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

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

Mr. Chairman, Members of the Committee, thank you for inviting me to testify before you today.

As I look at the character of the Congress, I am beginning to notice that I’m not exactly the youngest one around. I was elected in 1988, which means that I’m about 116^th in seniority around here. So about three fourths of the Congress has only been in this institution during the good times - when the economy has been on a roll and the Congress could avoid tough choices. But some of us know what a recession is all about. Some of us understand the value of security in an uncertain world. Some of us know the value of a defined benefit and an insurance program like Federal-State Unemployment and Social Security. I only hope that the new comers will listen because they will be the ones who will have to live with the decisions we make in regards to Social Security.

With all do respect to my good friend from Austin Mr. Doggett and to Mr. Johnson, I think there must be something in the water that leads some Texans to make really big promises. Good ole Lyndon Johnson stood before the country and told us that he had no intention on sending our boys to Vietnam, the first George Bush asked us to read his lips while he increased taxes, the second George Bush promised to increase defense spending, cut taxes, and balance the budget, and Enron promised its employees a secure retirement while the company was going bankrupt.

So here we are today deliberating on Mr. Armey’s plan to promise seniors that there will be no reduction in their Social Security benefits.

When Mr. Armey and other Republicans suggest that Congress, to the tune of 47 million dollars, send out certificates to seniors that say that they will be guaranteed their Social Security benefits it sounds to me a lot like another Republican Contract with America. I believe that contract stipulated a balanced budget and guaranteed an honest accounting of our federal budget by implementing zero baseline budgeting. In fact, it was just a short time ago that Republicans and a Texan candidate for President promised not to spend one thin dime of the Social Security surplus by putting the trust funds in a lockbox. It doesn’t surprise me that the Republicans have been continually losing seats since 1994.

 What does surprise me is this thinly veiled attempt to pave a political path toward privatizing Social Security in the midst of an economic recession. Over the course of the past year and a half, the stock market has collapsed and defined contribution plans have defined an inadequate retirement for millions of Americans. Just last week we were all upstairs at a Ways and Means hearing to discuss the problem with the increase in risky defined contribution pension plans and the decline in safe, government insured, defined benefit pension plans. In fact, many of the witnesses and Members emphasized that the security of a person’s retirement relies on the certainty of Social Security benefits, because as tempest of a collapsing economy illustrates, the stock market is no safe harbor.

Some of my colleagues may argue that if we allow people to invest their payroll taxes in individual accounts that people will get a better return on their “investment” than Social Security. This is a false argument. First, Social Security is not an investment, its insurance. Second, their predictions are based on averaging those who win in the stock market and those who lose. Nobody loses under Social Security. Privatizing the program would allow hundreds of millions of Americans to lose their retirement investments. If anyone doesn’t think it’s possible, just take a look at what happened between January 1973 and September 1974. The stock market declined by 43 percent and did not return to its 1972 high for almost 10 years. Or, let’s look more recently. Between March 2000 and April 2001, the S&P 500 fell by nearly 30 percent. If Social Security had been privatized, and a worker had his individual account invested in a fund that mirrored the S&P 500, his private retirement account would have declined in value almost 30 percent. Is that the kind of security that privatizers are supporting?

Most privatizers will say “no” they are “championing privatizing plans that would guarantee benefits to seniors.” But all of us know that the only way you can guarantee benefits is by obligating money from the Federal Treasury, which is exactly the program we have today. There is a reason that the Secretary O’Neil doesn’t invest any federal trust funds in the stock market, it isn’t safe or prudent.

Aside from the fact that privatizing Social Security is neither necessary nor proper there is another thing that troubles me about privatizing this program. The Constitution expressly gave Congress the power to regulate commerce. If, however, our nation’s most important social insurance program is invested in private enterprise, how will Congress balance the interests of the capital markets, consumers, and a nation, against the interests of individual Social Security accounts? That is, if everyone’s Social Security was invested in Microsoft, would Congress have advocated for the Justice Department to review an antitrust issue? If everyone’s Social Security was invested in Enron, would Congress try to somehow bail out a bankrupt and hopeless company? For those of you who think that Congress is already employing too much regulatory power just think what will happen when 300 million Americans want to reduce the risk of their investments by regulating or not regulating commerce. 

Social Security is America’s most successful government program. On its own, it lifts 11 million seniors out of poverty. It is universal, efficient, portable, and provides seniors with a defined benefit. But, as all of you know, the changing demographics of our workforce are placing an enormous burden on the program and we must address the long-term solvency issue the program faces. This is not an insurmountable obstacle. Just last year, the Congress passed a tax cut that, if made permanent, would double the 75-year budgetary shortfall that Social Security faces.

If Mr. Armey and his supporters would retreat from their efforts to privatize Social Security, we could, I think, quickly find a way to address the financial challenges the system faces. But, unlike Arthur Anderson, we have to be honest about the accounting and budgetary assumptions we use, and we’ll have to quit substituting a revenue stream based on a progressive tax with a revenue stream that relies on a regressive tax by actually putting the Social Security Trust funds in a real lockbox. Thank you.