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

Before the Subcommittee on Social Security,
 House Committee on Ways and Means

Hearing on Social Security Improvements for Women, Seniors and Working Americans

March 6, 2002

Thank you, Mr. Chairman, for the opportunity to testify today.  I commend you and the Subcommittee for your efforts to improve Social Security for today’s retirees as well as for future generations.

The first issue I want to address is the need to tell seniors the truth about their benefits -- that they are safe, secure, and guaranteed.  However, this is not true for their children and grandchildren, which I will discuss later.

Mr. Chairman, Social Security is the cornerstone of our retirement system.  It is the principal source of retirement income for two-thirds of the elderly, and makes up 90 percent of the income of about one third of all Americans over the age of 65.  For many seniors, Social Security is all they have.

After years of being told their taxes were being saved for their retirement, many retirees are concerned that shrinking surpluses caused by a weakened economy and the attacks of September 11^th will somehow harm their benefits.  Of course, this is not true.  Every penny of the benefits for today’s retirees will be paid in full.  The Social Security trust fund receives credit for surplus Social Security tax dollars regardless of whether those funds are spent on debt reduction or to fight the War on Terrorism.   

Seniors are also concerned that reforms needed to strengthen Social Security for their children and grandchildren may, in some way, harm their benefits.  This is also false.  Everyone agrees that modernization must not change the benefits of today’s retirees.  The President has made this point clear time and time again.

Mr. Chairman, Social Security is a defining American promise and every member of this subcommittee knows this promise will be kept.  But older Americans drawing Social Security today have a right to know this too.  They have a right to know their benefits are secure so they can enjoy the sunset of their lives without fear or confusion.  Mr. Chairman, I believe we must take steps now to reinforce our commitment to them.

That is why I introduced H.R. 3135, the Social Security Benefits Guarantee Act, which is similar to a bill my friend from North Carolina, Walter Jones, has introduced.  This legislation would require the Secretary of the Treasury to issue to each Social Security recipient a personalized certificate that includes a written guarantee of a fixed monthly benefit plus an accurate annual cost-of-living increase.  This written bond would provide today’s seniors the truth about the safety of their benefits, giving them peace of mind when people try to scare them for political gain.  And, by putting a retiree’s entitlement in writing, future Congresses will be less inclined to break the sacred promise of Social Security. 

Mr. Chairman, the intent of this legislation is not to change the way Social Security operates.  Instead, its purpose is to reaffirm our commitment to today’s seniors.  The intent is not to change the way benefits are authorized.  These certificates would only guarantee what is in current law, which is constrained by the accounting mechanism we call the Trust Fund. The fact that in 2038, the Trust Fund will not be authorized to pay full benefits is a problem that requires fundamental reform, not a certificate that restates the promise of current law. 

Mr. Chairman, some people believe the money needed to send these guarantee certificates could be better spent.  I disagree.  According to the Congressional Budget Office, the cost would be only $1 million per year.  Given that the Social Security Administration’s annual administrative budget is $8 billion and given that the commissioner currently spends seventy times this amount sending statements to younger workers, it is certainly justified to use this small amount to reassure seniors of the safety of their retirement. 

The second issue I want to address is the need to tell younger Americans the truth about their Social Security benefits – that they are not safe, not secure, and certainly not guaranteed.

Mr. Chairman, Social Security is in trouble for younger Americans.  According to the last report of the Social Security trustees, the program will begin paying out more than it collects by 2016.  Between 2016 and 2038, the program will require approximately $5 trillion in additional cash assistance from the general fund.  After that, Social Security will become insolvent.  Unless we solve this problem now, future generations will be stuck with unbearable tax increases followed by devastating benefit cuts.  Mr. Chairman, younger Americans have a right to know this, and I believe we must take steps now to inform them of what the future holds for Social Security and their retirement.

That is why I introduced H.R. 634, the Straight Talk on Social Security Act, along with my Democratic colleague from Missouri, Karen McCarthy.  This bipartisan legislation would require the Social Security Administration to improve the “Your Social Security Statement” sent to all non-retired workers over age twenty-five.

I am pleased with the recent efforts made by the Social Security Administration to boost the public’s understanding of the program through these personal benefit statements.  The Social Security Statement is the most significant vehicle we have to increase public understanding of Social Security.  But, unfortunately, much of the information currently contained in it is both flawed and misleading.  As a result, millions of Americans are being misinformed about how much retirement income they will actually have and about how much in taxes they will actually have to pay.

Specifically, the Statement fails to adequately inform people how the program’s future financial problems will affect the payment of their benefits.  While the current Statement hints that a problem may exist, it reassures readers that “of course” Social Security will “be there” when they retire.

Mr. Chairman, younger workers have a right to know that the future of Social Security is anything but secure.  They have a right to know that starting in 2016, the program will begin to experience massive deficits, and that Congress will have to come up with the money to pay back that which has not been saved.

It is not enough to just inform workers that changes “may” be needed.  They have a right to know how those changes will affect their retirement.  That is why this legislation requires the Social Security Administration to inform workers that after 2038, the program will not be able to pay all of their promised benefits.  For example, the Social Security actuaries predict benefits will drop by 27% in 2039 and continue to fall thereafter.

Mr. Chairman, the Social Security Statement also completely fails to address the changes that will be needed to convert the Social Security trust funds into real economic assets.  While we may want to pretend that these funds will extend the life of Social Security, we all know they are only funds in an accounting sense and can only be fulfilled with higher taxes, lower spending, or more debt.  That is why my bill would inform workers that the trust funds are not cost-free.

Finally, Mr. Chairman, the Social Security Statement fails to adequately explain Social Security’s past and future performance in terms of what it will pay back to workers for the payroll taxes it collects.  This relationship between benefits and contributions is known as rate of return.

While the Social Security Administration could not possibly provide each worker with their own individualized rate of return estimate, it can provide general estimates for typical workers born in different years.  And that is exactly what my legislation would require.

According to a recent a Social Security Administration study, inflation-adjusted returns averaged more than 25 percent annually for Social Security’s first retires in the 1940s, and are estimated to average roughly 4 percent for today’s retirees, roughly 2 percent for baby boomers, and 1 percent for those who will be born 40 years from now.  Since these estimates do not include the cost of repaying the trust fund, rates of return will actually be much lower.

Informing younger workers of this trend is absolutely crucial in helping working Americans plan for retirement, especially for low- and middle-income workers who will depend almost entirely on Social Security for their retirement income.  For these workers, Social Security payroll taxes are so high that they crowd out their ability to personally save for retirement.  Social Security is their only retirement plan, and they have a right to know that the program’s performance is declining.

Mr. Chairman, people can disagree about the reforms needed to solve Social Security’s long-term financial problems, but we should all agree that working Americans have a right to some simple, plain, straight talk on Social Security.

H.R. 3135, the Social Security Benefits Guarantee Act, is an effective means for telling today’s retirees the truth about the security of their benefits, and H.R. 634, the Straight Talk on Social Security Act, is an effective means of telling tomorrow’s retirees the truth about the problems facing the program.  Americans have a right to know this information, and I urge you move both of these bills so they have it.