks here concerned about November 5. And I dare say, just given the dynamic here, that someone could come up with a plan to cure the common cold and combine that with world peace, and there would be, given the nature of the calendar, plenty of folks who would try to find fault with it just being the nature of the adversarial relationship.

Because what we have seen today is, despite the best efforts of the Chairman, who has laid forth a proposal to open debate, a national debate, there are those who take issue with having that debate in its current form and say let's rush something to the Floor. I dare say we could safely assume if something were going to the Floor, there would be a problem with moving too quickly, just the dynamics of the process.

I am sorry my friend Dr. McDermott left because I was left in quandary but on one hand people are not stupid. But on the other hand, they shouldn't have any control over their future. Well, such are the vagaries of psychiatry.

Congressman Pomeroy, thank you for being here. Perhaps you can answer now, since you bemoaned the plan and seem to advocate or tell us that tax cuts are bad and bring us the--here we go, the visual aid. I wish television were here for you, my friend, because such wonderful visual aids, prepared by the Democratic staff of the House Budget Committee, not only questions in terms of accuracy applying in this debate, but I am just so sorry the TV cameras aren't here to help with this visual aid today.

Well, quite simply, Earl, my question is this: If tax cuts are so bad, what is your suggestion? Is your plan to raise the payroll tax? That seemed to be what my friend, Mr. McDermott, was suggesting. Would you like to raise the payroll tax now?

Mr. POMEROY. Congressman Hayworth, no, I certainly do not plan to raise the payroll tax, and really the chart I prepared not for television cameras, but to help us visualize what I think is a fiscal train wreck that we are heading into next decade.

Many of you have talked about the shortfall that we will encounter by the year 2016, at which time the general fund needs to start making do on some of these IOUs that we have been shipping over because we do not have enough coming in on the Social Security revenues any more. At the very same time, the majority has put in place a plan that is going to cause a hemorrhage of revenue into the general fund.

So, at the time the general fund has got to top off Social Security, the general fund doesn't have the revenues to do it.

Mr. HAYWORTH. I appreciate my friend coming with a 10-year projection, a 20-year projection, in fact, as I am corrected by my friend from Wisconsin. Of course, we should point out for the record, it deserves amplification, our Chairman pointed out twice earlier, a 10-year, indeed, 20-year projection didn't mean a thing in previous Congresses, when the goal was always more, and more, and more spending.

I trust you don't share that concern, in terms of the spending question. You have some concerns about spending, but I don't know, I don't want to speak for you. Let me just ask you this question: In terms of overall revenue, both with the Kennedy--JFK tax cut of 1963 and the Reagan tax cut of the 1980s, did revenues to the Federal Government increase? Overall, did revenues, tax revenues, increase to the Federal Government? Because this gets to the heart of the fundamental debate.

Do we grow the economy by offering opportunity to investors and to entrepreneurs to create jobs, to increase tax receipts for the government? Even dealing with the challenges we are going to have demographically, will that help the economy or, instead, do we sit back, and there are those advocates here of the radical redistribution of wealth, believe that the economy is a static model, where tax relief does not encourage growth, and thereby we maintain the status quo, which seems to be part and parcel of what is going on here because, quite simply, despite all of the calls for a plan, we have yet to see a plan offered by the minority.

Mr. POMEROY. Congressman Hayworth, I think that the ideological clash is interesting and kind of reflects the excitement of making law here at the Capitol, but I do think that it will be better done if we recognize the underlying numbers, and so we are not making up numbers, we are agreeing that the Congressional Budget Office, for example, is a reasonable forecasting place, in terms of telling us the actual dollars that we are going to have to deal with.

Mr. HAYWORTH. My question was, historically, did the tax receipts under both Jack Kennedy and Ronald Reagan, in 1963 and the 1980s, did, overall, tax receipts increase to the Federal Government in the wake of those tax cuts?

Mr. POMEROY. There is a very robust debate on that, Congressman. In fact, as you know, following the 1981 tax cuts, Congress quickly had to enact some tax increases, in light of the soaring budget deficits.

So, you know, that is an interesting historical point, but--

Mr. HAYWORTH. Because we failed to learn the lesson of spending.

Mr. POMEROY. The Congressional Budget Office has told us that, in light of what we are now on, we are going to be spending Social Security dollars on other functions of government for the bulk of this decade. Clearly, that cannot help the situation.

Mr. HAYWORTH. Well, again, for the record, I would point out, not only as our current President said during the time of his campaign, but those of us who advocated a Balanced Budget Act, who continue to advocate put language in to say, in times of war or national emergency, obviously, we would have to deal with the priorities of national survival, and I would point out to the assembled Subcommittee and our distinguished guest panelists today that you cannot have retirement security and financial security without first a national security and a vibrant plan.

I thank the Chairman.

Chairman SHAW. The time has expired. We will call on Mr. Lewis, but before I do so I want to let everyone here know the intention of the Chair is to recess between 12:00 and 1:00 and reconvene the hearing at 1:00.

Mr. Lewis?

Mr. LEWIS. Thank you, Mr. Chairman.

You know, we keep asking, Mr. Pomeroy, what the Democrat plan is, and I know Mr. Gephardt in his speech last night talked about our secret plan. It seems like the Democrat plan is so secret that even the Democrat Members don't even know what it is.

This is preposterous that you have nothing to offer but criticism. We are putting plans on the table, but you have nothing to offer but criticism. Now I have a 19-year-old daughter. In 2016, she is going to be 35 years old, right in the middle of her career. If we do nothing, and in 2038, she is going to be 57 years old, if we do nothing, what is it going to cost her? What is it going to cost her?

And let me ask you this too: What were the projections in 2000 for the decline of the Social Security payments, the Social Security, it is going to start down in 2016, what was it in 2000, as opposed to today? You know, you are talking about the tax cuts. How has that changed from 2000 until today? Is it a big difference between the decline in Social Security in 2016 and bankruptcy in 2038? What difference has the tax cut made between those two dates?

Mr. POMEROY. If you look, in terms of--

Mr. LEWIS. I think it was the same date. I don't think that has changed. I think 2016 is the same date, 2000, 2002, I don't think it has changed.

Mr. POMEROY. Congressman Lewis, I thank you for your concern about what happens to the next generation that will be having to pay the tab.

Mr. LEWIS. It is my daughter and my son.

Mr. POMEROY. We have heard the Majority Leader, and I believe he made a very sincere personal pledge that the benefits will never be--

Mr. LEWIS. But what I want to know is what are you offering to protect my daughter and my son? What is the Democratic party offering to protect them in 2016 and 2038, when there is going to be a $23-trillion deficit in Social Security?

Mr. POMEROY. We have a commitment to reduce the debt held by the public and prepare financially this country.

Mr. LEWIS. But is that going to help? Will that save Social Security? Will it save Social Security?

Mr. POMEROY. You know what, I am absolutely confounded by the majority that wants at once to talk about the burden on the next generation at the very time they do nothing to eliminate the debt held by this country, which means when they are--

Mr. LEWIS. Oh, I think the majority has paid the debt down by half a trillion dollars over the last few years.

Mr. POMEROY. We could have paid the debt off by 2008 and left your children and my children a much stronger country, from a fiscal standpoint, to deal with the exploding entitlement obligations that will happen when baby boomers retire.

Mr. LEWIS. Pardon me. Were you here in 1994?

Mr. POMEROY. Yes sir.

Mr. LEWIS. When I arrived on the scene here in 1994, you all had $200 billion deficits running as far as the eye could see, and we had a $5-trillion, $5.5-trillion debt. What were you doing about it then?

Mr. POMEROY. Congressman Lewis, I voted for a budget plan in 1993 that was a major component of how we eliminated that deficit.

Mr. LEWIS. Do you mean the tax increase?

Mr. POMEROY. You bet it had a tax increase, and it got the deficit down.

Mr. LEWIS. No, wait a minute.

Mr. POMEROY. I just absolutely love the way that the Democrats--

Mr. LEWIS. After the tax cut, you all had projections of $200 billion deficits as far as the eye could see, after the tax cut.

Mr. POMEROY. Congressman Lewis, here is how we explain this--

Mr. LEWIS. That is right.

Mr. POMEROY. We tackled the deficit--

Mr. LEWIS. I am interested in that.

Mr. POMEROY. We talked the deficit, the financial markets responded, long-term interest rates came down, and the economic recovery was fantastic, beyond what either party projected. In addition to that--

Mr. LEWIS. When did it happen?

Mr. POMEROY. In a bipartisan way--

Mr. LEWIS. When did that start to happen?

Mr. POMEROY. In a predictable period of time following the lowering of long-term interest rates. Long-term interest rates, if you look from the beginning of 1993 to the end of 1994, which would be the end of that first Congress, came down and were directly linked to the strength of the economic recovery. Both parties worked together thereafter it, I have served with you now for several terms, to hold spending in check. We maintained the PAYGO system of fiscal discipline.

Mr. LEWIS. I didn't see a lot of spending being held in check in 1994 when I got here, and the minority, your party was in charge then. I didn't see a lot of restraint there in spending.

Mr. POMEROY. Oh, Congressman Lewis, I am afraid that you misunderstand the application of the 1990 budget discipline, which put pay-as-you-go requirements in on Federal spending, as well as spending caps. We maintained those caps in the 1993 budget. We had hard caps, and we lived within them, and they were a major part of restoring financial integrity to this country.

But, in any event, we are now--

Chairman SHAW. The time of the gentleman has expired.

Mr. Becerra?

I am going to try to wrap this part of this thing up before this vote so that we can come in with the next panel as soon as we reconvene. Brevity on both sides would be appreciated.

Mr. BECERRA. Mr. Chairman, because of the vote and because we are running somewhat late, I will be brief, and all of our colleagues--

Chairman SHAW. And we are down to one victim.

[Laughter.]

Mr. BECERRA. And Mr. Pomeroy has been very gracious to stay so long in answering questions.

I would like to just make a couple of clarifications. In some of the discussion that has occurred, we have heard the word "Social Security surplus" mentioned and, in some cases, it has been confused with the unified surplus, and at the same time Social Security surplus has been used and confused with the Social Security Trust Fund. We have to make sure that we are clear that the trust fund is very different from the Social Security surplus. The surplus is what comes in, the hard cash that contributors, workers are contributing every day that they work, and it goes into the system. It is a surplus.

Once it goes into the trust fund, as I think, Mr. Chairman, you try to point out, we purchase that money and exchange Treasury certificates for that surplus money. Those Treasury certificates are there to guarantee that in the future those monies paid in will be available to pay out for future beneficiaries. But those monies, through the trust fund that are now property of the Federal Government because the trust fund is holding securities in its place of that money, is spent, is spent to the point that today we know that we are in deficit, and we must use every single cent of what was a Social Security surplus that went into the trust fund and is now being spent to maintain the operations of government.

I think the point that Mr. Pomeroy and some other folks have tried to make is that what was a Social Security surplus which could be used to save Social Security is not available because it is spent. It is like a passbook account. You deposit money in a bank, you have got a book that says you have got "X" amount of dollars in there. The bank may put it in an investment like Enron. If that investment goes under, like Enron, you go in to collect on your passbook, and if that bank doesn't have any assets because of Enron, that bank can't pay you back.

So what was a surplus and you put it into a passbook or you put into the Social Security Trust Fund, it is gone if it is spent, and we have to find some way to pay it back, and that means general revenues which could means cuts in other programs if you try to pay back on that Social Security money.

I think the point that was made with regard to what will happen under the Shaw plan, Mr. Chairman, is that if we need $120 billion now, we don't have $120 billion right now. We are in deficit. If we are going to look for $120 billion, that means we are either going to cut programs, and it could be something to the tune of eliminating every single dollar for elementary and secondary education that we give to all of the schools, it would mean the elimination of any monies that we give to lower income workers under the earned income tax credit, it would mean eliminating every single dime we give to aid blind and disabled people under the Supplemental Security Income program, and it would mean eliminating all of the money we give to poor folks who are working who receive food stamps or women who have children who try to provide some nutrition to their kids under the WIC program, the Special Supplemental Nutrition Program for Women, Infants, and Children, and it would mean eliminating everything we do for those who are right now suffering as a result of the downturn of the economy through the Temporary Assistance for Needy Families program.

Every single dime under all of those programs that I just mentioned would have to be eliminated in order to make up the $120 billion that it would cost to start the Shaw plan's additional accounts. So we have to be real. Like any family in planning its budget has to be real, we have to talk about dollars in and dollars out, and there is no way that you can just say, unless you are going to pull out the government credit card that you are going to be able to do this, and deficit spend and put it all on the backs of our children.

So I think hopefully we will get to the point where we are able to show some numbers, and I think the chart that Mr. Pomeroy has put up tries to illustrate the numbers that you can't do this simply by double dipping. At some point you are going to have to pay for this stuff, and you can't continue to say that there is a surplus when, in fact, it is being used right now. Indeed, my understanding is that if you take away Social Security and Medicare monies from the Federal Government's use, you have a deficit over the next 10 years that is monumental, $2 trillion or so dollars. It is only because we have Social Security monies that are used by government that we are able to talk about any type of surplus at all.

So I think it just gets confusing. If the average American were in here listening, he or she would be confused as well trying to figure out how the Federal Government balances its budget and goes about deciding what to spend.

Certainly, if a wage earner had to balance a family budget, they would love to have the funny money we are talking about here, but it can't be done because ultimately they will have to pay for a college education and retirement, and that is where I think the numbers have to be reconciled then. You can't do it. We have to make sure then when we talk about a Social Security surplus, we make sure that we are talking about monies that will be available.

Once the trust fund gets that money and it is given a Social Security certificate from the government, it will be spent by the government, whether it is for tax cuts, whether it is for this military operation to stop terrorism or whether it is just for regular operations of government, but we have to, at some point, be prepared to pay back to Social Security, and that means that you have got to come up with the money, hard dollars, not just the double-dipping and funny money that we keep hearing about.

So I won't ask Mr. Pomeroy any questions, since he has done a remarkable job of responding, and, Mr. Chairman, I will yield back my time.

Chairman SHAW. Your time has expired.

I would say to the gentleman, like any family responsible, I think you would want to set aside something for your old age, you would want to set aside something for your kids' college education, and that is exactly what we are trying to do. For the next few years, we are going to have a deficit if we are able to put money aside in order to plan for the future retirement.

But, again, I would say to both gentlemen from California that, hey, if you have got a better plan to save Social Security, you bring it in. I would like to hear it. But to simply say that if you pay down the debt, and now you have already made the point that you can't pay down the debt, it is very clear that you have no plan, and we need a plan, and we need it to be done in a bipartisan plan. Just as--

Mr. MATSUI. Mr. Chairman--

Chairman SHAW. Just a minute. Just as we did in welfare reform, just as we do in welfare reform, when we finally came together after the plan was voted down or vetoed by the President on two occasions, the Republicans and Democrats did come together, and because of that--

Mr. MATSUI. If your plan is credible, Mr. Chairman, why don't you put it on the Floor? Let us vote on it. I mean, if you really believe your plan is credible, put it on the Floor so we can vote on it.

Chairman SHAW. I know it is credible.

Mr. MATSUI. Because it is not credible. You know it is not credible. That is why you won't put it on the Floor for a vote.

Chairman SHAW. I know it is credible, but I think that we, and I think I have made this very clear, is that the disinformation that you, Mr. Gephardt, and the Democrats are putting out are going to make this, indeed, as Mr. McDermott said, the third rail of politics, and the question is can a Social Security reform package be passed without bipartisan support? The answer is clearly no. It would actually set us back to put something on the Floor that wasn't going to pass.

Could any of these plans that we are going to hear about this afternoon pass if put on the Floor? No, and they simply wouldn't because Congress does not have the courage in order to go forward to do it, the collective courage, and we need to get that collective courage and do the right thing.

Mr. MATSUI. Mr. Chairman, could I just--

Chairman SHAW. We need today to start planning for seniors of tomorrow.

Mr. BECERRA. Can I just add to your comments, Mr. Chairman, that I think one of the areas where this Congress has failed is that our previous President, Mr. Clinton, suggested that we save Social Security first, and before we start going into other areas, tax cuts or anything else, that we first plan to save Social Security. And I believe we failed the people of this country because, rather than talk first about what we do with Social Security, we went forward, some in this Congress went forward and cut taxes, and now the hole is even deeper.

So I would suggest that one of the difficulties that a lot of us have is that rather than try to keep our money where we can then use it to save Social Security first, it has been spent, and now the problem becomes even worse. Rather than talk about it from a place where you had some money you could work with, that is gone.

Chairman SHAW. Well, Mr. Becerra, why don't you join with me, and why don't you critique my plan and figure out how you would improve it, and maybe we can work it together. I would love nothing better than to find somebody on this Subcommittee to work with. I can't find anybody on the Democrat side.

Mr. BECERRA. Mr. Chairman, if we could agree that we would try to keep our money in hand so we can use it to try to deal with the Social Security issues--

Chairman SHAW. You read my plan and give me your conditions for support, and I will be glad to look at it.

Mr. BECERRA. Mr. Chairman, the first question is how do you pay for the $120-billion hole?

Chairman SHAW. Well, the question is that is part of the Social Security surplus--

Mr. BECERRA. Which doesn't exist.

Chairman SHAW. Why shouldn't that surplus be used to save Social Security?

Mr. BECERRA. That is fine, Mr. Chairman--

Chairman SHAW. It is paid in by American workers, and it should be set aside to save Social Security. And if we are going to spend beyond that, then fine, let us be honest in government and say exactly what the deficit truly is. There is one thing that--

Mr. BECERRA. So would you do less with terrorism?

Chairman SHAW. There is one thing you don't have to score--

Mr. BECERRA. Would you provide less to domestic security?

Chairman SHAW. There is one thing you don't have to score under our budget process, and that is the unfunded liability of Social Security. If you were to have to score that, this country would be bankrupt, and the balance sheet would do it.

Mr. BECERRA. Mr. Chairman, I think it would be great if you could outline where the $120 billion that you are going to use from the Social Security surplus--

Chairman SHAW. I am saying that it is coming out of the general Treasury, and I am also saying, very clearly, that it is going to require some deficit spending, but not nearly enough, not nearly the amount that is going to be necessary to save Social Security if Congress fails to do something and simply waits until 2016--

Mr. BECERRA. But if you just acknowledged deficit spending means the--

Mr. POMEROY. Mr. Chairman--

Chairman SHAW. We are in recess.

[Recess.]

Chairman SHAW. We will be back in session. We are trying to go--I think, Mr. Kolbe and Mr. Stenholm, why don't you decide between you who wants to go first? Mr. Kolbe?

STATEMENT OF THE HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA

Mr. KOLBE. Thank you very much, Mr. Chairman, and thank you for holding this hearing. Mr. Matsui, thank you for being a part of this as well.

I want to commend the Subcommittee for this discussion. I think it is very important that we begin this discussion.

I also think that the future of Social Security is much too important to be used as a political football, and we need to strengthen Social Security without resorting to demagoguery, to political attacks, and to gimmicks.

We have a complete statement which will be in the record. I am just going to summarize, if I might, two things that I want to talk about. One is bipartisanship, and the other is public understanding.

Social Security reform has to be a bipartisan effort. The Social Security reform debate has been characterized as an either/or choice between two ideological poles: on the one hand, some say keep the status quo, fix it from that; and the others say full privatization.

Defenders of the status quo say that any reform that includes a market-based component is going to undermine the current safety net features and expose workers to dangerous risks. And those who advocate full privatization suggest the creation of privately managed accounts will painlessly solve every challenge while, in fact, they ignore the existing long-term liabilities and the needs of special populations.

Both of these extremes may make for good, albeit myopic, rhetoric, and debate, but they fail to acknowledge the virtue, I think, of the hybridization. The complete solution to the Social Security problem can and must combine the best of the traditional program with new market-based options that reflect the reality of where the changing demographics in this current century are going to take us.

The legislation that Charlie Stenholm and I have introduced and the reform plans the Commission recommended are not privatization plans. The Commission did not recommend dismantling Social Security, and it did not recommend reforms that will change benefits for current or near retirees. The President and the Commission should because commended for offering a variety of reform packages that Congress can use to facilitate a discussion with the American people.

While it is easy for critics to attack specific proposals for reform and make promises about benefit levels, it is difficult to put together a plan that can hold up under a thorough actuarial and budgetary analysis, and I think we know that, having worked for 5 years on our plan.

I respect the views of those on both sides of the political spectrum who have criticized what the Commission has suggested and the plan that we have introduced. But I think that criticism, Mr. Chairman, rings hollow until critics themselves present constructive alternatives that can be scored by the Social Security actuaries and the Congressional Budget Office. Likewise, those who believe that we have to guarantee all of the benefits promised under current laws have to explain where the money is going to come from to fund these promises without accumulating massive amounts of debt.

And I said the second thing that we need to do, in addition to the bipartisan approach to it, is improving the public's understanding. An agreement on fiscally responsible legislation that truly makes Social Security solvent--without simply shifting costs to future taxpayers--is going to require leadership by our President and our colleagues.

In order to facilitate a discussion with the American people, we encourage this Subcommittee to consider proposals that would improve public understanding of the challenges facing Social Security and promote a serious discussion of the options for dealing with those challenges. We would like you to consider two proposals that we have developed that are an initial way, before we get to any bill, Mr. Chairman, an initial way of having a more honest and accurate discussion of the challenges facing Social Security.

The first would be a sense of Congress resolution that calls for a serious and thoughtful debate on proposals to strengthen Social Security this year in anticipation of legislative action we hope next year. The resolution would challenge Members from all sides of the debate to submit reform plans that can be analyzed and scored by the actuaries of the Social Security Administration and encourages the Ways and Means and Finance Committees to hold hearings on all the plans that are submitted.

It would also set forth principles by which the plans could be judged: protecting current and near retirees from any changes to Social Security benefits, not raising Social Security payroll tax rates, prohibiting the government from investing the Social Security Trust Fund in the stock market, preserving Social Security's disability and survivors insurance programs, and a number of others, Mr. Chairman, that could be considered here.

The second proposal is based on the report issued by the Social Security Advisory Board Technical Panel and outlines a variety of recommendations about how we measure the problems facing Social Security, how we can talk about those problems and criteria for evaluating the reform proposals. It is my view that improving--it is our view that improving the quality of the Social Security debate tremendously will help us, I think, get to where we have to go, Mr. Chairman, eventually, and that is to have a serious--we have to have this serious debate if we are going to have serious legislative proposals considered.

With that, Mr. Chairman, let me just end by saying that we have never claimed that our plan is perfect. Each could go through the plan and select individual items that we like or we don't like--either we went too far or we didn't go far enough. But we would hope that people would look at our plan in its entirety and examine what it would mean for the future of retirement income, the Federal budget, and the health of the American economy.

If everyone determines the acceptability of reform based on adherence to simplistic pledges of no benefit cuts or tax increases, we are never going to reach a bipartisan consensus that will pass legislation. Reaching an agreement on an honest solution to the long-term challenges facing Social Security is going to be difficult under the most challenges circumstances that our country faces today. But the difficulty of the task ought not to prevent any of us and certainly this Subcommittee from facing that.

Thank you, Mr. Chairman.

Chairman SHAW. Thank you, Mr. Kolbe. Mr. Stenholm?

Mr. STENHOLM. Thank you, Mr. Chairman, Mr. Matsui. I, too, appreciate the opportunity to come before you today, and I still have really two reasons for being here, and that is Chase and Cole. That is Cindy, my 6½-year-old, and 4½-year-old grandsons.

A lot of people have asked me why have I been so involved in Social Security, and that is the two reasons. Six and a half years ago, when they were born--the first one was born, Jim came to me and asked if I would be interested in working on the Social Security future as well as all public pensions. We organized the Public Pension Reform Caucus. It has been a tremendous educational experience for me because, not sitting on the committees of jurisdiction, all we learn is what we seek outside of our own committee interests.

The reason I got that involved, I mentioned that when Chase was born, I resolved then I didn't want that little fellow to look back 67 years from that day and say, "If only my Granddad would have done what in his heart he knew he should have been doing when he was in the Congress, we wouldn't be in the mess we are in today."

No one today says status quo is acceptable for Social Security. Jim and I--and it is not just us. We have introduced now in our third Congress, and each time we have introduced a bill, we have been soundly criticized for parts of it. And where the criticism was valid, we changed it, we reintroduced it in the second Congress, and we introduced it in the 107th Congress, each time listening to the critics in a constructive way, without benefit of hearing but with benefit of the knowledge of the many people who do have a sincere interest, both sides of the aisle.

One of the things that troubles me today and what has brought many of my colleagues before you today is best summarized in the recent column in Business Week by Howard Glickman, and I quote: "In Washington, the issue of Social Security reform is a lot like the weather. Everybody likes to talk about it, but nobody really does anything about it. Now comes both political parties with their latest salvos. Unfortunately, most of what they are saying these days is either lame or cynical."

Well, we are here today to encourage this Subcommittee to provide the leadership to prove his words wrong and offer followership on both sides of the aisle to prove those words wrong.

The guarantee certificates, while we understand the motives of those who propose the Social Security guarantee legislation, we have serious concerns about this proposal. I do not think it is helpful in the long term, and it is already--the amount of money to be spent on these certificates at a time when we are already running deficits is questionable. But whether it does anything like serious consideration of various proposals before this Subcommittee in preparation for next year--I am not naive enough to believe we will do anything constructive this year, but I am not going to give up on next year.

Jim mentioned the need for bipartisanship. Again, we are not going to solve this as Democrats. We are not going to solve it as Republicans. The only way we will solve the future of Social Security is in a bipartisan way.

My fellow Democrats must be more willing to acknowledge that the status quo is unsustainable and changes must be made, and I am rather frustrated with many of the comments many of my colleagues are making which suggest nothing needs to be done, while everyone privately and many publicly say something must be done.

Republicans must be willing to acknowledge the legitimate concerns that Democrats have about protecting the safety net and maintaining the progressive nature of the system. Both sides need to be willing to acknowledge there is no magic-bullet or free-lunch solution that will allow us to provide 100 percent of promised benefits without trade-offs somewhere else.

We need an honest discussion, and that is why Jim and I come before you today in saying have serious hearings on various proposals. Everyone is deserving of having their ideas heard, and at least lay the foundation and the groundwork for some serious effort in the future.

I happen to be an individual very supportive of personal accounts. To those that continue to use the word "privatization," that is less than honest a description of what we are talking about, either Jim and I or the President's proposal, the Commission, et cetera.

Personal accounts are not a magic bullet, though, that will save Social Security. But coupled with progressive reforms to the benefit structure, they offer all workers a much better deal than the current law can afford. Tough choices will be necessary to eliminate the deficit facing Social Security whether or not individual accounts are included in a reform plan. Including individual accounts in a reform plan does not require deeper benefit cuts than would otherwise be required. But neither does it make such reductions unnecessary.

Last year, the Congressional Research Service issued a report examining several individual reform options contained in the comprehensive reform plan proposed by both opponents and proponents of individual accounts. This report found that total retirement income would be greater under a plan which contained individual accounts along with changes in the existing system to restore solvency than would be the case under plans consisting of the exact same changes in the traditional system without individual accounts.

Although the CRS report demonstrates that individual accounts can be a valuable part of a plan to address the financing challenges facing Social Security, it provides further evidence that individual accounts alone do not solve the financing problems facing Social Security.

In conclusion, Mr. Chairman, the rhetoric coming from many on the left criticizing the Commission for highlighting the fiscal challenges facing the system and suggesting that reform is not necessary has not been helpful. Similarly, rhetoric suggesting that personal accounts are the magic bullet that provide a painless solution without any tough choices is equally problematic. Both extremes make it much more difficult to reach an honest agreement on Social Security reform. Finding solutions which both address the financial problems in an honest and responsible manner as well as modernizing the program to meet the challenges will be a difficult task. We owe it to our children and grandchildren to do it, and we are here to say we look forward to working with you to accomplish that goal.

[The prepared statement of Mr. Kolbe and Mr. Stenholm follows:]

Chairman SHAW. Thank you, Charlie. I have got 13 Chase's, but I am sure you will catch up.

Mr. STENHOLM. I always know better than to brag about my grandkids. Somebody is always going to do better.

[Laughter.]

Mr. STENHOLM. But I will stack my two up against yours.

[Laughter.]

Chairman SHAW. How come I knew that was coming. Mr. DeFazio?

Mr. DEFAZIO. Thank you, Mr. Chairman.

Mr. Chairman, I have submitted a lengthy statement for inclusion in the record.

Chairman SHAW. It will be made a part of the record.

Mr. DEFAZIO. Thank you, Mr. Chairman. I will summarize briefly, and I do congratulated Charlie and Jim. They have put forward an honest proposal. I may disagree with it, but they have both taken on the issue of looking at--Charlie doesn't want to call it "privatization," but the individual accounts, and the long-term solvency of Social Security. Most of the other plans that I have seen before the Subcommittee do not do that.

My plan does. My plan has been evaluated by the actuaries of Social Security, and it has been found to reach a 75-year actuarial balance. It does it in a way that some find controversial, but like a number of years ago, Congress lifted the cap on the wages on which Medicare was paid. My proposal would lift the cap on the wages on which Social Security taxes are paid. It would, however, retain the current calculated growing cap for future benefits. That creates a great deal of money. In fact, that linked with my aggregate investment proposal where gradually we would have a private firm under contract to the trustees of Social Security invest a growing portion of the Social Security surplus or trust funds in equities would also help boost future returns to the fund, according to the actuaries--or potentially. None of us can predict the market.

So at that point, we would have more than enough money for 75-year actuarial balance, and, therefore, we can make a few improvements in the program, one improvement being to make the tax a little less burdensome on lower-income working people, so the first $4,000 of wages would be exempt from FICA taxes. And that obviously in this year would provide a tax break to everybody who earns less than $88,900 a year, the current cap plus $4,000, a proportionally higher tax break to those at lower-income levels. it would also improve benefits for people over age 85. We find a very disturbing trend of people outliving their assets, no matter how well they have provided for themselves, and falling into poverty at an increasing rate over age 85.

And, third, it would add to the child care dropout years. It would allow individuals--since we like to talk about what we want to do for families, it would allow individuals a number of extra years to engage in home child care and not be penalized in the ultimate computation of their Social Security benefit.

So that, in brief, is my proposal.

Now, I think a couple of points need to be made. There are concerns about investment. As I said, the investment would be similar to FERS, the Federal Employee Retirement System, fund or the many State pension funds where a professional investment firm would be engaged by competitive bidding, and they would invest only in the fiduciary interest of the fund. If the fund ultimately grew too large, you could put in a stop where you would say, okay, if it was larger than, for instance, Fidelity, which is today the largest fund at 3.3 percent of overall market assets, you would then have the government be required, or the trustees, to enter into a second contract to establish another fund if we become worried about some sort of market manipulation, which we are not worried about with Fidelity, but if we did have those sorts of worries.

Then, you know, finally, the key point to be made--and I was kind of amazed by the earlier discussion--is I think the basic point on which every plan should be considered is does it resolve the Social Security shortfall. The Social Security shortfall starts in 2038. In 2038, we can predict with conservative assumptions we will have assets with incoming taxes adequate to pay 73 percent of promised benefits. Maybe we will do better than that. Maybe we will do worse. I don't think we should wait and get much closer to that date. But if you add on a problem, that is, if you begin to deduct under some plans a portion of the cash flow to Social Security, the FICA tax, then you compound that problem, and perhaps, for instance, under one of the President's Commission's proposals, when you divert 2 percent, the drop-dead date for Social Security becomes 2024 instead of 2038. And then, of course, under the Chairman's own proposal--you know, I have listened to you and Mr. McDermott debate the merits of where and how it will be capitalized. I am not even going to attempt to enter into that debate. But I would observe, as far as I understand the Chairman's proposal, it doesn't deal with the underlying problem of the Social Security having exhausted the trust funds in the year 2038.

So this is something that we have to keep before us, But you have got to be honest about this. There is no free lunch here. And the President's privatization Commission, they have punted altogether on this. I mean, they just said, well, we will transfer general fund money or we will change the actuarial tables or we will go to price indexing instead of wage indexing.

They have got a short memory. Remember, we went to wage indexing because of the inflation in the late 1970s. Congress changed the formula in the 1977 amendments. We used to index according to prices, and then we said, oh, no, wait a minute, we will go to wage indexing because wages are going up slower than prices. Well, now we are going to convert back. They think that that is going to save a bunch of money. Maybe. But it is also estimated to dramatically reduce benefits. So maybe it will either dramatically reduce benefits and save money, or maybe they will have guessed wrong and we will get back into a period of high inflation, and it will bankrupt Social Security more quickly.

So these are the issues that are before us, but there are tough choices to be made. We can't avoid them.

[The prepared statement of Mr. DeFazio follows:]

Chairman SHAW. Well, I agree with you as far as tough choices.

Mr. Nadler? And I would like to invite Mr. Rodriguez to come over. We will go to Mr. Nadler, Mr. Smith, and then Mr. Rodriguez.

STATEMENT OF THE HON. JERROLD NADLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK

Mr. NADLER. Thank you very much, Mr. Chairman, for the invitation to testify before the Subcommittee today.

I agree with the basic premise of this hearing that we must act now to improve Social Security benefits for women, to ensure that seniors get their promised benefits, and to improve public information about Social Security, its benefits, and its finances.

The President, however, is working in the complete opposite direction. His privatization proposals will cut benefits and raise the retirement age and completely mislead the public about Social Security and its finances. In fact, his recent statement completely misleads the public, as Paul Krugman showed in the New York Times yesterday, when the President said that if someone had invested his money instead of putting it into Social Security, had invested it in stocks 45 years ago, he would have three times the amount of--he could get now three times--he could retire on three times the benefits in Social Security. That is totally misleading. It ignores the fact that for the last 45 years his taxes would not have been paying for the current generation of retirees, so how would their retirements have been financed. It ignores the fact that his taxes were partially paying for survivors and disability benefits. And, yes, if you completely ignored the current generation of retirees and if you eliminated survivors benefits and disability benefits, and if the stock market went up all the time, then, yes, the President's calculations would be correct. But without those assumptions, the President's calculations are totally misleading.

The President's Social Security Commission recommended privatizing Social Security, cutting benefits for women, raising the retirement age, and weakening the guarantee of promised benefits. In short, it called for "ending Social Security as we know it," which is, I think, a fair summary of all their various proposals.

The Commission sought to confuse and mislead Congress and the American people about the financial status of Social Security. Their initial draft report included obvious misstatements and scare tactics about Social Security's finances.

The American people should know that, despite a new a Bush budget deficit, a war, a recession, and the dramatic fall of stock prices in the past year, Social Security never lost a dime. In fact, seniors got an increase in Social Security benefits, and the program still has a large budget surplus.

Of course, if the program had been partially privatized, Social Security would have taken a tremendous hit. But as it is, it didn't lose a dime.

This is not to say that Social Security is perfect. We must improve Social Security benefits for women to make the system fair to both sexes. Many women, unfortunately, still lag behind men in salary. Women often work outside of the home fewer years than men, since women still bear a disproportionate share of society's burden of raising children and caring for the elderly. As a result, women get smaller Social Security checks, on average. The formula for calculating benefits should be changed to account for time spent caring for children or the elderly. Social Security payments for widows and widowers should be increased. Furthermore, we must re-examine Social Security's policies as they relate to divorce. Divorce is a fact of life for all too many Americans, and Social Security should not punish elderly divorced women.

One thing that certainly will not help women or anyone else is privatization.

Privatization is unfair, unworkable, and unnecessary.

Why is privatization unfair? Privatization, or the diverting of revenue from Social Security into personal accounts, will dramatically worsen the financial condition of Social Security and require significant cuts in guaranteed benefits.

Let me point out, by the way, that those who say, well, we have got a problem, here is our solution, where is yours, those of you who oppose privatization, that is beside the point. Privatization makes the problem worse, not better. It doesn't help the problem. It worsens Social Security's finances. That being the case, you can't stand there and say, well, where is your solution, unless you are saying, well, we don't have a solution, do you?

This would have a dramatically effect especially on retired women and women nearing retirement, not to mention cuts to existing survivor and disability payments, putting children and those with disabilities at risk. It is just plain unfair. It will decrease or eliminate the leveling effect of Social Security which gives middle- and lower-income people higher relative benefit in order to provide a basic income support for all and will, therefore, increase the disparity in the system. Privatization hurts women, who generally earn less, live longer, and take time out from the paid workforce to care for children.

Why is privatization unworkable? It cannot restore solvency to an insolvent system. Diverting 2 or 4 percent of payroll to individual accounts simply makes the funding problem worse. Privatization plans that claim to restore solvency to Social Security do so only because they also cut guaranteed benefits, increase the retirement age, or create huge deficits in the non-Social Security Federal budget. Cutting benefits, raising the retirement age, or adding general fund revenues can make the program solvent with or without private accounts. The transition costs to a private system are enormous. Furthermore, $1.6 trillion of the surplus no longer is available to finance the transition costs because of the tax cut.

Why is privatization unnecessary? Lastly, the trustees predict a system that is solvent for 35 years and with more realistic economic assumptions is probably solvent as far as the eye can see. The trustees' predictions have been wrong--overly pessimistic--every year for the last 8 years. Every year they have postponed the date of trust fund insolvency or projected trust fund insolvency, despite their statements that the situation is getting worse and worse. A reading of their--can I have another 30 seconds, sir? Thank you.

A reading of their reports from 1993 to 2001 show the system getting healthier every year without any changes being made to the system. The trustees' pessimistic predictions are unreliable because they don't take into account the effect of the predicted long-term labor shortage on wages, productivity, unemployment, or immigration policy.

We all know that stock investments are risky. A privatization scheme that would, of necessity, drastically reduce guaranteed benefits and depend on stock investments to make up the balance might very well work out well for many, but could leave millions of others in poverty. To avert this, some of the congressional privatization plans are now so risk-averse that they don't make any money and don't solve any problems. In order to minimize risk, these plans limit investments to lower-risk bonds, but then the rate of return is smaller and the accounts will not make up for the cuts in guaranteed benefits. It just doesn't add up.

[The prepared statement of Mr. Nadler follows:]

Chairman SHAW. Mr. Smith?

Mr. SMITH. Mr. Chairman, thank you. Delighted to be a cosponsor of your bill. It helps move us ahead in the debate and discussion.

I started writing my first Social Security bill actually when I was in the State Senate before I came to Congress, introduced my first bill in 1994, and have introduced four bills that have been scored by the Social Security actuaries as keeping Social Security solvent.

It seems to me, Mr. Chairman, that one thing should be just so absolutely made clear, and that is that the cost of doing nothing is greater than proposals to help accommodate the insolvency of Social Security.

Mr. Nadler, you suggest that the economy, if it is strong and wages are high, that it is going to help. It is only going to help in the short run. In the long run, because we tie benefits to wages, those resulting retirement benefits of the higher-wage earner are going to neutralize the fact that we have a strong economy in the short run. That is why when I first introduced my first bill in 1994, we had a lot more surplus coming in from the Social Security Administration. Using that surplus for the transition, which is the huge challenge in going to any system that is going to give a greater return and help solve the problem is something that we need to do and deal with now rather than putting off.

I have heard a lot of people say that the problem really doesn't hit until 2034 or 2036 when the trust fund runs out. The fact is we need to talk about and decide in any discussion what we are going to do in terms of coming up with the money starting in 2014 or 2016 when the Social Security taxes are less than what is needed to accommodate promised benefits.

The estimate now by the actuaries is today's unfunded liability ranges someplace between $7 and $9 trillion. Put in tomorrow's dollars, that means over the next 75 years we are going to have to come up--if we do nothing--have to come up with $120 trillion more than comes in from the Social Security tax.

Part of the question that we are facing also is how long individuals are going to live. We are now looking at some of the futurists' projections that individuals within the next 30 years are going to have the option to live to be 100. It not only tremendously complicates every private retirement plan, but certainly the government's.

In my bill, I reduce benefits for the higher income at the same time I allow some personal investment. Government is always going to pay these benefits. So, again, let me stress my opinion that the question is: Can we do something to Social Security that is going to reduce the long-term costs of doing nothing? The answer is yes. In my bill, the cost of not doing anything is approximately 18 percent greater in total cost than coming up with my bill that uses the traditional market returns that the actuaries have suggested is going to be something like 6.8 percent.

I would like to agree with Congressman Nadler in the benefits for women. I have three provisions.

One is account sharing for married couples so that you add the husband and wife together and divide by two, so each individual has their personal account that is exactly the same; and if you do have a divorce, then they still have their individual equal accounts based on the income earnings of both individuals divided by two.

The imputed earnings for non-working spouses it seems to me is a policy we would like to encourage mothers to stay home with children, so mothers that are staying home with any child that is under 3 years old gets, if you will, a free credit year at her ultimate maximum earning.

Also, what I do is for the surviving spouse increase it from 100 percent to 110 percent for the surviving spouse to encourage staying in their own home.

In my legislation, I am also, Mr. Chairman and Mr. Matsui, trying to go a little further than just Social Security. I am doing retirement Social Security. So I am involving in additional legislation that will encourage additional savings and investment for individuals with fewer tax penalties, if you will, to encourage other savings in both the Roth IRA, the 401(k), and other venues of the Committee on Ways and Means that will allow individuals, encourage individuals, to save more.

I think in my conclusion, since the light has turned red, it is just so important we move ahead with this. My experience in introducing these four bills that were scored to be solvent is that each bill, because we give up the time period of the surplus coming into Social Security, every year we give up something that is not going to be there anymore, every proposal I have had has to be somewhat more drastic and more complicated to end up with a scoring that can then make it solvent. So, again, the longer we put this off, the worse we are going to be.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Smith follows:]

Chairman SHAW. Thank you, Mr. Smith.

Mr. Rodriguez? And I would like to invite Mr. Jones and Mr. Etheridge, if you can find room at the table, and we will just keep going with the witnesses and handle everybody as one panel.

Mr. Rodriguez?

Mr. RODRIGUEZ. Chairman Shaw and Ranking Member Matsui, let me thank you for the opportunity to be here before you as we discuss the important challenges facing Social Security.

I serve as the Vice Chairman of the Congressional Hispanic Caucus (CHC) and proudly represent the 28th Congressional District of Texas. As Members of the CHC, we all come from various districts throughout the country, urban and rural. As an example of this diversity, I can share that my district is the seventh producer of peanuts in the country. I want to highlight the importance of diversity within the CHC and within our own districts.

I am here to speak about Hispanics and Social Security and the drastic effects to the system will have on this vulnerable population.

We must remember the initial purpose of Social Security, and that is, a retirement system created to help alleviate poverty among elderly Americans. Social Security has become the single most effective Federal anti-poverty program in our history, lifting more than 11 million seniors from poverty.

Latinos are critically affected by the proposed changes to our Social Security system. A significant segment of the workforce, Latinos represent a disproportionate percentage of those who lack employer pension coverage.

We work in small companies. We are underrepresented in Federal and State jobs. And so, we usually come from segments of the workforce that do not have any pension coverage. More than other segments of the general population, Latinos depend heavily on Social Security for their dignity in their senior years.

The Latino population is growing rapidly. Currently Latinos represent 8 percent of the total U.S. workforce, and by 2010, Latinos are projected to account for 13.2 percent of the workforce. From 1997 to the year 2020, the number of Latinos that are 65 years and older is projected to double. Unfortunately, despite gains in education and other areas, Latinos still remain concentrated in low-wage jobs that provide few benefits. While more than half--I will repeat that--more than half, 51 percent of Anglo workers have employer pension coverage, the same is true for only 32 percent of Latinos. So you can see that a disproportionate number of Latinos rely on Social Security.

Accordingly, Latino retirees are more than twice as likely as Anglo retirees to rely solely on Social Security benefits as a means of economic support. In addition, Latinos are less likely than Anglos to receive income from interest on savings and investments. For example, in 1998, of all of the persons reporting interest income, only 5.3 percent were Latinos.

I would like to applaud the efforts of this Subcommittee to pay special attention to the needs of women.

While reforming the Social Security system has serious implications for Latinos, the women in our community, the Latinas, may be the most severely impacted of all. Latinas are more likely than other women to work inside the home and are less likely than other women to have retirement savings. Moreover, Latinas are less likely than other workers to have access to private pension coverage, and they tend to receive the lowest wages of all workers. Latinas relying heavily on Social Security benefits. Changes in marital status or loss of principal wage earners places Latinas in particularly vulnerable situations.

Given the paramount importance of Social Security to Hispanic men and women, we must approach so-called reform efforts with caution, weighing the impact on this key and fast-growing population.

I am concerned that the plans to privatize Social Security would drain needed resources from the Social Security Trust Fund and jeopardize benefit payments to retirees and disabled workers and their survivors. The leading plan proposed by the President's hand-picked Social Security Commission would drain $1.5 trillion from the trust fund in just the next 10 years, money that is already being used for other purposes.

Privatization would require cuts in guaranteed Social Security benefits. The President's Social Security Commission recommended a privatization plan that cuts benefits for future retirees by up to 46 percent. Everyone would be subject to these cuts--not just workers who choose to have an individual account. And Latinos would be hit the hardest.

Social Security privatization would expose individual workers and their families to the greatest financial risk. Under privatization, benefit levels would be determined by the volatile stock market, and we all know the problems that that might cause.

Latinos who are more than other groups dependent on Social Security as a guaranteed income stream in retirement would lose under privatization.

Other proposals, while well-meaning, will not help us reach our goal of ensuring the future solvency of Social Security. For example, the proposed guarantee certificates would not address our needs.

I would like to take this opportunity and ask that I be able to submit additional testimony for the record.

As we look at the impacts that privatization and other proposals like the guarantee certificates would have on Social Security, it is importance to highlight specific populations.

In addition to Latinos, we must consider the baby boomers and their kids and the impact on them and finally how we can achieve solvency in the future. I ask that you proceed with caution before making any decisions.

Thank you for allowing me to be here before you.

[The prepared statement of Mr. Rodriguez follows:]

Chairman SHAW. Thank you. Mr. Etheridge?

Mr. ETHERIDGE. Thank you, Mr. Chairman. I want to thank you and the Ranking Member for allowing me to testify today. I know you have had a long day. I was here earlier this morning. I appreciate your time.

You know, Social Security is--and I don't know that I will say anything new that hasn't already been said today. But Social Security has been the bedrock of American security for a long time, really since 1935, and it has been our Nation's probably most successful government initiative, lifting millions of seniors and working families out of poverty.

There was a time when, before Social Security, Mr. Chairman--and as I read history--when many of our seniors suffered in abject poverty, and too often many of them did not have the basic human needs of food and shelter. Many died homeless on the streets in this country.

The creation of Social Security is one of the landmark achievements of the 20th Century. Together, we declared that seniors should not be forced to live in Third World poverty here in America. Together, we made a compact with our seniors, like my mother and my mother-in-law, who both lost their husbands at earlier ages. If they would work hard, then you and I and others would make sure that we cared for them as they aged.

And, Mr. Chairman, Congress does not have the right to break that compact.

Now Social Security is facing a serious challenge. The solvency of the system will deteriorate over the next few decades, and we must act to uphold our end of that compact. There are those, including the Commission that the President appointed, who feel that privatization of Social Security is the answer to the problem. And I respectfully disagree.

Last year, the President appointed this Commission on Social Security. Unfortunately, that Commission was a stacked deck, in my opinion. Every single member of that Commission supported privatization. That is fine if you want to go that way, but it is not fair to the other folks who should have a seat at the table. The Commission was forced only to consider privatization plans and did not include a single member who represented the groups that would be more affected by changes in the system, for instance, minority, women, and seniors. In the end, the Commission offered three flawed plans, in my opinion, to privatize Social Security and failed to provide a plan to restore the solvency of the system.

Mr. Chairman, I cannot support any privatization plan that would jeopardize the retirement security of our seniors and working families. Many of them do not have a second plan. I think the recent Enron scandal clearly demonstrates that we cannot allow the retirement system and security of working people in America to become victims of unrestricted corporate greed. And that is just what we saw.

Social Security was designed to be a safety net and to be a compact between generations, not a privatized vehicle to create wealth for some and wind up leaving others in poverty.

There are many problems with privatization of Social Security. First, taking money out of the trust fund to create private accounts would fundamentally weaken the system. One plan offered by the Commission would remove $1.5 trillion from the trust fund over 10 years. I am not going to get into all the details.

Privatization also means benefit cuts. Another of the Commission's plans would reduce the benefits promised to future retirees by as much as 46 percent. Every plan has a "clawback" provision. That means that in a privatized system, beneficiaries will not receive both the full value of their private accounts and along with their full Social Security benefits. And there are a lot of people who are depending on it.

In addition, a system based upon individual accounts would also disproportionately, as we have heard already, hurt women because they would suffer from low account deposits and likely lose their spousal benefits. Minorities would be literally shortchanged because private accounts would erode the progressivity of the system. Finally, the transition costs associated with privatization puts the system's solvency and the retirement security of those who depend on it at risk.

I am disappointed that the majority now proposes to issue certificates to Social Security recipients. It bothers me because it reminds me of last year when we passed and sent a letter to every taxpayer that they were going to get a tax cut.

Mr. Chairman, I held a town hall meeting in Rocky Mount, and a lady came up to me and wanted to know where her $600 was. And she showed me the receipt that she got $3 and change, and she was quite upset. She had lost her job, had to sell her car to provide food for her family. You know, these kinds of things aren't what we ought to be about in good policy. What people want is us to sit down as caring, elected representatives and come up with solutions and not play "gotcha" with their lives. People want their representatives to do what is right.

I will close, Mr. Chairman, with saying that I trust we won't do the certificates. I am willing to work with anyone in good faith to strengthen the bedrock of Social Security. It is important. But we must put aside our gimmicks and ideological differences like phony guarantee certificates and privatization plans, and work together to make Social Security what it was intended to be, what it has always been, for those who are living on the edge who really have nothing else. We have a responsibility. Time is running out.

Thank you, Mr. Chairman, for allowing me to be here today, and I look forward to working with anyone to get the job done.

Thank you.

[The prepared statement of Mr. Etheridge follows:]

Chairman SHAW. Mr. Jones?

Mr. JONES. Thank you, Mr. Chairman and Ranking Member Matsui. Thank you for this opportunity.

I join each and every one that is here today and that has been here earlier, knowing that we do have an obligation to do what is necessary not only for the current recipients but also for those who are in college and high school. So let me begin my comments by saying that months ago I introduced H.R. 832, the Social Security Guarantee Act, that would help eliminate, I believe, concerns over benefit reduction by seeking to give seniors a stronger claim to their retirement benefits. Specifically, it would require the Secretary of the Treasury to issue to each Social Security beneficiary a certificate including a written guarantee of a fixed monthly benefit, plus a guarantee annual cost-of-living increase. By issuing this certificate, we hope to eliminate the fears of seniors and stop the ugly senior scare tactics that have doomed Social Security reform prospects in the past.

Critics claim the Social Security Guarantee Act is a gimmick because guarantee certificates passed by this Congress are not legally binding on other Congresses and, therefore, can be changed at any time. Mr. Chairman, in reality, H.R. 832 and its guarantee are legally binding because at the very least it will be politically binding. Although a future Congress could change or repeal the new law, once retirees have a written document in their hands explicitly guaranteeing their benefits, in my opinion, few elected representatives would be willing to repeal it.

Other skeptics wonder why the guarantee certificate only covers current retirees and not everyone. Without comprehensive reform of the Social Security program, Congress cannot make the same guarantee for future retirees. Social Security expenditures begin exceeding Social Security revenues in 2016 and by 2038 the trust fund is empty. That is why I believe H.R. 832 is an important first step toward meaningful Social Security reform.

At the end of the day, we as Members of Congress must uphold our moral obligation. We have a duty to our seniors to ensure their retirement security will not be jeopardized. At the same time, we cannot lose sight of the overall goal of reforming the Social Security program so that today's workers will have the retirement that they so richly deserve as they have earned it.

Mr. Chairman, I would like to just make a couple of statements, and then I will close because the gentleman to my right, Jim DeMint, and I have very similar bills, and either one of the bills that the Subcommittee decides they want to take further is fine with me. But I sincerely believe for this debate to move forward--and hopefully we will find a common ground on both sides of the political aisle to do what is right, not only for the current but for the next generation. I believe sincerely even though there are skeptics to this certificate of guarantee, I think it will be most meaningful to those seniors who are beginning to receive their Social Security retirement checks as well as those in the very near future. I want those who might see this as a gimmick to know from my standpoint that I was very sincere when I put this bill in several months ago, because I believe that the seniors will better understand this debate about reform if we can put a certificate of guarantee into their hands, just like when people buy stocks or people buy U.S. savings bonds.

So, with that, Mr. Chairman, I will conclude my comments and thank you and the Ranking Member for giving me this time.

Thank you.

[The prepared statement of Mr. Jones follows:]

Chairman SHAW. You get extra points for leaving a minute on the table. Mr. DeMint?

Mr. DEMINT. Thank you, Mr. Chairman, and I appreciate all of your work on this issue. You are one of the few who has been willing to put the time into developing a plan of your own and to work out all of the difficulties in guaranteeing the benefits of Social Security in the future.

Chairman SHAW. You get an extra minute.

[Laughter.]

Mr. DEMINT. An extra minute. Thank you. That is what I was shooting for.

Thank you, Congressman Matsui and my colleagues at the end of the row here.

I would like to submit my comments for the record, and I have, if I could, I would like to set those notes aside and just talk from my heart for a minute. Because as has been pointed out many times today, we are talking about America's most important social contract. It is a sacred promise to our seniors, and we need to make sure it is there not only for today's seniors, but for all future generations of Americans.

But as we look at different types of reforms, I think it is important to build a foundation before we do that. I was encouraged this morning, as I heard the debate move from whether or not we should do anything to Social Security to beginning to talk about which plan is the best way to change Social Security. And many have asked, as Mr. Gephardt has, let us have an honest debate. We can't have an honest debate on whether or not to change Social Security. We can have an honest debate on what is the best way to do it, and I feel like maybe the Subcommittee this morning in the discussions have begun to change that gear.

But before we put all of these different debate plans on the table, I think it is real important that the American people know the truth about Social Security, otherwise all of this talk is going to confuse and frighten them. Many of you, as I do, have seniors coming into your office regularly with problems on Social Security. They are so confused and frustrated. They do not understand how it works. They seldom have anything in their hand that tells them what they are supposed to get or if there is any kind of a guarantee that they are going to continue to get it.

They are very confused, and I think it would be easy to say that there is no reason for us to act and guarantee their benefits if there were not discussions up here, as we heard last night from Mr. Gephardt, that there is a secret plan to cut their benefits. This is shameful, and we need to do something of substance that tells these people that their benefits are safe, and they are. We know that, but they don't. We need to do whatever we can to get the truth to them.

There is a lot of talk also about we need to do this because of Enron. Enron did not tell their employees the truth about how their company stood. We need to tell seniors, first of all, that their benefits are safe, and we need to communicate an honest message to working Americans today.

I have proposed, along with Walter Jones and a number of others, that we do what you often do with any contract is you put it in writing. You can call it a gimmick, but we know in this country that it is not a contract, it is not an agreement unless you put it in writing.

Americans need to hear us say that their benefits are guaranteed. They need to see us go down to the Floor and vote to guarantee their benefits, and they need to receive something in writing that tells them that their benefits are guaranteed. We know it, and they need to know it. This is not a gimmick. If we said it is just a piece of paper, we could say the same thing about our Constitution, but that is a clear piece of paper, as far as our intent. Even our currency, our dollar bills, is just a piece of paper, and we could vote to devalue it, but because it is a tangible, visible value, politically, it makes it impossible or almost impossible to do that.

Our seniors need to know that we are committed. And that is why Walter and I, and many others are supporting the idea of if someone has paid into Social Security their whole life, when they retire, it is not too much to give them a certificate that tells them what their benefit is going to be and that it is guaranteed, and it is guaranteed, and we need to make sure they know it.

The next thing we need to know is quit lying to working Americans. Every year they get a certificate in the mail that suggests to them they have a passbook savings account, that we have kept everything they have put in it, and it even says, of course, your benefits will be there for you, even though we know the Social Security actuaries tell us that it is not going to be there unless we change something.

We need to change that statement in a way that lets working Americans know that Social Security is a program that we are committed to, but changes are necessary to guarantee their benefits, and I think we can guarantee their benefits.

The first step is to reassure our current senior citizens that their benefits are safe. The second step is to tell working Americans that we need to make some changes to guarantee their benefits in the future. The third step is to begin to debate honest plans to save Social Security in the future.

I commend you, again, Mr. Chairman, for taking us in that direction, and I would ask this Subcommittee to seriously consider putting our contract with seniors in writing and changing the statement that we send every year to working Americans that is now misleading them, we need to tell them the truth.

Thank you.

[The prepared statement of Mr. DeMint follows:]

Chairman SHAW. Thank you, Mr. DeMint.

Three of the four, Mr. Etheridge, Mr. DeFazio, Mr. Nadler, and Mr. Rodriguez, both in a critical way, used the word "privatization." I would like a definition of that.

Mr. Nadler, will you give me a definition of privatization, as you use the term?

Mr. NADLER. Sure. What I mean by privatization and what I think is generally meant by privatization is any proposal that would direct any part of the 12.4 percent of Social Security away from Social Security or away from how it is currently used, away from the Social Security Trust Fund and into a system of private accounts.

I do not mean by privatization any proposal such as made by President Clinton and by various others since then to have the Federal Government help people set up individual accounts over and above the 12.4 percent from some other source of funds.

Chairman SHAW. That is what mine does.

Mr. NADLER. If it is not from that 12.4 percent, and that 12.4 percent stays the way it is, then it is not what I would call privatization. It is a different system.

Chairman SHAW. Thank you, sir. Mr. Rodriguez?

Mr. RODRIGUEZ. My definition is any proposal which diverts funds from the existing Social Security Trust Fund. In addition, any proposal which puts in danger baby boomers and their ability to receive Social Security benefits. Also, we need to protect the kids of the baby boomers. I feel very strongly about preserving the trust fund. We need to understand that Social Security also applies to the disabled, as well as the blind, and other SSI recipients. It is really important for us to understand the initial intent of Social Security, to alleviate poverty among seniors, and to provide for the disable and other vulnerable segments of our workforce.

If we are looking at private investments outside of Social Security, I can understand the importance of that. The bottom line is that one out of three Hispanics do not have a private pension form, we don't, and Latinas are hit even worse, they need Social Security.

Chairman SHAW. Would you object to a program that we would develop alongside of Social Security that, if we didn't touch the trust fund at all, and that we set up individual retirement accounts for American workers and put 3 percent for low-wage people and then 2 percent after you got to a higher wage person, if we didn't touch the trust fund--

Mr. RODRIGUEZ. If you didn't touch the trust fund, I would be willing to look at that.

Chairman SHAW. And take it out of general fund. Thank you, sir.

Mr. NADLER. Mr. Shaw, could I add one thing?

Chairman SHAW. Yes.

Mr. NADLER. I would simply say that--

Chairman SHAW. Are you nervous that you agreed with me?

Mr. NADLER. No, no. I am not clear on what your proposal is. I just want to say, I mean, if it is similar to the President's proposal of several years ago, President Clinton's proposal, I agreed with that proposal, but--

Chairman SHAW. I don't recall him having a proposal.

Mr. NADLER. Oh, he did, and in fact the--but that is not the point. I don't want to debate President Clinton at this point.

Chairman SHAW. But my plan also incorporates helping out women, taking some of the things that you--

Mr. NADLER. Well, that sounds fine. I would simply point out that if you don't--

Chairman SHAW. And Mr. Smith agreed with you.

Mr. NADLER. If you are going to--yes, he did, and I agreed with him. He had some good ideas.

If you are going to fund some sort of private accounts, and you are not going to take it from Social Security, that is, from that 12.4 percent, you have got to take it from somewhere else, and if you are going to make it sizable, that is going to be a huge amount of money, and if you want to take it out of the Federal budget, well, that is fine if the money is in the Federal budget, which the current situation does not seem to allow, given those tax cuts we did last year. But I am not, in principle, in fact, in principle I am in favor of setting up some sort of private thing over and above Social Security, as long as you don't touch the Social Security Trust Fund.

Chairman SHAW. Take a look at my bill. Maybe you would like to add your name to it.

Now, Charlie, according to these two Democrats down here, they are defining your program as privatization, but I clearly heard either you or Mr. Kolbe or both of you say this was not privatization.

Mr. STENHOLM. Well, I don't look at it as privatization. If you are going to put the definition on ours as privatization, then you will--

Chairman SHAW. I didn't, they did.

Mr. STENHOLM. No, you are asking, I am talking to my two colleagues, Mr. Chairman. That then you would also say that the Federal retirement system that all of us are in and that our Federal employees are in are a privatized system. You can stretch it to that far, but before I get into a debate or discussion about our plan, I would like for folks to read it. It has been amazing to me to listen to the criticism of Jim's and my plan of obviously people who have never read it, but are talking in platitudes about, as we have heard again today.

I mean, you compare it to the President's plan. The President has not got a plan specifically as yet, but he has got a concept that I happen to agree very strongly with, and I have for 6 years. And I am perfectly willing to debate my colleagues regarding whether it is good, bad, or indifferent. That is why we came today is to, hopefully, this hearing begins a serious discussion of solutions. With all due respect to those that believe the first step is a certificate, I mean, that is not the worth the paper it is printed on, and it is going to cost anywhere from $10 to $40 million to send it out. You can already get that from the Social Security system. Any time you wish to write in and find out what your benefits are, you write, they tell you these are your guaranteed benefits, and it is just as good as any certificate that you get planted after this.

So we are talking now in political terms.

Mr. DEMINT. Could I respond, Mr. Chairman?

Chairman SHAW. Sure. Go ahead, Mr. DeMint.

Mr. DEMINT. Just the real cost that CBO gives us, it is $8 million the first year because it goes to all of those who are currently retired. It is $1 million every year thereafter to give a certificate of guarantee to every new retiree. Now we spend $70 million a year to give a statement to working Americans to tell them something is there that is not. I think we could spend a million dollars a year to tell senior citizens the truth.

Chairman SHAW. Well, it could go out with a Social Security check. You could get your Congressman to do that.

Mr. STENHOLM. Could I respond again?

Chairman SHAW. Please.

Mr. STENHOLM. To me, $8 million is still a lot of money. Now part of the debate surrounding this has to do with the budget, and surpluses, and the fact that we now have got deficits as far as the eye can see. And the economic game plan that we are under right now, as proposed by the President, we will be in the Social Security Trust Fund for the next 10 years.

I heard my colleague, Mr. Hayworth, this morning go back to the 1980s and the fact we didn't cut spending. If you are going to talk about cutting spending, then you have got to quit saying $8 million is not a lot of money and compare it to $70 million that we are wasting. Let us cut out the $70 million. For Heaven's sakes, Jim, let us not add another $8 million. The folks I represent, $8 million, $1 million, $100,000 is still a lot of money, and yet we come in here and say, "Oh, pooh, $8 million and $1 million a year is nothing," and we call ourselves conservatives.

Chairman SHAW. I will tell you what we are going to do. I am not going to get this into a debate between the two of us. We have got two more Members that have shown up. We will have the whole Congress in here pretty soon.

[Laughter.]

Chairman SHAW. Will the two other Members come to the table that plan to be heard. Maybe they can just go ahead and testify real quick. If you can testify just in a couple of minutes, I will hear you before the vote.

Anybody that can sum up in 2 minutes is invited to the table. Jan, come on up. You can pull right up to the end of the table there. Two minutes.

Ms. SCHAKOWSKY. I will do my best, Mr. Chairman.

Chairman SHAW. Thank you. I appreciate your being here. By the way, I want to say, Charlie, I admire you. You are one of the pioneers on this thing, and I really appreciate you. You broke a lot of ground, and we will take care of chase. Do not worry.

Mr. STENHOLM. I appreciate that.

Chairman SHAW. We are slow, but we will get there.

Mr. STENHOLM. I appreciate the opportunity. I am sorry I caused you to go into a debate.

Chairman SHAW. Well, you are good at that, Charlie, and that is fine. You ought to do what you do best, thank you. Yes, ma'am?

Ms. SCHAKOWSKY. Thank you so much, Mr. Chairman. I am Congresswoman Jan Schakowsky from Illinois.

I appreciate the opportunity to be able to talk to you about the issue of Social Security benefit guarantee certificates and the future of Social Security.

I wanted you to know, and the Subcommittee to know, that from 1985 to 1990 I served as Executive Director of the Illinois State Council of Senior Citizens. And given that experience of being the Executive Director of a senior citizen organization, I can assure you that senior citizens will clearly understand these certificates for what they really are, which I believe is an attempt to provide political cover for those who want to be seen as fans of Social Security while, at the same time, are promoting privatization proposals that will undermine it. Senior citizens, I believe, will be skeptical of these certificates for several very good reasons.

First of all, there is the budget record development. Despite all of the rhetoric about putting Social Security revenue into a lockbox, the lock to that box has been picked by the Republican budgets. It is true that the lockbox resolution that passed the House provided certain exceptions, such as war or recession, but it is not true that one of the exceptions to the lockbox was providing tax breaks to the wealthy.

The Congressional Budget Office has indicated the single largest factor in the disappearing budget surplus as last year's tax cut, and the Bush budget proposal will take $553 billion of the Medicaid surplus and $1.5 trillion of the Social Security surplus over the next decade. I doubt that a certificate will assure senior citizens that Social Security solvency is a priority, given those figures.

And second, there are those unfortunate statements by Treasury Secretary O'Neill. Last May, in an interview in the Financial Times, Secretary O'Neill stated, "Able-bodied adults should save enough on a regular basis so that they can provide for their own retirement, and for that matter health and medical needs."

And in July, Secretary O'Neill stated that, "The Social Security Trust Fund does not consist of real economic assets."

Well, if the Treasury Secretary believes that the assets in the trust fund are just worthless paper, why should Social Security beneficiaries have any faith in a paper certificate?

The third reason that they will be skeptical are the disturbing references to Social Security found in the economic report of the President.

Chairman SHAW. We want to be sure to get over here to Jim, too. I understand, Mr. Forbes, you want to put your statement in the record?

Mr. FORBES. Mr. Chairman, I will be glad just to do that in the interest of time.

Chairman SHAW. Okay. Well, you just go ahead and submit yours for the record.

[The statement of Mr. Forbes follows:]

Statement of the Hon. J. Randy Forbes, a Representative in Congress from the State of Virginia

Thank you Chairman Shaw and Ranking Member Matsui for having me before your distinguished committee this morning.  I want to commend you for holding this important hearing and for having the foresight and conviction to address this important issue.  I believe that hearings such as this one are more than just a forum for witnesses to express their views.  Today’s hearing is in fact the practice and strengthening of our democracy.  As such, I am humbled to have the honor and privilege of speaking to you on behalf of the people of the Fourth District of Virginia.

I can think of no other issue that is of greater concern to the seniors in my district than the stability and future of Social Security.  To my constituents, and myself, Social Security is more than just another government program that administers benefits to those who qualify.  Social Security is a sacred trust between the federal government and its citizens -- a trust that we must not allow to be broken.

Today 44 million Americans - one in six - depend on Social Security retirement, disability, and survivor benefits.  Thanks largely to Social Security, seniors today are the least likely group to be poor.  For years now, however, Congress and the public have known that Social Security would soon be facing serious financial challenges due to shifting demographics.  Due to the aging of the baby boom generation, the number of retiring Americans receiving benefits is beginning to overwhelm the number of working Americans paying into the Social Security system.  In addition, important medical advances and healthy behavioral changes, are allowing Americans to live longer.  The result of these factors is that beginning in 2016, Social Security payments will exceed worker contributions into the trust fund.

This is a scary prospect for the millions of Americans who receive Social Security benefits.  Many of these individuals depend upon their monthly Social Security checks to survive.  As we fight our global war on terrorism, we must not lose sight of the fact that terror can come in many forms.  It is every bit as frightening to an elderly man or woman when their Social Security check is late – or doesn’t arrive at all.  Too many seniors are living from one check to the next while balancing food against medicine.  As their Representatives in Congress, we should at least provide them with the security of the promise of Social Security.

It is also a scary prospect, Mr. Chairman, for the millions of workers who are currently paying into the system.  They have been paying into the Social Security trust funds because they have to, not because they believe in the promise of Social Security.  In fact, numerous studies have shown that more young Americans believe in UFOs than in their future Social Security checks.  As Members of Congress, it is incumbent upon us to restore younger worker’s faith in Social Security and us.

In the coming weeks, Congress may consider legislation that will lead to changes in Social Security, strengthening it and improving it for generations to come.    As we consider changes to Social Security, Congress must address the concerns of our nation’s seniors by taking a Hippocratic oath to protect Social Security.  We must all pledge to “first do no harm.”  Mr. Chairman, we must maintain our determination to keep the promise of Social Security.  We should not raise Social Security taxes and we should not cut benefits.  We must use the innovative spirit that is America’s hallmark to meet this challenge and find a way to strengthen and improve Social Security.

It is a surprise to many when they learn that Social Security recipients have no legal right to their benefits.  In 1960, the Supreme Court held in Flemming v. Nestor that Congress could change or discontinue Social Security benefits at any time.  In other words, Americans have no legal property right to their Social Security benefits.  Our seniors deserve more than just Congress’ good word that Social Security will be there for them.

By establishing a property right for retirees, Congress would ensure that the benefits of those who depend on Social Security would be permanently protected under the law.  Our seniors deserve no less.

I also want to commend the President for addressing this issue in a straightforward manner.  While the events of September 11^th have required us to focus on winning the war on terrorism, I know that saving Social Security is high on the President’s agenda.  I believe that next to winning the war on terrorism, reforming and protecting Social Security will be one of the great legacies of this administration and this congress.

Recently I was pleased to hear the President lay out his principles for reforming Social Security.  The President made it clear that reforming Social Security must not change existing benefits for current retirees or near-retirees, and it must preserve the disability and survivors' components.  The promises made to current retirees must be kept.  Every senior receiving, or about to receive, Social Security benefits should rest assured that their hard earned benefits will be there for them.

We must also seek and gain the consent of the governed.  Any proposal to reform Social Security must be carefully scrutinized and presented in daylight for everyone to see and review.  We must also continually seek the thoughts and ideas of those that rely on Social Security.  During my brief time in Congress, I have made it a priority to seek the advice and counsel of the seniors in my district by creating a Social Security Advisory Board.  I have also heard the importance and real life impact of Social Security through numerous town hall meetings that I have held throughout the Fourth Congressional District.

In the end, to protect Social Security we must come together as a Congress.  We must resist the temptation to use this issue for political gain.  The future of Social Security is too important for one party to use as political leverage over the other. 

Again, I want to thank the Committee again for the opportunity to appear before you today, and I commend you again for addressing this vitally important issue.

Chairman SHAW. Would you go ahead and submit your whole statement to the record?

Ms. SCHAKOWSKY. I will. I actually am trying to pare it down. Well, let me try and finish then in another minute, okay?

Chairman SHAW. Quickly, if you would.

Ms. SCHAKOWSKY. I am doing it as fast as I can--

Chairman SHAW. You committed to 2 minutes.

Ms. SCHAKOWSKY. I will. Okay.

Well, then let me just say I think one of the main reasons that they will be skeptical is that the issue is that the President's Commission on Social Security has come up unanimously with ideas about privatization and was full of people who were handpicked only to support the idea of privatization which, in my view, would drain money from the trust fund, would shorten the life of the trust fund, would jeopardize benefits, would risk disability and survivor benefits, and I think that cloth certificates are not going to address the problem.

Let me just finish with this. I think if we are going to send out certificates, there ought to be some truth in advertising. It should say that the Congressional Research Service has concluded that these certificates provide no more protection than already exists under the law, it is not usable in a court of law, and the only real promise is that the Social Security Administration will follow the law until it decides to change the law.

And so it seems to me that we ought to be honest, even more honest than when we sent back the $300 and $600 rebates, no one knew in that letter that it was really an advance on their return this coming tax year, and I think we have to be honest with people and that, in fact, we shouldn't waste tax dollars. This is a ridiculous proposal.

Chairman SHAW. I am going to stop you right there.

[The prepared statement of Ms. Schakowsky follows:]

Chairman SHAW. Jim?

Mr. LANGEVIN. Thank you, Mr. Chairman and Ranking Member Matsui, for the opportunity to speak to you today about this important and complex issue.

I am deeply concerned about the impact privatization could have on the more than 6 million people who rely on Social Security Disability Insurance for survival today and the millions more who will count on this insurance in the future. The fate of the disability program should be of paramount concern in addressing the problems facing Social Security, yet it receives far too little attention.

Ranking Member Matsui and many other esteemed Members of this Subcommittee have done an outstanding job spot-lighting these issues, and I am grateful for the opportunity to add to the dialogue today.

Disability insurance is essential to the economic security of our most vulnerable citizens. Throughout the course of their lives, one-fifth of adult women and one-fourth of adult men will receive disability benefits. Therefore, we must be cognizant of the impact of any privatization proposals on this critical program.

Now no one advocates the privatizing of the Disability Insurance program. That would be an extremely dangerous proposition. Those who collect disability insurance are largely unable to work, and, therefore, unable to contribute to private accounts. Even those who can work will probably not be able to build a large enough account and meet their needs. So, if no one is suggesting that the government privatize disability insurance, why all the concern?

Well, there are a number of reasons to worry about the impact that privatizing old age and survivors insurance would have the Disability Insurance program.

First, it will be extremely difficult to retain the existing Disability Insurance program if the Old-Age and Survivors Insurance (OASI) program is fundamentally changed. The two programs share administrative costs, personnel and processes, and since OASI is a much larger program than Disability Insurance, serving 85 percent of all Social Security beneficiaries, the administrative costs, once shared by both programs, would now be solely generated and absorbed by the Social Security Disability Insurance.

Furthermore, because the formulas used to determine disability and retirement benefits are intertwined and most privatization proposals call for changing the formula to reduce benefits, disability program beneficiaries could face sharp benefit reductions that would not be compensated by even the most robust growth in the standard & poor's 500, S&P 500.

Chairman SHAW. Jim, may I interrupt? How long does it take you to get to the Floor from here?

Mr. LANGEVIN. About 5 minutes.

Chairman SHAW. Do you want to submit the rest of your statement for the record?

Mr. LANGEVIN. I think I am almost done, if I can have just maybe another 50 seconds.

Chairman SHAW. Fine, you go right ahead. I just didn't want you to miss the vote.

Mr. LANGEVIN. Thank you, Chairman.

Chairman SHAW. In fact, I don't want any of us to miss vote.

Mr. LANGEVIN. Finally, most privatization proposals would raise the Old Age Insurance retirement age, which would substantially increase the number of people collecting disability insurance and make the program significantly expensive.

Although I commend Chairman Shaw's diligent efforts to address this issue confronting Social Security, I am concerned about the impact his proposal will have on those who rely on disability insurance.

I am also wary of Representative Armey's proposal to send guarantee certificates to selected current and future beneficiaries. Such proposals would divert critical funds away from benefits and further jeopardize the solvency of the Disability Insurance program. In fact, Representative Armey's bill would drain $10 million from the Federal Treasury, funds that could be used to expedite $14,000 disability insurance claims instead.

I came to Congress, in part, to fight for policies that help people with disabilities or debilitating illnesses enjoy longer, healthier, and more productive lives. The Social Security Disability program is essential to that effort because it provides a guarantee from the Federal Government that all Americans will receive a minimum income if they become physically unable to work.

Before we continue down a dangerous path toward privatization, we must remember that Social Security was intended to provide security, not wealth. Disabled Americans who face a myriad of challenges every day of their lives need that security, and I, with the help of dedicated people like Representative Matsui, will fight in Congress to preserve it.

Mr. Chairman, I thank you, and, Ranking Member, I thank you for the time to speak.

[The prepared statement of Mr. Langevin follows:]

Chairman SHAW. Jim, thank you for your testimony.

I thank all of the witnesses for their testimony. I want to congratulate the witnesses that we had today that did have plans, and I want to make a note that Ms. Clayton is not here, but her statement will be submitted for the record.

[The statement of Ms. Clayton follows:]

Statement of the Hon. Eva M. Clayton, a Representative in Congress from the State of North Carolina

Good morning Chairman Shaw.  I appreciate the invitation to address this subcommittee on Social Security.  I’m very concerned about Social Security.  How do we strengthen Social Security and provide guarantees for our future generations?

Social Security has been one of the country’s most successful social programs.  It is largely responsible for the dramatic reduction in poverty among seniors, 50 % of the population aged 65 and over would live in poverty if it were not for social security.  Social Security along lifted over 11 million seniors out of poverty in 1997, reducing the elderly poverty rate from 48% to 12 %.   For 1 in 2 African American and Hispanic seniors, social security benefits provide 90% or more of their income.  As of December 2001, 30% of all Social Security beneficiaries were receiving benefits because they or their family member were severely disabled or because a family member passed away.

We must all remember that in 1935 President Roosevelt established this program to help all workers prepare for retirement, with an emphasis on helping retired workers who had low incomes.  The inception of this program came as a result of the crash of the markets that led us to the Depression of the 1930s.

Strategies for saving social security for the future generations are among the most important issues facing us today.  We want to make sure that the future of Social Security is secure for our children and grandchildren, but we also want to protect the financial security and promised benefits of retirees.

According to the Social Security Administration, once the baby-boom generation retires, the amount of money that the government will spend on Social Security will increase by more than 50% over the three decades.  That is why some of us argued that it was very important to keep the “Lock Box on Social Security, save the budget surplus and pay down the federal debt.

Some of my colleagues and the President are suggesting that we privatize Social Security as the way of providing for future generations.  I’m more than a little nervous about this approach.  The Congressional Budget Office suggests that in setting up a private accounts system, the following issues must be addressed:  cost of administering private accounts, protection against the down turn in the markets, benefits for deceased workers’ families and disabled workers and the needs of the low income.  Additionally, how would the system be regulated and investors informed?

The complexity of privatizing the Social Security system is a difficult task and will have a significant impact on workers’ economic security.  According to the Employee Benefit Research Institute, adding individual retirement accounts to Social Security could be one of the largest undertakings in the history of the of the U.S. financial market, and no system to date has the capacity to administer such a system.

The President’s Social Security Commission recommended cutting disability benefits to help defray the cost of private accounts, and bar access to the accounts prior to retirement.  This would be a double blow to the disabled workers.

Between March 2000 and April 2001, the S&P 500 fell by 424 points or 28%.  If Social Security had been privatized, a worker who had his or her individual account invested in the S&P 500 and who retired in April 2001 would have 28% less to live on the rest of his or her life.  Perhaps we should ask the workers from Enron about their 401K accounts.

As policy makers, we must have the answers to these questions and guarantees that the risk of privatization will not cause major harm to our Social Security System.

I agree that we must come up with ways of reforming the Social Security system.

Perhaps, we should be looking at increasing the limits on individual retirement accounts, encouraging and teaching our youth and families the value of saving, investing and financial planning for retirement.   Perhaps, another approach is to look at other ways of enhancing government securities and bond programs to pay better dividends.   As you may recall, it was not too long ago that we not only encouraged youth to save and invest through buying savings bonds at school and post offices, and passbook accounts for vacations and holidays.  We must look at some of the initiatives that organizations like the American Saving Association, Jump Start Program, Children’s Banks and others are attempting by working with children, parents and schools.  These organizations are developing educational programs that teach the basics, understanding money management, and encourages saving and investing with its impact on individuals’ future economic security.

I am afraid that privatization is not the right solution, it is risky, and limits guaranteed protection for our future generations.

It is important for Congress to remember that while Social Security was not designed as a retirement program, however,  many Americans have paid into the system in good faith and feel justified in relying on these benefits to survive during their retirement.

Chairman SHAW. If there are no other comments, this hearing is adjourned.

[Whereupon, at 2:17 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

Baldacci, Hon. John E., a Representative in Congress from the State of Maine, statement