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

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 invitation to testify before this Committee on Social Security.

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.

However, the President 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.

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".

I believe that the Commission sought to confuse and deliberately 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 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.

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. Unfortunately, many women 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 the burden of raising children and caring for elderly parents. As a result, women get smaller social security checks. 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 reexamine 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 divorced elderly women.

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

Privatization is unfair, unworkable, and unnecessary.

Why is privatization unfair? 1) 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. This would have a dramatically negative affect 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. That is just plain unfair. 2) Privatization 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. It will increase the disparity in the system. 3) 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? 1) Privatization cannot restore solvency to an insolvent system - diverting 2% or 4% of payroll to individual accounts simply makes the funding problem worse. It would hasten the insolvency of the system. 2) 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 system solvent with or without private accounts. 4) The transition costs to a private system are enormous. Furthermore, $1.6 trillion of the surplus is no longer available to finance the transition because of the tax cut. 5) There are large administrative costs to setting up millions of small investment accounts. Why not simply put that money into Social Security directly to make the system more solvent?

Why is privatization unnecessary? 1) 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. 2) The Trustees predictions have been wrong (overly pessimistic) every year for at least eight years. Each year they have postponed the date of Trust Fund insolvency despite their statements that the situation is getting worse and worse. A reading of their reports from 1993 to 2001 show the system getting healthier every year without any changes being made to the system. 3) 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. I would be happy to go into more detail if you wish during the question and answer period.

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 adverse that they don't make any money, and they don't solve any problems. In order to minimize risk, these plans limit investments to lower risk bonds and mutual funds. Fine, but then the rate of return is smaller, and the accounts are less likely to make up for the cuts in guaranteed benefits needed to set up the accounts. Privatization just doesn't add up. And this ignores the transition and administrative costs.

Nevertheless, it is clear that this Administration and most Republicans in Congress want to privatize social security, which is a fancy way of saying they want to cut benefits and raise the retirement age. Presumably, they understand what they are asking for. I hope the American people understand their plans as well.

I must add a word about Enron. Tragically, many Enron employees lost millions of dollars in their retirement funds because they were invested in the private market. Imagine if their Social Security funds were invested in Enron as well.

Some people made millions off of Enron, but many more lost everything. That is what happens in the private financial markets. Some people win and some people lose. People who invest need to understand these risks. As Members of Congress, we are the real trustees of Social Security. We know that everyone cannot hit it big on the stock market, and that many must lose.

I believe if given the choice, most Americans would choose a rock-solid Social Security guarantee, to a stock market gamble.

Thank you, Mr. Chairman.