Joint Statement of the Hon. Jim Kolbe, a Representative in Congress from the State of Arizona,
 and the Hon. Charles W. Stenholm, a Representative in Congress from the State of Texas

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

As Members who have dedicated ourselves to promoting an honest and open debate on the issue of Social Security, we commend the Committee for holding hearings on ways to improve Social Security. This is certainly an admirable goal.  However, we are concerned about rhetoric emanating from both parties that fans political fires but does little to contribute to a responsible debate about Social Security and the need for reform.

The future of Social Security is too important to use as a political football. An agreement on legislation to strengthen Social Security will require bipartisan cooperation.  If we continue to poison the well for reform by making irresponsible claims today, we will surely leave a legacy of debt for future generations.

Guarantee Certificates

The Social Security guarantee certificates under discussion at this hearing have become quite controversial. Our concerns do not stem from any desire to reduce benefits for retirees but from a desire to have a real debate on Social Security reform.  We are concerned that the guarantee certificate legislation, however well intentioned, has distracted us from a serious discussion about the challenges facing Social Security. We should not be making promises to one group of citizens which will arouse even more anxiety in other groups.  We should acknowledge the costs of the commitments we make.

Our commitment to seniors is unwavering as is the commitment of all Members of Congress and the President. Seniors should have no doubts that we will do everything possible to ensure their financial security.  However, the best way to protect seniors and provide an adequate benefit for widows and survivors is to enact a comprehensive reform package early next year which ensures that the Social Security system is strong for those currently receiving Social Security as well as their children and grandchildren.

The Need for Bipartisanship

The Social Security reform debate has been characterized as an either-or choice between two ideological poles -- “status quo” or “full privatization.”   Defenders of the status quo argue that any reform that includes a market-based component will undermine the current safety net features and expose workers to dangerous risks. Advocates of full privatization suggest that the creation of privately managed personal accounts will painlessly solve every challenge while, in fact, they ignore existing long-term liabilities and the needs of special populations.  Both extremes make for good, albeit myopic, rhetoric and fail to acknowledge the virtue of hybridization.  The complete solution to the Social Security problem can and must combine the best of the traditional program with new market-based options.

The legislation we 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 be commended for offering a variety of reform packages that Congress can use to facilitate a discussion with the American people.

Reaching a bipartisan consensus requires compromises and tradeoffs by both sides. Democrats must be willing to acknowledge that the status quo is unsustainable and changes must be made.  Republicans must be willing to acknowledge the legitimate concerns that Democrats have about protecting the safety net features of Social Security and maintaining the progressive nature of the system.  Both sides need to be willing to acknowledge that there is no “magic bullet” or “free lunch” solution that will allow us to provide 100% of promised benefits without tradeoffs somewhere else.

In order to have an honest debate about reform, both parties must be willing to put forth reform plans that can be scored by the Social Security actuaries and the Congressional Budget Office. Those who criticize reform proposals must be willing to offer their alternative. The failure to offer a plan should be read as tacit acceptance of the “Do Nothing Plan” with all of the tax increases, benefit cuts, and debt that is associated.  Likewise, those who believe we must guarantee all of the benefits promised under current law must explain where the money will come from to fund these promises without accumulating massive amounts of debt. 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.

The Role of Individual Accounts in Reform

Personal accounts are not a magic bullet that will save Social Security, but coupled with progressive reforms to the benefit structure, they offer workers a much better deal than 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. The Directors of the Congressional Budget Office and the General Accounting Office, Federal Reserve Chairman Alan Greenspan, and numerous policy experts all have testified that Congress and the President must make tough choices to return Social Security to solid financial footing. However, individual accounts can help make the task easier for policymakers and limit the impact on future beneficiaries. Including individual accounts in a reform plan does not require deeper benefit reductions 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 comprehensive reform plans proposed by both opponents and proponents of individual accounts. CRS calculated the change in retirement income under each change by itself and in combination with individual accounts.  In each case, the 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.  The CRS report is consistent with the findings of the Commission and numerous independent analyses.

Improving Public Understanding

An agreement on fiscally responsible legislation that truly makes Social Security solvent -- without simply shifting costs to future taxpayers -- will require leadership by the President and our colleagues. We call on the members of the Ways and Means Committee to continue to engage in a serious discussion about the realities of Social Security reform.

In order to facilitate a discussion with the American people, we encourage the Committee 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 these challenges. Specifically, we ask your consideration of two proposals we have developed which would encourage a more honest and accurate discussion of the challenges facing Social Security.

Sense of Congress Resolution

Our first proposal is a Sense of Congress resolution calling for a serious and thoughtful debate on proposals to strengthen Social Security this year in anticipation of legislative action next year.   The resolution challenges Members from all sides of the debate to submit reform plans which can be analyzed and scored by the actuaries Social Security Administration and encourages the Ways and Means and Finance Committees to hold hearings on all plans that are submitted. 

In addition, the resolution sets forth several principles by which all plans should be judged.  We suggest that any reform proposal should adhere to the following principles: 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 funds in the stock market; and preserving Social Security’s disability and survivors insurance programs.  In addition, we believe that any reform plan should seek to achieve the following goals in addition to restoring solvency: maintaining a reasonable annual cash flow; reducing the pressure on future taxpayers and on other budgetary priorities; addressing the fact that many workers can expect to receive very low, if not negative, rates of return on their Social Security taxes by providing competitive rates of return; and strengthening and preserving the safety net for vulnerable populations and ensuring that retirees who work their entire lifetime will receive a benefit that keeps them above the poverty line.

Increased Information for the Public and Policymakers

As Congress begins to review and debate the proposals put forward by the Commission, all participants in the debate must be held to high standards of accountability.  We respect the views of those on both sides of the political spectrum who have criticized the proposals being considered by the Commission.  However, this criticism will ring hollow until critics present constructive alternatives that can be scored by the Social Security actuaries.

Our second proposal is based on a report issued by the Social Security Advisory Board Technical Panel outlining a variety of recommendations about how we measure the problems facing Social Security, how we talk about those problems and criteria for evaluating reform proposals. Our proposal contains three basic elements drawn from the Technical Panel report, which would provide for a more informed debate on the challenges facing Social Security and our options for addressing these challenges:

• Require an annual report from the Commissioner of the Social Security Administration which would provide more information regarding the financing shortfalls facing the Social Security system and a presentation of the levels of benefit reductions or tax increases that would be required under current projections.

• Direct the Commissioner of Social Security to develop methodology to evaluate the impact of Social Security reform proposals beyond simply determining whether or not a plan restores trust fund solvency. Our proposal would direct SSA to consider issues such as the fiscal health of the system throughout the entire 75 year period, the effect of the reforms on the rest of the federal budget, the impact of the reforms on national savings, the amount of retirement income that would be provided under the reforms compared to the benefits that current law can fund, and the impact of the reforms on poverty rates among the elderly.

• Require an annual report from the Congressional Budget Office regarding the impact of the Social Security system and Social Security reform proposals before Congress on the federal budget and national savings levels.

This type of information would improve the quality of the Social Security debate tremendously because the facts would be clearly established and stated.   The reporting information called for in our proposal would not advantage or disadvantage any particular approach to reform.  Rather, it would simply require that current law and alternate reform approaches be graded on a level playing field that recognizes their overall impact on the federal budget, as well as their effects on elderly poverty, national savings, and other considerations.  

Enron and Social Security

Increased public understanding of the problems plaguing Social Security would be particularly salient as critics claim that proponents of market based reform want to “Enron” Social Security.  The Enron debacle is not about the inherent risk of private investment; it is not about whether Social Security should be reformed; it is about lack of diversification, poor accounting, and likely fraud – all three of which are being investigated by numerous Congressional committees and will be litigated in the courts.

Under the Social Security reform plan we introduced and all three plans put forward by the Commission, workers would not be forced to move their Social Security contributions into the stock market.  They would have choice – something severely lacking in the current Social Security system and in the Enron pension plan. Opponents of individual accounts propose collective investment of the Social Security trust funds, which would force all workers to put a substantial part of their Social Security funds into the stock market and would deny them the right to diversify their holdings.

Individual accounts provide the best possible check against abuses by corporations, the securities industry, or the government by putting the decisions in the hands of individuals.  If people don't like how their funds are being managed, they can vote with their feet and put their money elsewhere.  That will make the government far more accountable in how it handles retirement funds.  By contrast, under collective investment, individuals have no control over how their money is invested and no way to hold the government accountable.

We are particularly concerned by apparent misinformation received by Enron employees about the health of the company. Similarly, we are concerned that Americans are receiving erroneous information about the health of the Social Security system. The truth is that Social Security is broken. We are not saying that the sky is falling today; however, in the absence of reform we will leave little to our children and grandchildren but a mountain of debt or to retirees broken promises and reduced benefits.

“The Radical Center”

We have tried to stake out the position of the responsible, radical center. 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.

We have never claimed that our plan is perfect. Each of you could go through our plan and select individual items to criticize – either we went too far or not far enough. However, we encourage you to look at the 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 will never reach a bipartisan consensus to pass legislation.

Reaching an agreement on an honest solution to the long-term challenges facing Social Security will be difficult under the challenging circumstances our country now faces, but the difficulty of our task must not prevent us from confronting it.