# Presentation: 925629

## Saving our Future

- Congressman Pete Sessions (R-TX32)
- September 20, 2003

- Investments

- *Social Security card graphic courtesy of Economic Security 2000.

## What Social Security IS . . .

**A transfer system that takes money from current workers to fund benefits for retirees.**

## NOT A SAVINGS PLAN

**NOT A SAVINGS PLAN**
- 	You have NO ownership of YOUR savings.
- 	You have no control over where your
- 	savings go.
**NOT AN INSURANCE PROGRAM**
- 	Ordinary insurers require a certain amount of 		cash in reserves.
- 	Social Security does not have (or require) any 		reserves.

## NOT A PENSION PLAN

- 	Even FDR envisioned that retirement income should be 		based on personal savings, job created pension plans, 		_and_ social security.
- 	Pensions typically seek to find the MAXIMUM rate of 	return 		on your investment.
- 	Money must be managed to the greatest benefit of the 		pensioner; any other uses can send the pension manager to jail.
- 	Social security has no fiduciary responsibility.
- 	The Supreme Court ruled in *Flemmingon vs. Nestor*  			that you have _no ownership_ of your benefits.

**NOT A PENSION PLAN**

## Future Deficits

**2003 Dollars (in Billions)**

- Source: House Committee on Ways and Means.  Based on data from 2003 Annual Report of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds

**Short Term Surpluses**

## Why Is Social Security Facing Insolvency?

**Why Is Social Security Facing Insolvency?**
- We have fewer workers to support each eligible retiree
- Our “pay-as-you-go” retirement system won’t meet the challenge of demographic change

- 16 Workers Per Retiree - 1950

- 3 Workers Per Retiree - 1993

- 2 Workers Per Retiree - 2025

## Social Security Payroll Taxes (Retirement, Life Insurance, and Disability Insurance) of 12.4% are Deducted from Workers’ Salaries

- Self-employed persons must pay both ***employee*** and ***employer*** taxes

- *Valid for calendar year 2003.  Available from the Social Security Administration.

- Employee Retirement

- Employee Life Insurance

- Employee Disability Insurance

- Employer Retirement &
- Survivor Benefits

- Employer Disability Insurance

- 6.2% is deducted directly from employees’ paychecks and 6.2% is denied them in salary for the employer “match.”

## 78 Percent of Families Pay More

**78 Percent of Families Pay More**
**in Payroll Taxes Than Income Taxes**

- Percentage of families that pay less
- in payroll taxes than income taxes

- Percentage of families that pay _more_
- in payroll taxes than income taxes

## The Decrease in Workers Supporting Each Retiree Means Future Retirees Will Have to Live Well Beyond Life Expectancy to Get Their Original Social Security Taxes Back!

- *Employee and Employer Retirement Tax Only.  Social Security Administration, *Social Security: the OASDI Programs*.

- The Decrease in Workers Supporting Each Retiree Means Future Retirees Will Have to Live **Well Beyond** Life Expectancy to Get Their Original Social Security Taxes Back!

## Slide 10

## The real return of Social Security is less than 2% for most workers and shows a negative return for some, compared to over 7% for the market

- The Diminishing Return of Your Social Security Investment

- MINORITIES

- AVERAGE

- MARKET

## Low-Income African-American Males Would Fare Better if They Flushed Half of Their Social Security Taxes Down the Sewer and Invested the Other Half in T-Bills

- *Courtesy of the Heritage Foundation Center for Data Analysis, *Social Security’s Rate of Return, *January 15, 1998.

- Dollars

## For Low Income Hispanic Males, Social Security’s Return Is Worse than Highly Speculative Stocks and Government Bonds

- *Courtesy of the Heritage Foundation for Improving Retirement Security; a Handbook for Reforms, 2000.

- Dollars

## Social Security’s Share of the Federal Budget

**The federal government will spend over $475 billion on Social Security in 2003!**

- _2002 Budget_

**Social Security’s Share of the Federal Budget**

**Notes:**
Source:  Initial Bush budget, p. 200.

## Social Security Trust Fund vs.

- Social Security Shortfall

**$Trillions**

- Source: Social Security Administration.

**Shortfall (after full repayment of the trust fund)**

**Trust Fund**

**0**

**10**

## Raise Taxes - Unacceptable

- Reduce Benefits - Completely Unacceptable

- Make your existing
- taxes work harder
- by investing in real
- assets** **

**- Real long term solution**

## The Six Principles of Saving Social Security

- Protect current and future beneficiaries
- Allow freedom of choice
- Preserve the safety net
- Make Americans better off,                      not worse off
- Create a fully funded system
- No tax increases

## The Government Pension Offset

**And**
**The Windfall Elimination Provision**

## The Government Pension Offset

- From the beginning Social Security spouse’s benefits were intended for women and men who were financially dependent on their spouses who worked at jobs covered by Social Security.  Before the Government Pension Offset (GPO) was enacted many government employees qualified for a pension from their agency and for a spouse’s benefit from Social Security even though they were not dependent on their husband or wife.
- The offset will **reduce** the amount of Social Security spouse’s or widow(er)’s benefits **by two-thirds**.  If you get a $600 government pension the offset is $400.  Therefore if you would receive a widow(er)’s Social Security benefit of $500 it would be reduced by the $400 amount and your Social Security spousal benefit would be $100.
- Any increases in your pension must be reported to Social Security and the amount of your benefit will be recalculated.  If you do not notify Social Security and receive a higher benefit you will have to repay it.

## Current Social Security law provides an exemption from the GPO if an individual’s last day of state/local employment is in a position that is covered by both Social Security and the state/local government’s pension system.  

This has allowed individuals to claim Social Security benefits by working as little as one day in a job covered by Social Security.  These individuals in Texas paid about $3 in Social Security taxes and will receive an estimated $5,200 a year in Social Security benefits. 

The General Accounting Office estimates that use of the loophole over the last several years may cost Social Security $450 million.   As use of the loophole grows, it will undermine efforts to address the overall solvency and sustainability of the Social Security program.

On March 5th, the House of Representatives considered H.R. 743, the Social Security Protection Act of 2003. The bill prevents fugitive felons and probation/parole violators from receiving Social Security payments, while strengthening the penalties against those who defraud the Social Security system.  Regarding the GPO, Section 418 would change the “last day” rule to a longer minimum time period of 5 years. 

- This has allowed individuals to claim Social Security benefits by working as little as one day in a job covered by Social Security.  These individuals in Texas paid about $3 in Social Security taxes and will receive an estimated $5,200 a year in Social Security benefits.
- The General Accounting Office estimates that use of the loophole over the last several years may cost Social Security $450 million.   As use of the loophole grows, it will undermine efforts to address the overall solvency and sustainability of the Social Security program.
- On March 5th, the House of Representatives considered **H.R. 743**, the Social Security Protection Act of 2003. The bill prevents fugitive felons and probation/parole violators from receiving Social Security payments, while strengthening the penalties against those who defraud the Social Security system.  Regarding the GPO, Section 418 would change the “last day” rule to a longer minimum time period of 5 years.

**Addressing the Government Pension Offset**

## The Windfall Elimination Provision

- The Windfall Elimination Provision (WEP) was enacted in 1983 to remove an unintended advantage that the regular Social Security benefit formula provided to persons who also had pensions from non-Social Security-covered employment.
- The WEP primarily affects people who earn a pension from working for a government agency who also worked at other jobs where they paid Social Security taxes long enough to qualify for retirement or disability benefits.  It may also affect you if you earned a pension from any job where you did not pay Social Security taxes.
- A modified formula prevents a windfall to people who would unfairly benefit from provisions aimed at low-income workers.  Social Security benefits replace a portion of a worker’s pre-retirement earnings, and the benefit computation formula includes factors to insure that lower paid workers get a higher return than higher paid workers.  A lower paid worker will get 60 percent of their pre-retirement earnings while higher paid workers get 25 percent.
- However, the WEP negatively impacts many individuals who have worked under both Social Security and non-Social Security systems.

## Because of the problems with the GPO and the windfall elimination provision (WEP), I am a cosponsor of H.R. 594, The Social Security Fairness Act of 2003.  This legislation, introduced by Congressman Howard “Buck” McKeon of California, would amend title II of the Social Security Act to repeal the GPO and WEP.  

I feel that it is important to reward those teachers who have dedicated themselves to our children and also not to discourage those who aspire to teach.  But ignoring the GPO loophole is an insufficient and temporary fix to the problem.  Closing it will create an incentive to address the greater flaws in the Social Security system. 

I am fully committed to meaningful, comprehensive reform of Social Security, and I support WEP and GPO repeal as a part of such reform.  There are numerous viable proposals which could solve our current crisis.  With this in mind, I will support reform only if it does not cut benefits, does not raise the retirement age, and does not raise taxes.

- I feel that it is important to reward those teachers who have dedicated themselves to our children and also not to discourage those who aspire to teach.  But ignoring the GPO loophole is an insufficient and temporary fix to the problem.  Closing it will create an incentive to address the greater flaws in the Social Security system.
- I am fully committed to meaningful, comprehensive reform of Social Security, and I support WEP and GPO repeal as a part of such reform.  There are numerous viable proposals which could solve our current crisis.  **With this in mind, I will support reform only if it does not cut benefits, does not raise the retirement age, and does not raise taxes.**

**Addressing the Windfall Elimination Provision**