portman from ohio from the ways and means committee and indeed the house of representatives to become the united states trade representative we had a vacancy on the committee the structure within the republican conference m chair presents that to the committee and with that i would like to move to the principal order of business before the committee and that is to begin to examine the particulars  within the area of our jurisdiction of social security the last time this committee looked seriously at social security was in one thousand nine hundred three to give you an idea of how much the world has changed all you have to do is look at this committee there are only three only member of the committee currently here on the social security subcommittee at that time to a very great extent our our effort was to literally save social security hand in fact had to delay the call us to be able to meet payments that truly was in any the nation of the term crisis what probably disappointed me the most was that notwithstanding our response to meet that need we never did do what i thought we should have done at that time was to examine some of the i think you could use the term inequities that occurred over time as society aged and the way in people the way in which people work especially women terms of the home and outside the home the age difference in terms of a long jevon a of our seniors and a number of other aspects that were internal to social security that probably needed adjustment at that time and that now is the chair of ways and means i feel very strongly about that we need to address plays that a number of our witnesses address them specifically and i will be asking questions directed at what some will think our secondary issues but if we're going to look at this stuff once every quarter of a century i think we do need to look at how much the society has changed and how we need to change the structure we're going to do it the full committee and we're going to do it at the subcommittee and  recognize for the remainder of my time the gentleman from the wheezy and the chairman of the social security subcommittee thank you mr chairman i commend president bush for focusing on this issue and bringing the attention of the american we hope will provide the committee with sufficient options information knowledge to address the problems associated with the social security program  in the past we've had a pay as you go program funded by payroll taxes the current generation of workers to pay the current generation of retirees and in the past that's been a reasonable approach due to the large number of workers compared to the number of retirees unfortunately for those who might really like the pay as you go system demographic changes are taking place have taken place and are continuing to take place in our country which in my opinion makes the pay as you go system less viable and perhaps even unsustainable so i think it's incumbent upon this committee as a committee of jurisdiction to examine ways of financing the social security system that are smarter better particularly in view of the burden on future generations that a page you go system might place so mr chairman i look forward to hearing from these distinguished gentleman who have on doubt only spent many hours thinking about the so security system and how to finance it and look forward to their testimony thank the gentleman and some instances it's literally years and that's why we're privileged to have the witnesses in front of us gentleman from new york thank you mr chairman most of my time i will be yielding to congressman levin to deal with the question of social security i really personally  politically think that this sensitive issue screams out for bipartisanship i think the president needs sixty cities in sixty days did more to polarize i thank you for your bipartisan approach to this panel since you have six people supporting private accounts and two that not this is a long way in terms of working together but  we've got to have a problem and i think we're starting this off as a problem by not discussing with any of the members that are actually going in by making privatization the one issue that we truly believe is like that commitment and really smooth the way for the middle class benefit cuts that are inherent in private accounts our chairman mr thomas is now suggesting that we surround this basic issue with the sordid other issues but in this case and i want to emphasize the democrats and the american people will not lose sight of the tree being cut down in the middle of the for a brief look at history the president when he ran some decades ago was for private accounts and in the ninety's mr thomas or chairman introduced legislation to private security and under that have for the payroll taxes would have been diverted into private accounts guaranteed to show security benefits would have been cut in half in today's mr wrangle mentioned his six witnesses brought forth by the republican majority of all supported privatization of social security so let me just clearly with the primary goal here ministration we stand in opposition to that united with the american people not because we oppose it because opposed to bad ideas including the benefit cuts the diversion of social security money trillions to risky private accounts and then the added benefit cut to the guaranteed benefit that would come from the offset and also the huge generations and no amount of tweaking or combining it with other provisions can make that a good idea with private retirement programs and we've heard this as to work in a bipartisan way as was done twenty some years ago to strengthen social security and to ensure that it continues providing guaranteed benefits in the future chair thanks the gentleman on the chair looks forward to working with gentleman from michigan in preparing a member's panel for which he can provide members of his party to discuss their plans for saving social to i want to thank all of you because taken in its entirety it is one of the best seller buses i've seen in going over the arguments pro and con the chair of the best of his ability would allow any of you to finish your sentences at this hearing that wasn't necessarily the case that other hearings that i've noticed in terms of an attempt to discuss programs members are anxious to question you where each only going to have about five minutes i don't know how long some of you can stay the chair is prepared to stay as long as is necessary to have as full and complete a discussion as possible and i would making comments after you've provided us with your oil testimony i will say to all of you that without objection your written testimony will be made a part of the record and i'll just begin over to my left and we'll just move across the panel mr tanner there is no indication that the fact that you have a temporary location  means anything about your presentation is just that this is one of our larger panels but the chair thought that it would be much better to have all of you together so you can actually have a dialogue among yourselves as well rather than say run two panels and then have someone say the previous panel said etc so the chair apologizes but i think at the in the end we'll have a much better chance of having as followed discussion as possible in the limited time frame that we have and with that  us in any way you see fit with the time that you have thank you mr chairman thank you very much for the invitation to be here today i must say it's a pleasure it's a particular pleasure since on the floor of the other body yesterday i was referred to as the late larry lindsey and i can assure you that it's a pleasure to be here alive and kicking it's surprising to me that is the discussion of social security promoting national savings has not been at the center of the debate last year we americans spent on consumption investment and government a dollar six for every dollar we are and we balance our collective checkbook only by selling assets we own and by borrowing directly from foreigners including institutions like the people's bank of china to whom one might prefer not to be increasingly indebted because this borrowing is directly tied to an ever growing trend for us to consume foreign produced goods at the expense of american production done right the reform process offers enormous potential for improving our savings the first part of any credible social security reform plan is to permanently eliminate the actuarial deficit in the system currently the system has promised to pay out in present value terms eleven trillion more than it will collect in revenue there are a number of ways of closing this gap but with different implications for national savings for example it would take a twenty eight percent increase in payroll taxes in acted now to make sure that the government collected all the money it needed to meet benefit promises over time this would have three conditions were met temporarily increased savings first the government would have to not spend the extra money non retirement spending seconds the adverse effects of the tax increase on the economy must not lower government revenue from non payroll sources and third private citizens faced with declining disposable incomes must cover the entire shortfall from reduced consumption not by increasing their savings it is unlikely that these three conditions were met but even if they were the savings increase would be temporary one social security payments caught up with enhanced revenue the plan would forever be moving money from one set of people who would spend the money workers to another spend of the set of people who would spend the money retirees so even in the best case a tax increase would do nothing to increase national savings over the long run but because these conditions are unlikely to be met a tax hike would not produce the intended amount of increase national savings even in the short run and would likely lower national savings in the long run the combined adverse effects on existing personal saving and the disincentive effects on working on an entrepreneurship are likely significant but this would be particularly true of ideas to raise or eliminate the wage cap the term and both social security taxes and social security benefits for example martin feldstein calculated that eliminating the cap would reduce net federal revenue since the behavioral response by entrepreneurs to a tax hike that took their tax rate back up to nearly fifty percent would reduce federal income tax revenue as well as produce lower than expected payroll tax receipts moreover such entrepreneurial income would be taxed and would have funded business fixed investment the second way to bring the system into balance is to change the formula for determining benefits now in a way that gradually reduces the current growth rate in real benefits currently social security projects a fifty percent increase in benefits even after inflation over the next half century the system would be brought into balance by limiting future benefits to the level of benefits enjoyed by those retiring from the system now while fully indexing those benefits to inflation this could be coupled and i would think it's a good idea with a generous minimum social security benefit thus making the system both more progressive and providing a better safety net with little adverse effect on national savings the eleven trillion dollar saving to the social security system by doing this could be viewed as a one time improvement in the federal government's balance sheet by that amount with an equivalent reduction for future retirees as benefits would not rise as fast as they might now expect still national saving would likely rise as a result in order to maintain the level of consumption retirement that the government previously promised but could not deliver individuals would have to gradually increase their personal savings during their working lives this might not be easy for some folks so a second part of any social security reform plan that promotes national saving should include a personal account plan that helps people save and learn the benefits of saving by watching their own accounts grow most personal account proposals including the president's would allow workers to use a portion of payroll taxes currently collected and the right direct them into a personal account it's been widely noted that any shortfall to meet current benefits would be met by government borrowing and therefore that personal accounts are funds that are funded by government borrowing do not raise national savings directly it simply increases government borrowing to fun private saving what is not widely understood or reported is that for individuals to establish such an account his or her regular social security benefit would be adjusted prospect of lee by the amount of any payroll tax that was diverted into the personal account plus interest as a result there is no added strain on social security reese in fact the system as a whole is made better off since funds are automatically transferred from years where the system has a surplus or a relatively modest shortfall two years when the shortfall is much bigger properly designed social security personal accounts strengthen and do not weaken the solvency and safety of the social security system so long term that it will get a don't n z let me indicates injured first and all of you really want to put a pound and a half of sugar in a one pound bag that hopefully as we discuss the other points will come out but to be fair because i'm going to hold members to five minutes as much as i can if he'll kind of sum up the chair would appreciate i will do that sir what i would recommend as a personal account plan to promote savings is that what we have is individuals contribute an additional contribution that that be matched in a progressive way with their from the government revenue the resulting accounts would build up much more quickly generate more earnings and provide far more funds for retirement the employees contribution would not affect social security defined benefit in any way but as in the president's plan the social security system as a whole would be made would be made whole for any diversion of existing payroll taxes this proposal is not a carve out nothing is carved out or removed from the social security system the dollars allocated to personal account impose no additional strain on the system this proposal is not an add on there is no new entitlement in fact adding yet another entitlement to our system would be among the worst things we could do for national savings so given the critical importance of saving for a nation's future i think this approach is the best way of promoting indexing my proposal and then i would address some issues that have been raised about that proposal of progressive indexing divides workers into three main groups low wage workers high wage workers and me wave which workers low wage workers would be every wanted twenty five thousand dollars an average career earnings and we would preserve totally all of their scheduled benefits we'd also preserve everyone's benefits who is in retirement or who would retire before two thousand and twelve high wage workers would be defined as one hundred thirteen thousand in average career earnings and higher and we would price index their wages their social security benefits so they would grow they would grow but they would grow more slowly than the current schedule and everyone in between the median wage workers would receive a mix of price and wage indexing that means that all of them would have their benefits grow more than the c p i but not as much as the current schedule what's the rationale for this proposal i believe that when social security was passed there were no was roughly fifty five billion and if we include all retirement programs it was one hundred billion in that year alone most of those tax subsidies go to high wages and to some degree middle wage workers and so i believe in order to create neutral government support among wage groups we need to do more for low wage workers and social security because very few of them have retirement programs like for one k s or iras and they're totally dependent on social security now three main questions have been raised technical questions i deal with in my testimony one is some people say well it's nice that you protect the low wage worker but what about the middle wage worker at twenty five thousand dollars in career earnings that constitutes roughly thirty percent of all workers who retire in the united states and if we look at the median wage worker i think it's it's really too easy a criticism and i think an unfair criticism to say that that those people are going to get less than scheduled benefits if we have a large deficit and we protect low wage workers we're going to have to grow the benefits lower for someone if we look at the median wage worker in two thousand and forty five yes it is true that person would get under progressive indexing sixteen percent less than the schedule of benefits but if the system was not subject to a major reform there would be an automatic across the board cut at that point and that person would suffer a twenty seven percent decrease in benefits so we really need to think about it in that way and another second criteria is purchasing power in two thousand and forty five under progressive indexing the median worker would be looking at a twenty percent increase in the purchasing power of their social security benefits relative to today so yes there is a reduction from the schedule but it's actually much less than if the system defaulted and most importantly for almost all workers under progressive indexing they would get a substantial increase in purchasing power secondly is people say well i would like to have mild or mild or read actions in from the schedule in the middle wage workers and i think that is a fair point it's a political point that you'll have to address i think we have to just be realistic about what are the other alternatives i've suggested in my testimony that you could have a milder version of progressive indexing if congress were willing to do something on the retirement age and i suggested for instance between the years two thousand and fifty five and two thousand and seventy nine you could move the retirement age back gradually from sixty seven to sixty nine that would be consistent with longevity of expectations and it would allow you to put less freight on progressive indexing we also know that people have suggested increases in payroll taxes more revenue into the system and  think it's something that can be seriously considered but people need to be realistic about how much you could get from various payroll tax increases for example if we were by two thousand and twelve the year progressive indexing begins if we were to raise the payroll tax base from ninety thousand two hundred fifty thousand and apply to twelve point four percent that closes roughly one quarter of the deficit of social security so we would still have to do substantial amount of work on the benefits side i believe that such an increase in the base and ninety to one hundred fifty thousand is unfair to the workers in that wage group and that a fairer way to do it would be to have a much lower number like two point nine percent and have that applied from ninety thousand all the way up to include all earnings roughly on the medicare model but again that would only reduce the long term deficit by about a quarter so we have to get realistic that even if we have more revenue in the system which some members want to do we still would have to come by and that was some benefit constraints the third issue and it's clearly a most controversial issue is a number of congressmen have made clear is the personal account i've shown in a number of papers how progressive indexing could be combined with the two percent account along the lines that the president has suggested but i want to make clear and i've tried to in my testimony that progressive indexing can stand alone it alone increased closes seventy percent of the long term deficit of social security going from three point eight trillion to one point one trillion or it can be combined with various sorts of personal accounts i strongly believe that it's useful as part of a package to have personal accounts because it's very difficult to say to people well we're just going to have some benefit constraints and some payroll tax increases but i think we need to be creative in thinking about the personal accounts i know chairman thomas has suggested that we broaden the discussion and i've tried something that would be matched with slowing the growth of benefits of high wage workers we could also increase the low income tax credits that are now available for people roughly below thirty or thirty five thousand and we could expand that to help the median workers and lastly i would say that we can take this idea of a two point nine percent surcharge above the base and we could think of it in two parts we could think of it as one point four five percent going into an ira but if people didn't want to do it if porkers didn't want to do it they could opt out so i think you could think of this one point four five percent as applying as part of the payroll tax surcharge above the ninety thousand dollars base and you could also think of a similar thing applied to all workers all workers would have one point four five percent presumptively put into an ira but if they didn't want to do that they could opt out this would be a way in which we could encourage retirement savings get over the inertia that a lot of people have in retirement savings and help build up these other sources of retirement income if as i as i think we will have to in these projects there's a tendency in many cases to move right to restructuring the plan without stepping back and thinking about the principles that are trying to be achieved in doing so and in my prepared testimony i actually lay out a set of principles  that you might consider i arrived at these by considering the historical goals of the been behind the system one thing many people do not realize is that franklin roosevelt played an extremely active role in formulating his proposals on social security one aspect of his recommendation was that was most important to him was that the system be funded as benefits were accrued he said to do otherwise would lead to massive unfunded obligations that would burden future congresses unfairly the original legislation called for substantial funding of the pension obligations yet f d r s wishes were never fulfilled some policy makers wanted to use trust funds to increase benefits to early recipients others were concerned that the accumulated trust funds were not true funding that the money was not being saved by the early one nine hundred fifty s the system was running on a pay as you go basis this issue arose again after the one thousand nine hundred three amendments has arisen as a trust funds have grown to more than a trillion and a half dollars yet few people believe these assets are true pension funding social security today provides four kinds of insurance for active workers it ensures that this protection be significantly altered it also ensures against disability while this program deserves careful review because it itself is underfunded and because it's still relying on a definition of disability that is now a half century old and because there are significant administrative problems no one is suggesting that we eliminate the sort of protection from our system it ensures against bad labor market outcomes in that it provides relatively larger benefits to low wage workers this is a form of insurance that is a public good and will only be provided by government if anything this form of insurance should be bolstered it also ensures all of us against our own inability or unwillingness to begin preparing adequately for our retirement needs on a timely basis it is this element of the system that f d r was adamantly committed to funding and i believe he was absolutely correct in this insistence it is here more than any other element that i believe our currently our current system is badly flawed leaving aside today whether leaving aside whether today's trust fund is real funding according to the social security actuaries last year the value of accrued benefits already earned under the system increased by one trillion dollars more than the increase in the trust fund balance as f d r said this is unfair to future generations some people argue that the transition costs are moving to a system that accumulates assets and allows them to be sequestered from other governmental operations will create massive transition costs they're confusing the transition costs with the current system with the costs associated the reduction in benefits or increases in taxes in order to balance the system we have a four trillion dollar transition cost to deliver on current law the cost of the sort of individual accounts the president bush's proposed by comparison is trivial as i show in table five in my prepared remarks having studied the system really a quarter of century now i am totally convinced that franklin roosevelt was extremely prescient in anticipating our current difficulties now in because we now know that f d r was right and are paying the price for not living by the insurance principles that he demanded as the basis for social security  claim that we don't have enough money left over for our children for education for young adult men and others whose real needs are growing to remain attended right now our legacy is typically a government to our children whose almost population is scheduled to be on social security people already retired for about one third of their adult lives and that percentage is growing if people retired for the same number of years as when he was young they would retire a seventy four today at about a seventy eight in another sixty years that is one hundred fifty years approx leave when the system was first built every year larger shares of benefits are going to those who are middle age and smaller shares are going to those who are owed i have big top officials from the white house to the a a r p to take not take the retirement age off the reform table and this is an analytic point it's not a and it allows us to devote more resources to the truly one reason is that people work longer and there are more revenues in the system to be distributed for similar reasons if there are to be benefit cuts an increase in working years causes among the least hardship of almost any benefit adjustment again because there are more revenues in the system now admittedly some groups have shorter than expected life expectancies and we need to be concerned about them but come on it is hardly protecting them to make it a national priority to give you and me and those among us who are healthy twenty twenty first and a twenty fifth year in retirement so that we can supposedly protect the vulnerable the way to protect vulnerable groups is to target provisions to them through things like minimum benefit now are related means i believe that we could increase the labor supply and make your job of reform easier to backload benefits or that is to provide higher benefits to those who are truly in exchange for lower benefits for those who are who are that younger a second major concern i raise in my testimony is that social security is often quite unfair single heads of household including these welfare recipients whom we have now decided to work in or couples face significant discrimination in the system each can receive hundreds of thousands of dollars less in benefits than people who pay less children later in life these problems can be addressed by applying to middle and upper income retirees the types of equal justice benefit rules that we apply in private pension and again through devices like minimum benefits we can actually improve the lot of the vulnerable at the same time a third approach to reform is to change the default regardless of what other social reform is undertaken some rule should be adopted that automatically react to projected deficit with balancing increases in retirement ages and all reductions in the rate of growth of benefits for higher earning workers and last a final set of proposals attempts to integrate in some tension and employee benefit reform especially finding ways to increase pensions for lower and middle income workers one conservative liberal compromise that has many side benefits would be to combine a higher wage base for social security with a cap on the inefficient tax subsidies now going for health insurance in conclusion we can and should fix a system that now favors middle aged retirement that reduces the share of resources every year that go to the truly that discriminates against single heads of households and working couples and that by default automatically reduces the share of revenues available for children and for working families thank you very much welcome back time a chairman mr chairman and members of the committee many many memories of time spent in this is sturrock room this room has been witness to many historic events when members of congress with differing views came together for the common good there are sharply divergent views today on how to proceed on social security and my remarks today are designed to make clear my very deep concerns about the two key proposals now being put forward by the administration my hope however is that as a debate unfolds that this room will again be witness to action that brings us together for the common good the first proposal of course relates to the privatization of social security administration has proposed that these private accounts be established and then paid for through cuts in future social security benefits some workers may do better than current law and some worse the winners and losers will be decided by the market in the case of a death of the worker the private account would be passed on to heirs but so would the future social security benefit cuts it's therefore also entirely unclear which spouses or family members will be better off or worse under this scenario with privatization trying to retire at a time a down market conditions can be a very risky proposition and trying to buy an annuity at a time of economic instability can also be a risky proposition frankly i would hate to see a future u social security commissioner urging america's older workers to just keep working till the markets come back social security ought to represent a foundation of support that can be counted on in retirement no matter what happens to the markets now the white house has argued that current retirees will be unaffected by privatization proposals do not in any way question the sincerity of the white house on this matter but the hard reality is that redirecting current payroll tax revenues erodes financings for social security even if those revenues are somehow made up through trillions of dollars in government borrowing these changes to stabilize social security's current financing mechanisms and kaala the question whether and how benefit commitments made to current retirees will be made in the years ahead privatization is simply not a safe bet for current retirees the president is also suggested that we change over to a system of sliding scale benefit reductions to reduce future benefit commitments about seventy percent of future retirees those with earnings over twenty thousand a year would face major cutbacks replacement rates would plummet in addition many lower income survivors divorce spouses and others would see their benefits reduced once fully phased in almost all workers would receive the same benefits regardless of lifetime earnings this is a dramatic shift in social security policy because it breaks the link between what workers paid into the system based on their earnings and what they earned in social security benefits now it's true that part of the proposal exempt low income workers from this aspect of the proposed benefit cuts and i want to point out that the core objective of progressive reform is basically sound to make security benefit structure somewhat more progressive and to soften the burden on low income workers and restoring solvency in addition people with higher earnings are on average living increasingly longer lives than lower income workers so higher income workers are receiving an increasingly higher share of benefits over a lifetime while i've argued that modest benefit changes could be made in this area so security benefit cuts of the magnitude contemplated by the president's proposal i believe are inappropriate and risk the long term economic security of the middle class lastly combining private accounts with the sliding scale benefit cuts as proposed by the white house would lead to even more drastic cuts after paying a lifetime of payroll taxes into social security millions of persons would receive little or no social security defined benefits this is due in part to deep and broad middle class benefit cuts coupled with the fact that private accounts would be paid for through even deeper reductions  defined benefits if adopted where would such a policy lead us i believe the long term sustainability of the social security retirement system would be in peril if such an approach was enacted this is not empty rhetoric i believe it from the bottom of my heart what should we do first and foremost i do believe i do not believe the progress will take place until the issue to drop privatization has been made we should drop consideration of privatizing part of social security once privatization is off the table with added retirement savings is desired and it should be it should not come at the expense of social security second congress and the administration need to come to general agreement on whether added sources should be brought to bear to resolve the financing gap in addition in agreement is needed on the overall magnitude of the problem that you're trying to resolve i'm reminded of president clinton's words after the failure of health reform he bit off more than he could chew i urge the committee not to fall into the same trap rather than looking for permanent solvency by trying to solve a potential problem the may exist in twenty and twenty one hundred i urge you to establish a more modest goal of success that would clearly be more easily achievable frankly no one knows what our fertility rates or economic growth rates will be like one hundred years from now third once privatization is no longer under consideration i believe the congress and the administration need to come to agreement on the overall proportional mix of benefits and revenue changes needed strength insolvency at that point coming up with the detailed proposals for change well clearly still a significant task is one that i believe can be accomplished taking into account the need for a more progressive benefit structure and fourth reform must be truly bipartisan during my tenure as commissioner social security i advised the clinton administration and members of congress on both sides of the aisle that a strong coalition for change must be truly bipartisan i do not believe that changes should be enacted now as some of recently been advocating through a strong majority of republicans bust response sliver of members from the democratic side of the aisle changes to social security must represent all americans any other approach would only sow the seeds for future discord when a long term resolution of this issue is what the public really  in short let's all come together and solve a manageable problem not create a much bigger one by privatizing social security let's keep the word secure in social security for current and future generations thanks very much doctor committee that i submit for the record and i do so without objection in my written statement i explain why we believe the only way to make social security permanently solvent is to allow workers to invest about half the payroll tax through large personal retirement accounts i point to the bill introduced by committee member paul ryan h r seven hundred seventy six of how contrary to conventional wisdom a properly designed sufficiently large personal retirement accounts are the solution to social security solvency problem i call the committee's attention to the way the ryan bill improves retirement benefits for all workers and eliminates social security's long run deficits without cutting promised future social security benefits without raising taxes and without hiking the retirement age i also explain why again contrary to conventional wisdom the transition to fully funded personal accounts is similar to a corporate work no new debt is required the existing debt is simply refinanced to provide time and to free up cash to restructure the operation making it more efficient and more productive in the future so that it is capable of providing better retirement benefits while repaying all of the debt part of that restructuring should be spending growth restraint in the rest of the budget and tax reforms to improve the federal tax code i show in the statement why the notion of so called transitions cause is a fallacy and how misconceptions about the nature of social security as it has evolved through the years have led the debate over personal accounts into what i believe is now a political i conclude that in the current political climate it's highly unlikely that congress will be able to generate a sufficient bipartisan consensus this year to fix social security permanently and that a to going to force too much too soon before the time is ripe is likely to be harmful and counterproductive it may require another election perhaps another presidential election before the country is ready to embrace comprehensive reform that transform social security into a pre funded market based retirement system based on personal retirement accounts fortunately it's not necessary to solve the entire problem this year what congress can do and i urge the committee to take the lead in doing is to make a down payment on solve by stopping the twenty year old raid on the social security surplus and devoting those surpluses and interest t personal retirement accounts stop start the account the federal government takes the social security surplus each year and uses that money to help finance all of its other programs from foreign aid to welfare the time is come to stop this inexcusable raid and return the surplus to workers to start their own individual personal accounts the trust fund should not be treated as a slush and the new version of the ry sununu bill introduced just a couple of weeks ago which phases in the accounts so that over the first ten years the account option is about half of its full size the ryan sununu faison allows workers on average to shift about three point two percentage points of the full twelve point four percent payroll tax into the account the total annual social security surplus is projected over the next ten years counting tax revenues and interest on the trust fund bonds is more than sufficient to finance this ryan sununu phase an option during that period mr chairman i have attached to my testimony in appendix which is a table that compare expected surplus and the first ten year phase of the reduce the congress should stop the raid on social security trust funds and use that money to finance the first ten years of ryan  the surplus money would then go to finance the future retirement benefits of today's workers as it was intended rather than for other government spending as federal reserve chairman alan greenspan has observed personal recounts are the only way to an act a true lockbox where the government can't get its hands on the money and individual workers hold the key to free up the surpluses for the accounts congress must reduce spending by the amount equal to the surplus of social security taxes or expenditures each year that would amount to about eighty five billion dollars this year that money belongs to the future retirement of working people and congress should never have been spending it in the first place the government currently pays the interest on social security trust fund bonds by issuing new bonds to the trust funds each year to the extent needed to finance the ryan sununu accounts for the first ten years those bonds would be issued instead into the accounts of each worker across the country the bonds would be back with the full faith and credit of the united states government and be marketable workers consequently would be free to choose to sell those bonds on the secondary markets and invest the proceeds in broader mutual funds budget process reforms over the next ten years contained in the ryan proposal even the smaller accounts adopted for the first ten years would make a substantial down payment on solving by reducing long term debt mr chairman it's time for congress to focus on what social security reform should be about providing a better deal for working people it's time for congress to stop the raid on social security and use the surpluses to start personal retirement accounts thank you thank you very much and dr hirmand thank you mr chairman and members of the committee for inviting me here today as you move forward on social security and pension  reform i'd like to propose that you be guided by four goals the first is a secure retirement the second is ensuring the solvency of social security the third is reducing our debt both over the next decade in the decades to come and finally increasing our perilously low national savings rate social security and pension reform can play a role in furthering all four of these goals and it's somewhat better to act sooner rather than later but even more important than acting in haste is to first of a the hippocratic oath first do no harm any proposal that moves backwards on any one of these four goals no matter how worthwhile it may seem i something that i don't think this committee should move forward on in fact one of the main proposals on the table is one that would move backwards on all four of these goals simultaneously and that's the president's social security plan that i'd like to talk about now first of all in terms of benefits the president has proposed no new revenues for social security and in fact would drain trillions of dollars of revenues from social security to put them into the private accounts this necessitates dramatic benefit cuts and their benefit cuts that he has proposed the first is a sliding scale benefit reduction it would apply to any worker who makes over twenty thousand dollars a year that's in two thousand and five dollars and it would also based on an analysis the white house released last week apply to a substantial number of beneficiaries who make less than twenty thousand dollars a year the benefit cuts would grow dramatically over time for middle class families by twenty seventy five the benefit cuts would be between twenty and forty percent of scheduled benefits that means replacement right to be twenty eight to forty percent lower that's just the first benefit concert the second one is the so called benefit offset which is designed to eventually repay the trillions of dollars that go into the private accounts every dollar you put into an account your benefit gets reduced by that dollar plus three percent interest plus inflation add that all together and it could reduce your benefit by fifty percent or more the combination of these two benefit reductions would virtually eliminate the traditional rock solid guaranteed social security benefit leaving it at ten percent of your pre retirement income or maybe even less what accounts make up for this difference number of studies have been conducted on this issue and my reading of the conclusion is that they may make up for the second benefit cut although even that is far from guaranteed but for middle class workers they're unlikely to make up for the first benefit reduction also bob shiller a yale financial economist that between thirty two and seventy one percent of the time workers would end up losing money as a result of participating in the accounts on top of the sliding scale benefit reduction what does the president's plan do for solve despite having a very large reduction in benefits it does less for solvency than many would think the sliding scale benefit reduction by itself would postpone social security's cash flow deficit by two months social security would still go into cash flow deficit in two thousand and seventeen and would need to start redeeming money from the trust fund to pay benefits i personally don't think that's the most important date but for those who do that should be a source of significant concern the exhaustion of the trust fund would be postponed by a few years and when the proposal is combined with private accounts much of the benefits for solvency you would get from the benefit reductions go away and the benefit reductions are just used to pay for those accounts in particular the combination of the president's accounts and the president's benefit reductions would cause a cash flow deficit earlier than under current law would exhaust the exhaust the trust fund earlier than under current law and we would need to find the money to pay for benefits and would only solve thirty percent of the seventy five year social security shortfall in addition the president's plan would entail significant increases in the debt five trillion dollars over the next twenty years the word transition costs is a misnomer because the debt would continue to grow over the current decades and stay elevated for at least sixty years as a result national savings at best would be unaffected and more likely for reasons i outlined in my written testimony would end up being reduced there is a much better approach that this committee could take the first principle of that approach which would be no debt financed accounts not whether they call themselves carve out accounts not whether they call themselves add on accounts nothing that increases the national debt not in the next decade not in the next fifty years not over an infinite horizon second social security reform should be a balanced process balanced both politically and balanced in the form that restoring social security solvency takes finally we can do more to encourage people to save and to help them save separately from social security and their a number of bipartisan reforms to make savings easier more automatic and to increase incentives for moderate income families while paying for those incentives that i would be happy to talk more chairman thank you mr chairman members of the committee i very much appreciate the opportunity to appear before you today and i would like to congratulate the committee on holding this hearing i hope that it's an indication that we've moved beyond the sterile and unproductive debate about whether or not social security is facing a crisis or just a big problem because as frightening as social security financial problems are and they truly are severe the program will begin running a deficit in just twelve years and is facing unfunded obligations of about twelve point eight trillion dollars if you include the cost of redeeming the security trust fund as well as its other unfunded obligations after twenty forty i believe however the sole security for must be about more than just achieving technical solvency now that's not to downplay the importance of solvency in a responsible call to security formal restore the program to sustainable solv not just in the short term but over the long term but while the necessary security solvency is not sufficient we should be seizing upon this opportunity to build a new and a better retirement program and that program should be based on the fundamental american values of ownership inheritability and choice under the current social security system you have no legal contractual or property right to your benefit what you receive from social security is entirely up to the five hundred thirty five members of congress but personal retirement accounts would give workers ownership and control over their retirement fund the money in a worker's account would be long to that worker and it is money that the politicians with all due respect could never take away in short workers would own their retirement and because you don't own social security benefits under the current system they are not inheritable millions of workers who die prematurely are not able to pass anything on to their loved ones but with personal retirement accounts workers would be able to build a nest egg of real inheritable well for middle and low income workers this may be the first time in their lives that they are able to accumulate such a nest egg and finally i point out that choice is part of the essence of america yet only comes to retirement so security forces all americans into a one size fits all cookie cutter retirement program a system that cannot pay the benefits it is promised and under which we have no right to the money we pay in with personal retirement accounts workers who want to remain in traditional social security would be free to do so but workers who wanted a choice to save and invest for their retirement would have that option with this goal in mind not just three stores also security to solvency but to build a better retirement program that would give workers more ownership control over their money and create an inheritable nest egg scholars at the cato institute develop a comprehensive proposal for creating privately invested personally owned accounts as part of an overall reform of the social security system this proposal is reflected in legislation h r five thirty that has been introduced by your colleague robert sam johnson along with representative jeff flake and fifteen fifteen co sponsors under this proposal workers under the age of fifty five would have the option of diverting their half of the sole security payroll tax six point two percent of wages to an individual account the employer's portion of the payroll tax to continue to be paid into the soul security system to provide survivors and disability benefits as well as to partially on continuing benefits for those already retired or nearing retirement workers or choose individual account option and it would be a choice completely voluntary would forego any future accrual of social security retirement benefits under the traditional system however those workers who already have paid into the current social security system and there have therefore have accrued benefits would receive credit for those benefits in the form of a recognition by workers who did not choose the individual account option would continue to pay into and receive benefits from traditional social security however for those workers the initial sole security benefit formula would be adjusted to reflect price indexing rather than the current wage indexing and while we have called for this price indexing change across the board and it is all reflected in the legislation by representative johnson and i would also suggest that we look seriously at the proposal by mr posen for making this change progressive the plan also calls for establishing a new minimum social security benefit equal to one hundred percent of the poverty level providing for a significant increase over the current minimum benefit i have attached and into the record in original copy of the cato study setting out the details of this proposal and the rationale as well as a style report on the sole security actuaries estimate that this program would restore security to permanent sustainable solvency i would suggest that in the end if our goal is more than technical solvency more than just getting the lines on a char across if we really want the best possible security system then we need to have a soul security system that gives workers ownership control inheritability and choice as part of their retirement thank to do the best possible thing that we can do but one of our jobs is trying to figure out what we can do and i'm going to ask all of you a series of questions and it's a little unfair but i would prefer short of answer as possible or even a nod to i guess you have to say something so the record will record you in terms of where you are  in part of this is reflected in the fact that more than twenty years ago there were some things i thought we ought to do and we didn't get to them as the least ranking member of the minority party at the time i didn't have a whole lot of influence on what we did or article basically saying although everyone has a plan and there's going to be criticisms for or against various approaches and obviously that's our job is to listen to all of the approaches and then to the best of our ability to decide what we do but basically the gist of dr firmage quote was that the dumbest possible plan you can imagine is doing nothing is there general agreement that that's probably a good starting point for us so for those who just wish the issue would go away maybe we do owe a bit of a debt of gratitude to the president for being out front on this issue because i know we had no time to contemplate other changes we might want to make back in one thousand nine hundred three in the i that we're going away to congress or we're going to come back to congress as we will wait for a presidential change it is amazing how quickly twenty years ago by and right now i think twenty years in my opinion is a fairly luxury is time frame that we can't afford i want to go with that basically ok if i can say i certainly don't know anyone who thinks that we should let the trust fund get exhausted  and forty one and cut benefits by twenty six percent across the board i know i don't support that i don't think anyone does what i think would be even worse though is actually adding to the debt and exhausting the trust fund even earlier and making social security financial position worse and not something that the president's plan would do well i understand but obviously we don't think that's our goal nor did any of those folk in earlier times when they made decisions that in fact as i think of exacerbated our situation they didn't intend to do that and a certain extent didn't anticipate a changing society next question i'll be very briefly mr apfel just wanted to say that that it would be good to do something absolutely but doing something that brings us in the wrong direction would be a bad thing to do we have three options do something that's basically good and do something do nothing and do something that would be basically contrary to the economic security of the middle class americans i would urge that would take a little more time before doing something very bad and clearly the two proposals of before so i think are very risky hopefully would take all the time in the world not to do something bad in fact we would never do it  rather than waiting a while and then doing it in the testimony dr sterling was a bit more specific about changes within the social security structure although many of you alluded to it in in  r testimony do you think if we're going to under go and attempt to solve the problems of social security of course solvency and i'll ask a question about that the minute it is what is our goal outside goal should we be looking at those anomalies in part created by an aging society on the question of widows and their compensation versus non working widows of well off husbands versus widows of not well off time age we did that in one thousand nine hundred eighty three and it was a very difficult political problem when we created a ten year hiatus on our way to sixty seven which ironically means that people are going to be the distance between sixty five and sixty seven in the eighty three plan actuarially before the plan actually reaches the sixty seven so we've fallen behind in essence in trying to create a time relationship but there are a couple of ways of looking at it and and and i know there's a lot of controversy so i think most members understand the downside if you raise the early minimum age you jeopardize folks on a disability question you raise the higher age you have to work longer but it is clear that some adjustment there  should be looked at the narrow question i want you to to address is should we continue to chase the age change as it was posed you suggest going from sixty seven to sixty nine benefit or tax structure under which benefits payroll taxes or the normal retirement age are indexed to longevity would be much better at directly tying the size of the benefit or tax changes to the programs solven needs and i don't know what that was because of space but that was dropped out of your more recent additions but should we look at the question of age extension and or long jav a day i mean is the something that you gotta look at dr shaver yes chairman i think it is something that needs to be looked at i think the idea of doing it through long gemini indexing would give people more choice rather than saying that the retirement age is moved back from sixty seven to sixty nine you would say you can choose to retire at sixty seven sixty eight or sixty nine but if you retire at sixty seven we now give you the actuarial acquittal on of retiring at sixty nine which means that you get a lower monthly benefit but you get more of monthly benefits because you retire earlier so i think that's probably a better way to do it than just moving retirement age back absolutely and then the second issue i think what you're very familiar with is you know how how soon can you do this you know and then that would have to be phased in over time and any strong objection i mean he in his destiny said sixty nine and i think i sold him on longevity so are we are we moving on and in a way in which we're coming together i think we probably do agree if you compare where we are today to say nine hundred sixty if you look at a typical male he's retiring about three years earlier today than he retired back then and he's living about three years longer we've extended his retirement period by about fifty percent well if you're going to extend the retirement period by fifty percent it's going to cost a lot more and if you're in a situation where you're you're you're you're being stressed for funds to to finances as we continue to add to life one of the things that we ought to look at is whether or not people could remain engaged a bit longer as it would be awfully hard to make a case that no work today is of such a nature that we ought to be retiring a lot earlier than we used to because we can't bear the burden at telegenic gentleman just be a little cautious in that statement for those of us who came from families in which physical labor was the way in which the bread was put on the table that i know my father in terms of his bombing activities was was what was was pretty at the phrase i guess would be pretty used up by the time he was sixty five why he went through the depression as well and had grown up on a farm so he got some early wear and and the number of those jobs in our economy are diminishing and many of the tools that are available to people who have those kinds of jobs are reducing the the burden upon them and maybe we do need a transition benefit of some sort for people who do have physical labor jobs but i think we have to be careful about making the rules for all because we've got a small number who have a problem and one thing that i'm interested i know how difficult it was politically for us to make that age shift in eighty saree that if you did do something like longevity you wouldn't have to visit it as frequently to make adjustments with the assumption that people are going to continue to live longer jane mr chairman i think we have to be i mean i can say this because i don't have to run for office but this system has evolved or morphed into a middle aged retirement system you know as long as we say sixty two is that it sounds like those of us who say we're the retirement age sound like we're hitting on the oed and for a long time being old was correlated with being poor people were older much more likely to be poor or the ones who were really in their late seventy's eighty's and ninety's and many of our people i think now are being deluded they're going to retire at sixty two with a decent income and a typical couple of annuity last twenty five years and so for a longer living couple it often last thirty or thirty five years they don't have the resources when one of them was eighty five ninety and beyond that they think they have when they look at sixty two and then the government comes in the back door and has to back up the system with medicaid a lot of other things i try to make very clear in my testimony even if we devoted all of the revenues from increasing retirement age back to social security even if we had a current system was totally solvent if we increase the retirement age and this is an analytic point we get more revenues in the system we can increase replacement rates we can protect the old better we can actually give a higher package of lifetime benefits on an actuarial basis because we would have more revenues to the system  moves everything in the right way in terms of protecting the ode the needy and everything else and i think we just have to have to be honest about the well being honest and getting enough votes to pass it or sometimes two different things and i'm trying to deal in in that world my own limited time way from f d r in the origins of social security and his very strong belief that it shouldn't be a part of the dull and the irony of increasing the payroll taxes is in fact a form of that trance direct transfer from the rich to to the poor but personally camps and i've heard a number of descriptions of accounts i know particular personal accounts are the target of much discussion but just the concept of personal accounts anyone here disagree with the idea that the concept of personal accounts is more consistent with the concept of a retirement insurance system then basically our current pay as you go system don't personal accounts kind of kind of really talk about an insurance system on our military or a premium i'm asking questions i think that's the role of if you insurance is a process of pooling risks across a large group of people where where there's a relatively small probability of something happening if you if you if you look at our disability insurance program there are a lot of people as they go through their working careers who become disabled there are a lot of people who die and leave juvenile children so we you know it's look let's say you had a thousand people living in a society and they had a they had a house each of them worth one hundred thousand dollars and one of those houses in this society burns down each year there's two ways that house can be covered one they can each one hundred dollars into a pool each year and then there will be resources to to buy it and nobody suffers a catastrophic loss are there's no insurance and when the house burns down one family in the society has one hundred thousand dollars lost and everybody else is perfectly fine when when you've got a small contingency of something happening you can do that through the the sort of system we're running to cover disability when you've got a high probability ninety five percent of of the people who  started to work at at the early twenty's retiring at some juncture so we're no longer talking about one of the thousands we're talking about ninety five percent and if you want to secure those benefits over time especially given the the demographics that we have you have to figure out how to say you have to figure out how to accumulate some well so there's something some something financial that actually secures a benefit retirement and this savings is it a high priority medium prior to or a low priority that if we talk about personal accounts we take into consideration making sure that however they're structured they increase net savings let me just say right now families have a tremendous number of opportunities to save to invest if they want to play the slot machines they can do that as well they only have one rock solid retirement guarantee and that's their social security benefit already which is to invest is not something that i think makes very much sense at all i understand your concern about a particular type of personal account but i thought you mentioned in your testimony the idea of making sure that we increase net savings  that's an important goal of any reform and you're only going to get the if we ensure that any new incentives we have are paid for that we better utilize our existing save understand but you can also set up personal accounts i don't create net savings if you don't pay for your accounts you will we consider not just social security but broader economic issues what i would like to add to what mr firman said and in response to your earlier question the way to think about a personal account i think is as a discretionary some people want to retire earlier some people want to retire later some people want to be prepared for their ninety's whatever and one of the distinctions that came from your question about early retirement is that a personal account within the social security system allows the worker or retirees more discretion over when he or she retires than one size fits all solution and then finally in partial response to my friend from michigan and  others who couldn't possibly comprehend why if the president has offered us an opportunity to look at social security we should look at other retirement aspects and aging society i want to refer to members if you haven't noticed it on page twenty of dr shavers testimony in terms of the distribution of retirement structure on the bottom tenth from personal financial wealth three and a half percent from social security ninety four percent from pension wealth three percent and at the top ten sixty five percent from personal ten percent from social security and twenty five percent from pension and if in fact you have that significant difference between the lowest tents to the top tend to only address social security and say you've addressed retirement in an aging society is to miss the point that some people count on two thirds of their money from personal financial in fact ninety percent of their money from personal and retirement pension funds and others ninety plus percent from security and the only deal with social security is to ignore what else is going on in the society and simply to make the point read the paper about united airlines and the question of pensions and the changing world of defined benefit versus defined contribution and your ability to put your own money away inductive room and i agree there are a lot of ways to do it but frankly we haven't been as creative or focused as we should because to a certain extent if you have to incentivize people to put their money away they have to see a reason to give up a current consumption for deferred gratification last question how many of you believe it's fair it's appropriate and it's a responsible thing to do that if we're going to offer a volunteer programs in whatever area we're beginning to make changes in the retirement package that we create a system in which even in a voluntary structure people are automatically put in and they have the option of opting out anyone think that that's not something we should look at again  unless you know what they're opting into it's impossible to answer that question whether i will be opting into it they would be opting out because i would put them into it and they would have the option of coming out of if your plan is to say your future social security benefit is going to be reduced if you're in the six out then opting people into that account in fact even having that option in the first place i think would be a mistake so we're talking about even where one came in with their ability to operate on and for a one case more automatic i think that's a very good there is there is a broad liberal conservative coalition examining this opt in opt out issue not respect respect putting employees into for one k plans and you're not my testimony that i think maybe one way to try to get through this divide over personal accounts is to think of them more as a private pension rather than a source curity issue politically the fight over personal accounts really isn't a personal accounts president clinton had a personal account proposal as well as as well as the president the fight is actually over the revenue base for the remaining system but that doesn't mean we can't separately work on a system to try to beef up assets real assets for people and yes real assets contain risk that's a legitimate concern but we don't want to w we don't have real assets i want to thank you because you've helped this committee in shaping future full committee and subcommittees with the subject matter especially that and let you all agree we ought to be looking at it thank you very much chairman from  before us but just open as how many of you believe that the congress cannot fulfill its responsibilities to to present and future beneficiaries so security without having a private t as a part of that bill two of you believe that we cannot deal with this subject of fulfilling social security that we have to have private accounts on the table right  microphone that if you try to come up with the gap between the promise benefit and the amount of expected revenue in the system twelve point eight trillion dollars and you try to do that simply through the tax side or identif then and then you are going to either cripple the economy or severely reduce benefits for workers and ways that i think would be desired we could do it that would be our political decision one of you made it well i question whether the economy could sustain the type of tax increases that would be required ok well let me say this that a lot of you using roosevelt and lonnie and truman but i haven't heard one live republic and yet that is telling us what they want to do when the chairman and other members of the congress met with the president he asked us not to do anything until he put his plan together sense time he's gone to sixty cities in sixty days not to sell private accounts which i thought he was going to do but to educate the american people how serious the problem is and now he says that congress should come up with the answer so i guess he's out of it so i don't know with all of the great ideas that you gentlemen have as to what's this got to do what we have the president wants us to end up except he made it clear to me that what anything that he's going to sign private accounts has to be made a part of it and we have a lot from chairman pozen when the president speaks as opposed to most of the other white house people and i think that they always describe you as the democrat  been in congress a long time and i've had a lot of distinguished people testify before the committee but i don't ever recall since i've been here where the identify a professional by his political issue as to whether the why the president has to do that but i do think that the concept of progressive indexing is supported by the page twenty that the chairman pointed to  schreiber's piece because what it shows is that for the bottom one third i'm not getting to the substance i'm just saying you know so proud of being a democrat that really doesn't help really in terms of  you know it doesn't prove or diminish the quality of my ideas i agree with that because you know the white house goes out of its way to to identify you by your party label and by what you're saying having said that i think i would i would hope that the white house agrees with some of the concepts of progressive indexing take my word for it your name would not have been projected this much as it is if you were not a democrat but i'm proud of the fact that you know how to deal with them because we may have to come to you fo you know because we don't know where they're coming from what they want to do but i totally believe that all of you should believe that a issue as sensitive as this most of the people on social security no matter what any of you say believe that they have benefits a guaranteed and they have kids believe it and their grandkids and that believe that they are entitled to this benefit if we're going to have any type of revolutionary change if we're going to them it has to be some pain involved and it's some political pain and how you can do this in a partisan way i have no idea how the president can say it's up to the congress to repair it i have no idea but having said this i think the reason people believe that these benefits guaranteed is that we borrowed two trillion dollars to give a tax cut to the wealthiest people in this country how do we in a partisan way share with them that this system that didn't  it now we have a situation where i still most of your training has been investment banking i mean you understand that and clothes and budgets but clearly in looking at your bio there's no indication that you've dealt with social services or the problems of the poor people that surviving on how many kids went to school and i suppose other people have different views about it but basically your background has been in the investment market is that true my background has been in the market though i work with various non profits and the boston area series when i retire that's what i hope to run and profit that's where the real money is you know but having said that it would seem to me that if we're going to work together on this that we're going to have to find some way to communicate  and try to see how we can have people to believe that they will be better off with the changes in the private sector do you believe that if people believe that they have some benefits guaranteed that you could guarantee that the market is going to work for them that is if the market fails as we see things happen today with the airlines that it would be a safety net for those people who found their benefits reduced by social security but found an increase in the private accounts could you give any type of suggested way that you can say trust us that you've got to be better off with this system well i do believe in the benefit the guaranteed benefit for the low wage worker who i think i understand is not able to deal with this risk that if the bottom falls out and the market doesn't work is this some way that we politically say not to worry because your government would never let you down that we do that well i think that's what we're trying to do with preserving the way of benefits for all lower wage workers but i think if we were to try to guarantee against the stock market fall i think that would be a bad idea i'm not disagreeing with you but at the end of the day someone was asked in a town hall meeting i know you're not thinking about coming home and telling me i'm not going to get my check even though there are people that believe that the system is going to collapse but the day that we don't provide some benefit is the day we're out of business that they're entitled to these benefits but there's no way legally that we can tell them that even if they're successful with the private accounts that it's going to be guaranteed and whole or in part is there i think the extent that we bring in bribery accounts we will not be able to and they are invest in the stock market w not be able to guarantee the returns and so i would be stuck with the position is that we're asking you to trust us because we think by taking a gamble on the market you'll get a higher but the truth of the matter is really the in a trust fund that's not worth the paper it's written on you being a lawyer and recognizing what full faith and credit means do you agree with the president that that the trust fund i that have full faith and credit of the united states tragedy in this country not worth the paper that they're written on i don't know if that's what the president really meant but i don't know that the special treasury bonds that are now held by the social security trust fund are good money they will be repaid but as we all know at some point they're going to run out and i think that the crew when they went out they're not good but we welfare she considered herself independent haven't worked all of our life and we have a lot of talk on the other side about class warfare but the dignity of people that have enjoyed security they knew they were americans that they put into the system and they weren't treated specially by the congress as though you get what you get when the appropriations committee decides what it's going to be do you believe that this is a very sensitive area to separate those who made twenty thousand dollars and have them as low income and the other people over twenty thousand dollars middle income and you have the higher income don't you think you're taking away something from the integrity of the system social point of view by by means testing it i don't mean testing would mean that people over a certain amount would get nothing what we're doing is not means testing what we're proposing what i'm proposing is to have a progressive scale of benefits we already have differentials for people's benefits based on the level of contribution based on their wage level what i'm trying to points out that the certain one third the lower one third of wages are more dependent on social security what we're trying to do is provide a sliding scale on the benefits which we already do but make it more of a sliding scale to help secure that the people who need social security are getting the most they used to call that means testing but i soon that we have to find words to do i don't think i don't think we really  have we have we have the income we have the lighting's benefits will be based on income benefits are now based on income we would just be making it a little more of a sliding scale in light of these other fact that a president often talks about those people and congress for one case and thrift accounts and if it's good enough for that it should be good enough for the american people do you believe the way he uses that statement that it's accurate offering the people the same thing that we enjoy as members of congress in a stand that you as a member of congress have to have social security and for one case and i would be supplemental to social security by that so i'm not something that we really think that this plan here is a detriment to us coming together in a bipartisan way but having said that you've made it clear that the president's not talking about what the congress got we have our plan in addition to social security we can take money of out play and out of your plan you can take money out as much as i said my plan for progressive indexing stans with or without personal accounts i've tried to make clear in my testimony how it could be combined with certain types of accounts that can be combined with diaries and for a one ks it can be combined with other things but in itself it would reduce the long term deficit by seventy percent and it would provide more of a sliding scale than we have now for benefits my last question is do any of you believe that we can successfully once did anybody in the united states congress that i'm aware of say to president clinton that he had to take certain things off the table or put it on the table as purposes of trying to negotiate i don't think that's right way to negotiate and also i recall that president clinton did support some form of individual accounts he saw the need for that in fact mr archer met with him individually in his office as i had met with him and discussed moving the plan forward so i think i think that we need to clear the air here and i think for anybody who is serious about negotiation whether they are head of the democrat party the republican party whoever they are who really care about saving social security should come to the table and i think also that it's important and i think that the chairman said something  just offhand at the at the end of mr levin remark a while ago that he would he would be glad to listen and have hearings for any of the democrats that had a plan  that would save social security unfortunately the silence is deafening there is no plan and the only plan that's out there that i can say that the democrats have is they want the president to negotiate with himself and then lose and that's a tragedy dr berman you mentioned something that troubles me greatly you said that people have the option of investing right now into individual accounts i'm sorry people who are going paycheck to paycheck do not have that option their option only option they have is to pay their rent and light bill and their grocery bill and those people have no chance of ever accumulating any personal well unless we go forward with a plan to so security that takes care of these people so say that folks these low income people can take care of themselves is an absolute fallacy and i think it's a tragedy when we see that members of congress here would pass up the objection the opportunity for low income people to create well during their lifetime it is indeed a tragedy mr shaw now i want to me now i want to address the question of  guaranteed guaranteed plan to guarantee plans it up and then put forward by members of this committee i put one forward mr ryan put one forward in either plan they had individual accounts yes but they also had a guarantee by leaving the existing structure in place that existing obligations would be here to not only for today's retirees but for future retirees this has to be the  objective it's very important that when you go and try to negotiate put something together that you know what you're going to you know what you're after you know what you're working towards instead of just absolutely sitting back and criticizing each other that's a tragedy and it is a tragedy the great one of the members of congress said not long ago that the party of the new deal has become the party of the no deal and that is too bad that really is too bad and i think that even roosevelt himself recognized that future changes would have to be made the point has been made by the members members of the panel and i think a very good point that maybe we should look forward to  twenty thirty forty fifty years instead of seventy five years and beyond and perhaps that's where we'll have to go at the end of all this because none of the plans out there contemplate a cure for cancer none of the plans out there the the lifespan of the american people is going to be expanded tremendously over the next decade and it's a wonderful thing but anything we do and anything we accomplish here today is going to have to be modified by future congresses to make allow this is for this great gift of life that is going to be extended by medical research this is a this is a wonderful time that we live in but it's a troubling time we need to be sure that our older americans are taking care of that should be the objective of every member of this body and every member of this city and let's get rid of the politics it's too about the next generation it is not about the next election m time has expired and this will occur with a number of witnesses the chair would encourage anyone who wishes to make a response in a written way and it will be shared with the full committee and i also believe that for those of you who wish returning agents can certainly be arranged both at the full committee and the subcommittee level chair recognizes the gentlewoman from connecticut and with the gentlewoman you know just very briefly yes  yielding i would respond to my colleague and others about the seventy five year solvency question versus sustain solvent see we're all familiar with the usual ten year window that we use which means no one looks at the eleventh  a lot of things can happen over an eleven year life that you don't see in the ten year life my only concern about not focusing on to a degree sustain solvent see is that when you look at seventy five years this year is good next year is it's kind of worrisome but every time you move along the current timeline meaning maybe rumors begin coming in you're adding at the back end of the seventy five years a much less desirable year and what we did in eighty three was focus on seventy five years we just didn't pay attention to what happens over the first twenty and when you add the last twenty the seventy five years disappears so if you're going to really try to make it seventy five you have to look through you have to run through the tape beyond the seventy five years to make sure that the bottom doesn't fall out the next year when you get maybe eighty or eighty five or ninety and you're going to fall short everyone knows that but if you don't take that approach to what it is going to be seventy five years it'll be twenty and i thank the gentleman for expand the resources of social security both in the individual county area and directly investing government money and how he governed those mechanisms are a little vague in my mind so that would be helpful to us also mr firman i would like to ask you to provide in writing some enlargement of the last sentence of your part of the conclusion of your testimony you were eloquent in shooting down most of the ideas that have been brought up you also say at the end of your testimony you say it's better to address this challenge sooner rather than later and then you say a balanced set of reforms that modestly increases social security revenues while modest creasing benefits could ensure that social security is sustainably solvent i would certainly like for you to fill that out for me there's not time for you to do it on my questioning time which is now depleted anyway but we need to know what is a person like you who raises some interesting points about some of the components of a solution that have been put on the table thinks might be a modestly modest program that could provide but i want to add something to this debate because we cannot reform social security without addressing some of the inequities of the program and they were not intentional inequities life was different now life involves most women working before they have their children after they have their children or maybe just after they have their by women living many many decades on their own after retirement and i've been working on an idea that would overcome one of the to me one of the absurd aspects of our current social security system no matter how hard i work the fact that i stayed home twenty years to take care of my children gives me twenty zero in a thirty five year calculation so i think frankly that was much harder work than anything i've done since then and i think we need to  level of income to women for at least ten years of being home with their children because the you know the evidence is just overwhelming in terms of the importance of parents in children's lives and so i want to do i want to poverty income i absolutely agree with him on that and i guarantee of that but how would you propose we recognize the changes in women's lives and the terrible disparity some of you mention the problem for couples but in this particular issue of imputing income to  now so i think that this is an issue that needs to be looked at carefully about women i think that there's a number of things that are very very important for women but there are also areas there are some problems that need to be looked into so there's nothing wrong with trying to figure out a improve the system and make it better there are profoundly important benefits for women and women are the majority of all beneficiaries live longer we all know these things but something in this area i think is something that should be looked at but also point out that the  president's proposals were in addition to social security back in during the clinton administration not taking away from social security defined benefits and that's really the core question here is not whether more individual savings is needed whether we want to have my time has expired but i just would remind you that money coming into social security now goes into the general fund and you all know that and you know what we do with general fund hours and it accumulated debt money going into a private account would go into an account it's tangible there's got to be some difference between flowing dollars into a tangible account that can be cashed in china wants to recover we spent we sell it in the private market we pay china we can't do that with thirty so there is a difference between the money that goes into an account this is a longer discussion but thank you for all your ideas and pursue this entire federal government and if they can't get something done that it rests on their shoulders when it came time to pass a lousy prescription drug benefit or the budget they got their leadership back with the and it's just that the reason they're not passing a plan is because we don't have one doesn't watch they're in charge and if they can't run the place they ought to quit and we'll get back and run it well as  jury i've been hearing this discussion of income relating it's really a euphemism for cutting middle class benefits but you may call it in your answer for what you please but in these benefit cuts he's got a benefit cut for everyone here and more than twenty grand a year that's ten dollars an hour and additional privatization tax which further reduces the benefits can you give me the overview of the impact of all these cuts that are supposedly progressive cut and what it will do to the guaranteed benefit for the middle class which the republicans don't care much about yes i'm happy to  and very briefly before that a lot of people who make less than twenty thousand dollars a year probably about half the people that make that would also see their benefits reduced by this plan and the particular types of people are widows children whose parents have died divorce spouses people who are getting a benefit on the basis of someone else's work history who might have made thirty thousand dollars a year as us middle class by this definition but they themselves are very poor and are seeing their benefits cut so i would not accept the assumption that people less than twenty thousand dollars a year are protected by this plan they're not in terms of middle class families the types of benefit reductions you'd see relative to the benefits schedules and  for middle class family retiring in two thousand and fifty five twenty one percent to thirty one percent and that benefit reductions would grow over time on top of that the what you described as the privatization tax or the benefit offset would be another ten fifteen thousand dollars taken out of your benefits would leave you with the benefit of a few thousand dollars a year plus an account on top of that but only a few thousand dollars of rock solid you you need two or three thousand dollars if you're going to take a family making about fifty sixty thousand dollars a year retiring and twenty fifty five they get a benefit of four thousand dollars a year reverend get that in two months that's all they would get in addition they would have an account and they that would be subject to market risk but in terms of the traditional defined benefit would be a few thousand dollars what would that a cult if any i mean the account is is subject to market risk and professor shiller studies say that thirty two to seventy one percent of the time you'd end up hat great account of this guy's mom ownership you would have a certain amount in the count table three in my written testimony goes through a variety of rate of return assumptions if you take one from a survey that the wall street journal did of ten prominent financial economists if you got the rate of return that those ten people were projecting not even counting the extra cost of risk they found out you'd come out of that six thousand dollars behind if you are retiring in two thousand and seventy five when you take into account for putting together this panel this outstanding panel aggressive in a positive way going after this issue which affects our nation our children o grandchildren i applaud you for your efforts dr lindsey critics of the president's plan to create personal accounts assert that it would cost trillions of dollars would you explain why the u s economy will not be worse off and will likely be better off under the president's proposal to establish personal accounts proposal thank you mr posen your plan has been accused of cutting benefits for middle income americans under your plan would tyreese get l today's retirees even after adjusting for inflation no they would considerably more on purchasing power basis they would get twenty to thirty percent more on purchasing power the quote unquote cuts are cuts means less than the scheduled benefits that we can't afford and mr president again which promises a higher rate of benefit gro to medium wage workers aggressive price indexing or benefits that are payable under the current program if if we don't have major reforms the benefits payable under the current program are about twenty six percent less in two thousand and forty one and progressive indexing would give them a much better deal than that  if i could say one thing about that under progressive price indexing the trust fund would be exhausted in two thousand and forty seven at that point an additional fifteen percent across the board benefit cut on top of the sliding scale benefit reductions would be required when you take both of those into account it's no longer necessarily the case that you're better off under payable if you're doing a genuine apples to apples comparison comparing the current system and what would happen when the trust fund was exhausted you have to apply the same standard to the president's plan and look at what happens on the trust fund is exhausted not planned and i look at her i would disagree strongly with it and would you like i would disagree strongly i think that we do not let that only correct if we think we have to get to a zero percent present value but that's what the payable benefits do i'm ira based on the baseline of zero mr furman i've asked mr posen to comment my bland would would progressive indexing slows down the growth of entitlements so that in two thousand and seventy nine you would roughly have the amount of money coming in the system would be the amount that goes out i don't think it's necessarily necessary to reach a zero present value of the deficit at the moment what we need to do is to get the financing the system to the point where we can carry the mortgage and we can carry the mortgage if we reduce the  entitlements and benefit growth by roughly seventy percent we all know that one way or the other the middle class and the upper class are going to pay to bring it back in balance we're not going to oppose it on the pole or we can cut benefits we can increase taxes and we can pick which generation we're going to do it on the one way or the other we're going to have to pay to get it back  ways to deal with all of these issues but i think we have to admit up front that one way or another or lower benefits or higher taxes bring into violence somebody's got to pay and i'm guessing it's going to be the middle class or the upper class well i want to thank you again i mean this idea of doing nothing and the fact that the democrats have no plan and knowing how we have more and more people retiring with fewer people paying i want to thank those of you are presenting if it's twenty or twenty three or twenty five thousand would continue to have their initial benefit calculation indexed to the wage and then that is correct it's twenty progressive indexing doesn't begin till two thousand and twelve right we'd be people making twenty five thousand dollars a year at that point would be fully protected under the progressive indexing as to their current schedule could you explain what you mean by people making twenty five thousand dollars or less the those would be people who at retirement would have average career earnings per year of twenty five thousand when the actuaries compute your initial social security benefits they give you your average career benefits and then they adjusted  upward by the amount that wages go up and that's what we would continue to do for that thank you so dr furman's comments about your proposal affecting people who make less than in fact he views some high percentage half maybe of all people making less than twenty thousand dollars a year would be cut that's simply apples and oranges and i think it is a very different analysis that he's making and he's trying to bring in people who might be widows of somebody who was in a certain situation these are complex issues which should be dealt with but i think the basic thrust of the protection is still twenty five thousand dollars  happy to provide for the record a white house document showing the bottom twenty percent get their benefit doesn't matter if you're talking about two different things it doesn't matter you can provide all the backup you want but mr posen i would hope as if that if the along we could move a lot i haven't had a chance to study that well obviously the chair will take whatever official documents are listed but the description of those will be suspended until we analyze them if in fact it's less than twenty five thousand dollars will continue to get the wage and the calculation is referring to retiree's who have an average monthly wage of twenty five thousand dollars or less i'm sorry annual but that's their average over their thirty five years of work history mr posen as a democrat i would hope that you would get a little tired of your fellow democrats mischaracterizing not only your plan but the president's proposals for example the continued use of the word privatization mr apfel used it ad nauseum today democrats on the panel here nauseum nobody's talking about privatizing social security get over it if you refuse to take part in this debate on honest terms then you're going to have a hard time getting to a bipartisan are trying to work through a number of options and we have you here today hoping to learn more about some of your ideas but unless we discuss this and honest terms we're go don't voluntarily account there's no double cut it's voluntary we're not forcing anybody to take an account and if they don't there's no double cut even if they do there's no double cut because they're getting the money upfront in their account that they would have gotten later in the out years so a lot of this disingenuous and sometimes outright misleading discussion that's being done by democrats is counterproductive it's not helping we want to sit down with you and talk honestly about how to solve this problem but you're making it very very difficult and i would hope that you would begin to  down and talk meaningfully and honestly and substantively about what you want to do president clinton appearing on an a b c program it's in today's associated press release quote i think the democrats should say what they are for on social security the next couple of weeks i do to president clinton and i hope finally we can get somebody to make clear what benefit cuts and what tax increases which is what d appel have said that's their solution tax increases and benefit cuts fine show us what benefit cuts and tax increases you want us to implement then we can bend the began the discussion thank you  look to the person who is difficult is the president of the united states and he he set the agenda he determined the first order of business he comes forth in the state of the union and my answer to the social security's shortfall which he grossly exaggerated by calling bankrupt is private accounts you don't like the term i'm sorry it's privatization and cato institute  privatization and the problem you have is not our silence it's our voices we have addressed the first item on the agenda said by the press in the united states and so has the people of the united states of america they don't like changing social security into private accounts they don't want the replacement of the guaranteed benefits with private accounts and you don't want to listen to this we are going to continue to make clear what the ramifications and now i'm going to ask dr firman supposing i want to go back there's an effort to mask here i'm not saying you're doing it intentionally i'm not going to call you a democrat or republican i think you work for governor romney who's a republican i don't care what you are i want to talk about what the implications of what you have proposed and i want to go back and have dr freeman talk about what happens when you combine when you combine your major benefit cuts that fall on the middle class and you can say it's some point somebody is go have to do something or other let's talk about what's been proposed here dr firman talk in terms of the replacement right by the way you're so right to present the united states was never talked has said makes sense with private accounts to save your traditional rock solid guaranteed social security benefit would replace between about the zero and ten percent of your pre retirement income everything else would be privatized private whatever you want to call it but zero to ten percent would be your social security benefit of your pre retirement income a couple thousand dollars  security with private accounts and we can argue about what the rate of return would be and put forth what the rate of return and why it would be a bad deal in the reason people are  plus what's happened to the stock market what's happening in retirement benefits which have defined benefits are being replaced by defined contribution plans social security remains the foundation more and more security and mr posen when the president says someone making over twenty thousand that's in today's terms twenty five thousand years from now everybody making over that is bipartisan basis when it's understood that we and the american people have responded to the first item on the agenda placed by the privatization personal accounts whatever you want to call it we showed that in one thousand nine hundred three when two thirds of the votes in this house for for shoring up social security came from democrats in dr hunter when you talk about raiding the treasury talk to them and the republicans talk to them don't talk to the two us who supported proposals in one thousand nine hundred three to put this country on a path to no longer rate social security talk to them just like to clarify for the record that the chief actuary in the proposal that i made does not have these very small defined benefits  left the in two thousand and seventy five for the medium workers way this is this is this isn't somebodies time this is when you combine when you combine with private accounts it did all depends on what type of private accounts you combine it has expired and i would indicate to you mr posen that on any response to any matter any witness did not feel they had adequate time to respond as you may notice you may have something to offer but it's declined by  n dividual so it shouldn't be declined by the committee and so we look forward to any written responses you may have on any question that was asked of any witness but you didn't have a chance to respond to  gentleman from michigan the other gentleman from michigan thank you mr chairman and we've had some references to artificial parameters before the my friends on the other side a move forward with a debate and president clinton said and i quote i think the democrats should say what they are for on social security the next couple of weeks they've they've got time to put together a rahm and he goes on to say i think the democrats should have a plan and they should talk to the president congressional republicans about it  we're talking about trying to help the savings rate in this country and mr posen your plan for progressive indexing obviously does help those at lower income levels are there  other ways of helping lower income workers maybe through programs like the save credit program which has a match in a in a retirement plan or for a one k that you might also discuss or yes hi as i say  testimony i would strongly support enhancing the low income tax credit for workers between roughly twenty five thousand dollars a year and fifty thousand dollars a year because unfortunately given the deficit of the social security system we can't hold everybody preserve everybody's scheduled benefits and we could encourage them to save more that credit just started a few years ago some of it needs to be made refundable it needs to be made more attractive and i think that would be a very constructive way to approach a package here ok dr lindsay in a response to one of the chairman's questions you referenced  discretion in retirement and trying to have more discretion in retirement do you see any problem with actuarially affecting retirement benefits to allow retirees a variety of ages to retire the right now at sixty two or sixty seven is there any problem you see in and a range of ages of retirement allowing workers more choice and more discretion based on their decisions about when they'd like to retire i think one thing the chairman said which is quite right is that there are a large number of people and society who's either have jobs that they can't continue or who have their lives changed late in life and what we have is a one size fits all system one thing we should recognize and congresswoman johnson said the same thing is that life has changed the wanted vantage that has not been mentioned enough about moving toward more discretion through personal accounts is that it gives people a chance to fine tune their social security benefits in a way that best meets their needs and i think the public is now more educated public knows what they need to have a more diverse set of lifestyles and what we should do with with personal accounts within the social security system is give people more power over their own lives and more discretion now i'm interested in your views on the economic impact of raising the social security cap you know as a former treasury official an accomplished condiments what would be the impact on jobs for example of  an increase in the payroll cap from say ninety to one hundred thirty five particularly as a lot of small businesses are would be in that in that range have you seen a study of that kind yet a lot of i think the best study was done by martin percent of the net revenue that was anticipated if you remove the cap entirely the government would actually lose revenue to doing such a plan and that's with a very modest behaviorally last a city that is very similar to the u s just to be used actually by the dr you know i think that's that's a losing proposition in addition you mentioned jobs you're right that would be a tax directly on entrepreneurship on all tax increase proposals i would urge the committee to think about the fact that american workers are now competing with workers all around the world and when you raise taxes on american workers or american employers you are making america less competitive with countries all around the world and so the adverse effects of some of the way we adjust the system are very very important to think about thank you very much mr posen posen you have the low income earner level at twenty five thousand dollars a year and your proposal and the high income earner at one hundred thirteen what impact would there be to say moving that low income level up to say thirty five and and moving those around is or is there a particular reason why you have those particular numbers while the twenty five thousand dollars a year we chose because it represented thirty percent of all workers and if you see skills drivers chart those that lower third are the ones who are primarily dependent on social security when you go up the income scale to be the workers are much less dependent you could move up twenty five thousand to thirty five thousand or forty thousand and you will lose a considerable amount of the solvent see deficit reduction because the median wage earner in two thousand and twelve will probably be about  forty seven thousand so you would you would cover another say thirty five thirty seven roughly another ten percent bring up from thirty to forty percent but you'd have to you would have solved in c issues so it's a  perfectly reasonable thing to do we just have to come to grips with the fact that then we're going to need either other benefit constraint or going to have to have more revenue in the system there are no free lunches here all right thank you now i thank the entire panel for their excellent testimony today thank  chairman thank gentlemen gentleman from maryland wish to thank you mr chairman thank all of our witnesses for being here i guess i have just a problem in that suggestions that are being made here would bring a fundamental change to social security where he would be a smaller amount of an individual's retirement security for future generations whether that individual be in the lower income or middle income or higher income and for good policy it's to deal with the fiscal challenge so let me just pose a concern here in two thousand and one we passed a major tax because we had a huge surplus that was projected and we found out that our five year projections weren't very good we missed that pretty badly that would happen during that five year period or ten year period so when we start talking about fundamental changes in social security based upon seventy five year projections when we can't project very well for two years or five years i'm concerned as to whether you all have looked at other projections that have been  my point is that these are moving numbers that move pretty quickly if we're making fundamental changes based upon the solvency numbers have you really thought out these fundamental changes if in fact the financial issues aren't as as we think they're going to be and then let me just point out in response to some of my republican friends about what we should be doing and i know that democrats are united  with the good twat of the problem but instead we seem to be focusing on benefit cuts and it's this discussion that we need to have but i must tell you i get very concerned about benefit that are related to income that are not predictable and i heard you mr posen talk about this but we don't know what the future's going to hold on these different indexes or projections and it may very well be  be means tested meaning that it no longer is a universal social security program we'd better be pretty sure the numbers we're working with and recent history has taught us that we can't make these long term projections and i'm somewhat disappointed by the tone of the panel being so certain about their proposals and the need for their proposals when history has taught us that has not been the case in projecting the problems of social security and last point mr chairman we didn't make major changes in the social security system to deal with the baby boomer generation that was one thousand nine hundred three i was not part of congress but they made an effort to deal with seventy five years time first look at again is time for us to make adjustments but i really question whether the fundamental changes that are being suggested by some of these panelist are the right way for us to proceed thank you jim thank you jim the chair thinks it will be useful and i'll pass that on members and make it a part of the record so that they can see the series of votes dealing with the issue in one thousand nine hundred three on the floor of the house there were two particular amendments date chairman of the social security subcommittee jay jay pickle head of the men which extended the retirement age and yemen from pepper from florida mr pepper raised federal tax and yemen might be interested in the partisan break in terms of supporting fundamental change versus raising the payroll tax will make that a part of the record a gentleman from minnesota wish to inquire thank you mr chairman i want to thank all the experts on the panel here today let me ask you mr posen regarding your proposal for progressive indexation a number of my constituents have come forward already at a town meeting and several town meetings middle income earners and they're concerned about projected benefits under your plan now i  read that your testimony is saying that retirement savings would make up for reduced social security benefits for median wage earners is that a correct statement correct do you have any aside from saying we should provide more incentives for one k s and other retirement savings vehicles give any empirical or any of the other witnesses any empirical data  projections that would support that quid pro quo that you maintain is there well we know that the replacement ratio for median workers under progressive indexing in say two thousand and forty five would fall from about thirty six percent to thirty percent we know that something like fifty to seventy five percent of all medium workers now participate in some form of retirement program and we know that if we want to encourage people  to participate more we have empirical evidence two things one is to the extent that we have any sort of matching program or refundable tax credit which is place that equipment road that has a big effect in terms of  have to opt out that overcomes inertia and really that's the second thing that really brings up the participation rate so those are two practical things that we could do to encourage people to make up that replacement rate most of them your plan as i read it would apply progressive indexing to workers with disabilities as well as retired workers why did you choose not to hold workers with disabilities harmless pursu benefit in current law that's a good question and i think that i've always tried to say that the whole issue of disability needs to be dealt with separately i under my plan don't try to address all the disability aspects i would be receptive to a hold armless for disability that would just involve some issue in terms of solvent c and then we would have to address that through either other benefit issues or other increases in revenues so we can do that it's just a question of enumerating the cost place strafford mr ram said i think it's important to also look and this was mentioned briefly before and i think we should provide something in the record looking at the ancillary beneficiaries again widows low income widows so that the worker may very well the have made higher than the levels that mr posner's talked about but when that person dies that's going to have an effect so kids widows some of the an ary benefits which are easy to forget about need to be looked at very very carefully these are low income families who would be affected by the proposal so it's not it's not quite appropriate to say that low income workers are protected it just needs to the details need to be worked out very very carefully i think we should provide some of that for the record please of the stress that this is when these areas again where i think if we sit down to work we can really address on these issues as you may know i suggested something not too different from mr posen but it's that we have a wage index eventually minimum is for the same cost you can actually protect people to a higher level you can protect more disabled people you can protect more widows and spouses the disadvantages for someone making seventy thousand and you don't do as much of the wage indexing for their that it's for someone who's who is much higher income you may not in this proposal proposal everybody gets some benefit increase over time no matter how high their income level until you hit the very top i rose it's technical  but there are ways to to address these issues i think that can protect more people at the bottom i think that would actually independently of issues like personal accounts that would please people across this table well i want to thank you again thank you for those responses i must say in conclusion mr chairman for the first time after listening to this panel and the dialogue here i'm more convinced than ever that we can arrive at a bipartisan pragmatic and common sense solution to the the social security  dilemma which may not be a crisis today in terms of an imminent danger but it sure as heck is a looming crisis and a problem we need to deal with so thank you very much all of you gentlemen thank you gentleman for his comments and i too agree that we could reach that  we really need to deal with this issue i find it interesting that all the people picked by your staff think that privatizing social security is a good idea the sooner you and the president realize that privatizing social security is dead as disco as far as the democrats are concerned the sooner we'll get to serious business of doing something about this whole proposal it's not going to happen until it so you make that decision president finally after he was driven out of it leads by is trip on the road he had to admit that the privatization scheme required slashing benefits for the middle class and then adding insult to injury we now know the president's plan will only close about one third of the funding gra now here we are today avenues hearing pretending that privatization is actually going to work for pretending people be better off losing half of their benefits and chairman i mean even you can't define gravity or almost nothing for a middle class person that today earns fifty eight thousand dollars that's what mr firman dr firman just talked about since when do we expect less for our children than we do for ourselves now i know some of yours say well we're going to make it up with the stock market mr firman is it likely that private accounts will make up these benefit cuts i don't know what's going to happen to the stock market mr posen is more likely to but in my written statement i presented six alternative scenarios one that's used by c b s one that's used by the actuaries one that appeared in the wall street journal schiller and every one of the sex your stock market returns are not enough to make up for the benefit reduction thank you so those numbers sound similar to what the numbers i've come up with and you'll point if you get that you'll see now with your stock account that's how much that is how much you're going to make up if you're fifty eight thousand dollars today that's what's going to happen so security and even considering the rosiest and this is the rosiest one of the private accounts the returns will long term downturns in the last century the first period begins in one thousand twenty nine and the second period begins in one thousand nine hundred sixty seven schiller pointed out that once you consider the impact of inflation and dividend payments that people in the market before had to wait nearly twenty years to make their money back put up a slide here this is the one nine hundred sixty seven one this s lide shows the last market slump that began in one nine hundred sixty seven a dollar invested in stocks in one nine hundred sixty six would have been worth less than a dollar when you make computations on inflation and you make dividend computations it would you'd have to go all the way to in one thousand nine hundred five to come back to the same value you put in now this is important because you don't get to choose when you're going to retire  just like a bill here for second looks nervous he can he can't choose when he's going to hit retirement age so during forty of the last seventy six years the market has been down  people defined contribution plans are already at risk in the market if we private security putting people double jeopardy with having their defined contributions at their work or in a very interesting let me restate that your portion of this has been very interesting and i appreciate your testimony i've held a lot of town meetings in iowa and have had a chance to talk to a number of constituents and their their concerns are much broader than social security there are concerns about health care about their pensions certainly with the news that we've seen lately they're concerned about their savings prescription drugs the value of their house taxes on and on and i mean you know that's that to me is retirement security and i think part of the reason why this debate while certainly important is far too focused and narrow because retirement security  much broader than that i also it's troubling because i do think that there is widespread understanding that we do have a challenge a problem that we do need to deal with and thus far at least we we hear that there is opposition to personal accounts there's opposition to progressive indexing basically not too many changes are being suggested the one that kind of gets hinted ad that i hear particularly from those who don't have a proposal that they're interested in questioning is increasing taxes or changing the the earnings base in fact i've had some iowa constituents that have asked me that there's kind of this popular almost internet e mail however you want to put it that basically goes like this all you have to do is increase the earnings that are subject to the tax and this will take care of itself just increase that knowledge take care of itself from ninety thousand dollars and i guess my question would be is that true and let me start with mr lindsey on that on that point no even under the most narrow set of assumptions you might delay the point of date of insolvency if that's what you want to use the parameter by four to six years but more importantly is just about every economic study has shown when you raise those taxes you create an incentive effect that costs the government not just social security tax revenue but also income tax revenues and to use again martin feldstein is example we would act he believes that we would actually see a reduction in total government revenue as a result of eliminating the wage cap completely at the very least whatever the number is you will not get the projected increase in addition in addition what you're doing is you're taxing american workers and american businesses and american entrepreneurs and you're not taxing chinese workers  indian workers or european workers or anyone else you want to compete against so if we live in a globalized economy i don't see the benefit to the american economy or american retirees of making us carry an ever increasing are your actual numbers and it's worth the committee if you're considering this proposal being guided by that a memo dated february seventh says that if you make all earning subject to the payroll tax but retain the cap for benefit calculations that would reduce the seventy five year deficit by two point two percent of payroll that's larger than the entire projected deficit so according to the social security actuaries memo eliminating the cap but retaining it for the purpose of calculating banner but i wasn't going to limit the seventy five year that i was in the question  and then that's not the popular e mail chain letter that seems to be out there so i appreciate again this is i think what what was being discussed earlier you're comparing apples with oranges the second thing that i wanted to just ask mr lindsey about in particular is this issue about increasing the payroll tax and i think that you went to this but this is important because this whole notion that you're talking about particularly in the lower income lower skilled jobs entry level jobs that are in direct competition right now with as you as you said china as an example i would think that an increase in the payroll tax on the front end would be a gigantic drag on seventy eight with very very notice president carter and the congress what benefits the same thing had to happen in one thousand nine hundred three so what benefits with those two i think point out is that the solvency of the system spends on the economy and the only way you can protect future retirees is to have a robust u s economy when we did not have a robust economy such as one hundred seventy eight we ended up cutting benefits quite a important and unique part of h r thirty arbil those bonds represent the amount of benefits that individuals have learned up through the time they opt into personal accounts or by saying it's your money but as you know it's not framed courts edited and it's the government's money we want to make it their money and i wondered if you could talk about the recognition by it's a zero coupon bond i wonder if you could describe that term for those who might not be familiar with it certainly we're talking essential about a bond that does not have any particular attributed interest rate to it it has a face value if you will equal to the lifetime accrued benefit that an individual  earned and it's payable on a date certain in this case to be the sixty seventh birthday so the dubon would simply be issued on a particular day and then it would be redeemable on the sixty seventh birthday and the value of that bond would be based on the accrued lifetime benefit that the individual is earned and as you said this would lock in the level of benefits at the end of it was earned and giving the actual ownership of it i know that there have been several people today who have said that so security is a guaranteed rock bottom guaranteed benefit the fact is it is not guaranteed to the legally as you have mentioned under flemming versus nestor nor economically stem cell security cannot pay the future level of promised benefits recognition bonds are a way of locking in benefits for those individuals the benefits under the president's plan the count's wouldn't be guaranteed either as an offset rate set at three percent that reduces your benefit the president not saying that right the president's proposal at this point but  to talk about is fully tradeable meaning that a person can sell it on the open market but they have to the positive a personal retirement account so mr tanner could you describe what people can do with their recognition bonds after they opt into personal certainly you will individuals who are risk adverse could simply leave that money in their account and simply at retirement redeem that bond and then move that into either a program payment withdrawal system or an annuity system or even take part of in a lump sum above the poverty level but they would simply leave that portion in their account other individuals might choose to sell it on the market as long as they re posited the funds from that sale back into their account and then that money would be reallocated along the lines of their portfolio which i believe under your legislation would be a sixty five default of a sixty five stock thirty five bond portfolio and thereby they'd actually earn a better rate of return to what still security benefits would would be providing them so that would be a boost in their benefit that retirement a bonus if you will to those who were in their forty's when they opt into that system a premium  they get that as well as with these benefits would be beaten fully inheritable as you know under the current social security system if you die before retirement or after retirement you might not be able you can't leave the money to your heirs under your proposal the recognition bonds would be property same way the money in the individual accounts and an individual dying in their fifty's or sixty's would be able to take that money and pass that on to their wife or their children or their church or their or their favorite charity where ever they want to send that money what you're saying is the social security money that has been in put up today during their working period is their money i think we've been very misleading to people and letting them believe that somehow the money they pay into social security belongs to them the fact is that the supreme court ruled it is simply a tax and then there's a government spending program no different than say farm price a port that later on the government decides to allocate to individuals there's not a connection between what you pay and and what you get out under your bill what you're saying is that the money that they pay into the soul security system both the money they paid in the past and the money they pay in the future would belong to them become their property it's a unique feature of your legislation and i think it is one of the things that most recommends thank you in your testimony you say comparisons to social security promised benefits are meaningless since current law can't be paid off and we see the press use that term benefit cut when compared to what today's retirees are receiving are compared to what's payable benefits aren't being reduced at all would you clarify that issue yeah i think this is this is been one of the most unfair charges that opponents of personal health made or opponents of the of the progressive price indexing they've been particular unfair i think to mr posen in saying that somehow that any reduction in the growth of future benefits is somehow a cut the fact is the projected level of benefits the future cannot be paid we simply cannot meet those promises all we're talking about doing is bringing those promises in line with reality you might as well say that somehow the soul security system reforms program doesn't stand every senior to  disneyland they would have about as much reality as saying that we're cutting social security benefits by simply bringing them in line with actually can be paid thank the panel thank you mr sulu thank you very much mr chairman let me thank staff is data a social security and when you will social security commission on a president clinton what happened to the social security you there is a social security trust fund it is by law available for one thing and that's paying benefits for current and future beneficiaries the monies if they are taking out of that trust fund to pay individuals who are paying it and that money that therefore is not going to be available to pay benefits for current and future beneficiaries during the clinton years one of the very important things that took place was we were starting to pay down debt with those trust funds which puts us in a stronger position i believe to be able to grow as a nation we were saving as a nation in terms of overall government savings that's what took place during part of the clinton administration that was one of the things that left me with some optimism that would be able to resolve this issue given that change in fiscal climate so during the years particularly end of the clinton ministration those monies were used to pay down debt which put us in a stronger position in terms of overall national savings bank and the only purpose for those funds is to pay benefits for social security beneficiaries dedicated designated to pay benefits nothing have nothing  decide but i think most people making thirty five thousand dollars a year probably don't consider themselves as a wretch percentage wise the benefit reductions in the plan for someone making fifty five or sixty thousand are almost the same as they are for people making six million  commitments and so security by creating private accounts and you do indexing proposal the wage based cuts it is going to have a secondary effect on lower income people many lower income people widows the disabled etc so a number of people will be affected by this who are in the lower income categories and also point out again that this is also shifting risk it is saying that if the markets do fine then maybe maybe things are going to be fine but if the markets don't do fine then that does put individuals at risk in terms of their overall security and that would be true for every person rich and poor who are in the system thank you very much my time is thank you thank  obviously we're all following various newspaper stories with great interest and i find it amazing that people prefer predictions to the future as to reality versus what's occurred in the past which is certain but that's what this opportunity this is graduation season and many of us speak to young graduates that are leaving the college life and getting ready to embark upon a work career and we're going to speak of and optimism and promise i wonder what my friend from george or some of you on the panel would say what is the promise that we can say to that generation that's just beginning the work force  ed that you wrote that was at least published in the wall street journal on tuesday may the third and let me just paraphrase or actually quote the second paragraph of this  editorial judging any reform plan relative to relative to scheduled benefits is misguided the schedule represents the benefits we have promised but do not have the money to deliver and i think this rhetoric and the chairman of the so security subcommittee very passionately talked about if we really are serious about coming up with a solution to these long term demographic challenges i think we need that we need to tuck away the rhetoric let me just mr apple it's great to have you back and you know i got to know you of course when you were the commissioner and you would come to the so security subcommittee do you agree with that statement that basically judging a reform plan relative to schedule benefits is that misguided i think that's one of two ways to look at benefits want to schedule benefits and basically one is what we have the financial resources given the laws that exist now in place to provide i think looking both ways make sense and looking one way or the other way alone does not make sense i think looking particularly when we look thirty and forty and fifty years out we have more uncertainty when trust funds are going to be gone because let's face it we don't further out one gets the more uncertain one is about these projections so it may very well be that in the year twenty forty or twenty fifty that the trust funds will be there and under the laws benefits would be lower but i think you've got to look at both both models if you want to be able to make accurate projections i just got in the mail as many probably millions of americans do and that is my social security administration statement and i r s should have brought it i read it very carefully because very first page and i would encourage  just my colleagues here but all americans that get that statement instead of turning to the inside to see what that projected benefit is going to be to spend some time and read the very beginning part of that because it is a very cogent non manipulative way to describe the challenges and it states very clearly that under the current system that in the american people and then through their elected representatives hopefully fashioning some sort of a solution that language was language that i inserted during my time under current laws under current projections and under current laws that language was included and has been for some time because i think it's important to help the american people understand that we do face a long term challenge well and i would just say as we embark upon this what i politics is the art of the possible  i'm not sure that position well the administration said was going to cost sixty to eighty billion dollars at the time and i was just curious because you seem to suggest that with great clarity the time will be over three hundred billion and it seems to me as though your credibility is on question on this issue thank you for the complement nomic things which you get for your money and you know i think that that's an issue that's going to play out and i want to thank you for comment based upon the administration's performance and forecast that's very important also the chairman referenced the future so scared how difficult it is to look at all of these things i know something about social security my sisters and i know something about it would be happy to share that experience with the doubters as to what it really means in the real world when i hear people discuss it particularly those in academic circles who treated as though it's an esoteric issue it really is important to millions of americans and that leads me to the question i want to raise with dr foreman because i know that mr raffles had a chance to talk to get would you address the president's proposal as it relates to survivor benefits yes under current law survivor's benefits are computed in the same way that retirees benefits are you calculate what you're entitled to based on what you earn and then a child gets a fraction of that of a spouse would get that amount the president would change that formula for retirees the exact same formula would apply to survivors as well so that includes small children widows and these are a lot of situations where you look at the benefit cuts they can be on the order of over a lifetime fifty hundred thousand dollars that account even if you inherit it is not going to come close to making up for that a lot of circumstances and how does the present calculate present calculation work children across america receive survivor's benefits it's there are clearly millions a couple of million kids that are on i'll give you the exact number for the record so one could argue with some accuracy that because moms and dads paid into that proposal and then died prematurely not because incidentally they wanted to die but they did die prematurely that the children received might we argue insurance benefits they do receive insurance benefits social insurance benefits progressively determined and that provides a remarkably important foundation of support the life insurance component of social security is worth the equivalent of three or four hundred thousand dollars per family so it's a critically important benefit and one that i know about when my wife was a young girl her dad died and she receive social security benefits as well so this is a critically important benefit and we're going to be very careful here about what happens to those added benefits through these proposals look for those who are familiar with mr roosevelt initiative when he offered it thirty five i think that half the people sixty five years and older in america live below the poverty line is that correct  about half about half that number is inside of ten percent that number is now ten percent in one thousand nine hundred eighty nine it was about thirty five percent social security benefits were somehow gone tomorrow about half of all older americans went back to living in poverty the day after tomorrow no one's proposing such a thing thank heavens but how many women in america rely solely upon social security for their retirement benefits you know off the top of your head for four widows the figure is about a third of widows the need so security for virtually all of their income virtually all of their income so for those women perhaps in my mom's generation and others for some women who didn't work at the time they rely soley today on the benefit of those ma's majorities but it's somewhere between a quarter and a third of all most significant number that we would all agree absolutely good point i think there are ways regardless of what size program you want that we can fix up survivors and spousal benefits to do better by low income survivors who are not in many cases well treated it's a free benefit that it's not paid for at the margin with the additional tax benefits go to those who marry the richest people i don't dispute in an academic setting that you of good intent pure heart and good motive what i'm worried about is the administration as they try to settle benefits based upon the debt that's been run up in this country and i think that's what we have to be mindful of i thank the chairman for yielding me the time tells a gentlemanly have the ability to change the law and one of the very first questions i asked philip misses were there are areas inside the social security system that could be addressed because of inequities that have been there a long time way before the eighty three changes weren't addressed by the  changes and frankly if you examine on the margin creating a much fairer more equitable social security system for those who most need it cost surprisingly little money based upon the amounts of money that we're talking about we're looking for in making changes that's already on the subcommittee agenda and them going to make sure that they look at all the ideas that were presented here and in other places because i want to state it on the margin given the problems we have with federal deficits and debt huge tax increases and or dramatic budget cuts as long term budget simulation shows substantive reform of social security is critical to saving our fiscal future taking action soon would also serve to reduce the amount of change needed to ensure that so security is solvent sustainable and secure for current and future generations jael also  before this committee gave us a startling number that are unfunded liabilities and debt future unfunded liability and dead somewhere around forty three trillion dollars almost four times the size of the economy so security is a big chunk of that it seems to me like we need to start doing something about it now rather than later and as far as accounting personal accounts i don't care whether you call them private accounts personal counts individual retirement whatever you call them it seems to me like the american people would rather have the money in their hands then in the hands of politicians here in congress because the last fifty years or the last few decades congress has been spending the so security trust fund money so you know who's better able to handle their money congress or them i personally have faith in the american people i have faith in my twenty two year old daughter to be able to handle her personal affairs better than politicians here in washington and by the way you know i don't you know i really i really take a stance to anyone who challenges my concern and my interest on this issue when i have an eighty eight year old father that depends on so security and i have a thirty two year old son and a twenty one year old daughter that is depending on a retirement some time in their future and i'm looking out for their best interest and i think their best interest will be allowing them to make choices that that they can certainly do a better job than what's been done here especially when we're facing forty three trillion dollars of unfunded liabilities and debt and so security a big chunk of that you know i just i just can't believe that that anyone just wants to stick their head in the sand and do nothing about this problem absolutely nothing and you talk about the stock market well listen if we do nothing the benefits for future retirees is going to be cut thirty percent that's not a good deal so you know looking at some of these opportunities to make it a better system and putting everything on the table and saying oh we're going to take this out we're not going to you know the hope we can put that to rest in terms of get away from all sorts of stereotypes on either side of the aisle ever purposes of full disclosure my parents are in their early seventy's depend on social security really ought to be set aside and perhaps for purposes of this discussion we can do so mr posen welcome you discussed with my colleague mr ramstad earlier the notion of holding harmless disabled workers now i think it's important to reaffirm that protecting this segment of social security beneficiaries is vital this is a population that depends on social security we have a time honored responsibility to those people who are disabled what do you what budget impact would there be disabled workers are held harmless under what we call posing indexing or wage versus price indexing or any form of indexing i don't have the exact numbers but my rough estimate would be that instead of solving seventy percent of the solve in c gap in social security you'd probably bring it down to sixty five percent or sixty percent it all depends on how much you want to do all survivors all spouses all disabled and i think jean makes an excellent point is we have to distinguish and all these things between a widow who is i law is in poverty and the widow of a very wealthy person similarly if somebody worked for goldman sachs for twenty years and then was disabled we shouldn't really be spending a lot of social security benefits on them so it would depend on the exact design but i think that i think everyone's in agreement that we need to protect these various classes but i think we need to start to distinguish between those people who are relatively affluent and those people who are not in those classes so discernment as part of public policy in a recognition of where absolutely yes or in my statement i said the place you should start is what this is one deciding what your principles are if you l indicated on the floor of the house we're currently in a fifteen minute vote and it will be followed by fifteen minutes i'll ask the gentleman from louisiana if he wishes to inquire now otherwise the committee will stand in recess or after the gentleman from louisiana inquires the committee will stand in recess and we have about ten minutes so you have five minutes to make it and let me say to the panel first of all thank you very much i hope you can stay on the chair intention is to have all members of the committee inquire you'll get some appropriate iron man recognition but i also will tell you that during that half an hour there is some food available in the back if quotes a white house a white house official it says as stating that fifty percent of all retirees under president bush's plan would probably not be able to pass along a social security inheritance figure that rises thirty percent for those with low a lifetime wages about i'll answer brief and then and then but one other thing is i don't doubt the sincerity of a lot of people like mr posen that they want to protect survivors and they want to protect the most vulnerable but social security has an exceedingly complicated formula that's used to determine benefits and when you start changing that formula dramatically you have dramatic effects that maybe you didn't even realize or intend i myself was even surprised at the white house analysis last week showing how much of the bottom twenty percent of americans would get their benefits reduced by the plan it was actually beyond what i i had expected so it's not a question just of sincerity it's a question of executing the plan well and there have been many many years to address these problems and they still haven't been addressed because of your particular question social security is very progressive program african americans disproportionately benefit from that anything that reduces the traditional portion of social security and supplements it was something that isn't progressive like accounts will leave african americans worse off it's also important understand how the inheritance works under the president's plan you inherit the account you also inherit the benefit cut your husband agreed to have his benefits cut you don't just get his money you get his additional benefit offset as well there's a second issue to that needs to be addressed which has to do with annuities the president's proposal calls for mandatory annuities up to the poverty level with our current social security system we have a mandatory  annuities mandatory annuities and there is also risks in terms of rates of return with the know what he's trying to retire at a time of down market conditions but the stock market can affect the balance is coming in but then requiring an annuity at that point in time depends a lot on what the interest rate conditions are at that point in time so that is one of the things that has received a lot of attention has to do with both market volatility as well as the annuity vol which i don't think it has been on no no i'm saying that this is a proposal of the shape chafey that it presents a pitch if you drop these and brought about democrats in the table i would think that a privatization was dropped tomorrow that there would be a greater likelihood of coming together on a benefit and tax package that would be able to strengthen social security for the long term i think privatization is the biggest obstacle to to seeing that take place and you can surely take that statement to the bank i think you'll find that privatization comes off the table and a progressive payment then becomes the item that has to be dropped ad nauseum point after point because frankly there is no interest in engaging in  hundred three and i'll place it in the record the vote on the changes in social security the pickle amendment to sustain a change in the fundamental structure i e increase the retirement age had one hundred fifty two republicans voting i and one hundred eighty eight democrats voting no that fundamental change was sustained by the minority the republicans the pepper amendment to simply raise the payroll tax even beyond the amount that we had raised plastic celebration that we had put in the underlying bill there were one hundred sixty five republicans that voted no and there were one hundred thirty one democrats that voted no hundred thirty one voted yes sustain not going back to the same ole same all of the payroll tax so on both the idea of fundamental reform and not going back to the payroll tax it was the minority that controlled the choice in front of congress not the majority who had at the time the op to know you make the kind of specific changes we were talking about and to begin to anticipate the fundamental aging of the society with additional changes their goal and their desire and their votes at that point was to go back to the payroll tax committee stands in recess until two fifteen and the offer panel which has been refreshing not only for its expertise but for its diversity taking in some of the presentations that have been made i guess my first question would be for dr sternly you made the point demographically people are living longer and part of the solution of a march of a reform of social security through marginal change would be to raise the retirement age  one of my concerns would have to do with the guy on the shop floor who's been working in a physically demanding job since he was in his teens and he's ready to retire and typically he will retire anyway around sixty two years old i believe that tends to be the pattern for most people coming through a skilled  but highly physically challenging work that given that kind of of experience with blue collar jobs is it realistic to talk about raising the retirement age can we expect people to continue to undertake physically demanding jobs up until the age of seventy and how would you deal with the early retirement age of the system which is becoming more and more middle aged retirement system is giving benefits to all of you and me to retire when we might have twenty or twenty five years of life expectancy and so the dilemma is how can we protect some people who really do have to disability to help people who are disabled i think for lower income people and these include the people have the blue collar jobs i don't know that we can give them a different retirement age i don't know how to distinguish between types of jobs maybe they only go maybe they go back maybe they only get twelve years of retirement thirteen whereas you and i only get twenty instead of twenty one but we can do more for them to increase their lifetime benefit and we can achieve the replacement rates a lot in those later years could be one piece of the puzzle another piece of the puzzle has to be how we generate revenue and how we generate revenue consistent with the principles of the system down dr scheiber and dr lindsey i wonder if you could briefly comment with the remaining portion of my time many have proposed to eliminate the cap on the payroll tax as a way of generating additional revenue to address all or part of the problem and social security and yet it seems to me that's going to have an enormous impact on the economy particularly on small unincorporated businesses and significantly change the extent to which we have heard discussion about a proposal that would take the cap off of earnings for purposes of raising the payroll tax but maintaining the cab for financing benefits that would seem to me to be the ultimate conversion of social security into a welfare program today you get benefits based on the income that you have paid taxes on and you would now have a whole set of your income that  you were generating no benefit at all and i would say if you want to move in that direction why would you constrain yourself just earned income take somebody like warren buffett warren buffett takes one hundred thousand dollars in compensation out of his company each year but we know he takes a bit more than that out of the whole thing why would you just want to constrain this on people who i guess i would characterize as had them having the misfortune of earning their income through their labor services as opposed to other things they do it seems to me that would turn this into the welfare program and if you want to do that then you really should look at at loring benefits of making this portable related question very quickly means testing i was unsure whether you would continue to adjust benefits as income rises it's a little bit like losing money on each unit and trying to make it up on volume if you do it that way and that i think is one of the problems if you didn't do that then you wouldn't fact be officially means testing by any definition thank you thank you i'm a gentleman from tennessee mr  has been refreshing i think we've covered social security to the extent that we need to i want to change the subject if i may because this is a very interesting academic exercise but in my view so security is a five mile an hour tropical breeze and there's a hurricane two miles offshore and we're in a house and that is the budget deficit and the trade deficit since we started this hearing by my figures we have in your name and mine this country is barred from foreign sources one hundred ninety one plus million dollars just since we started this hearing we are borrowing over one billion dollars a day and have been with no way and saw under anybody's scenario the best the administration can offer is to cut the deficit in half in five years and unless one has the ability to repeal laws of arithmetic i don't know how that's going to happen with the budget not including expenses that we know are going to a kerr and so this is a very interesting academic exercise about what will happen in two thousand and seventy five the problem is the country's going to financially financially collapse long before them if one believes what the director general said david walker that if we make the tax cuts permanent as some in this body want to do and as some of you gentlemen have suggested we ought to do as public policy and do nothing else but twenty forty under their calculations every dime that comes the united states treasury will be going pay interest on the national debt of course we all know that the country will financially collapse long before that occurs now the one thing i want to say does anyone believe seriously that we can have a strong social security dollar and a non existent or weak u s treasury dollar no one would make that argument yet that is exactly in my judgment where we are headed just in the last forty eight months we have transferred fifty billion dollars a year out of the tax base to interest eighty four percent of that going overseas because foreigners have financed eighty four percent of our borrowing and terms of real money in the last forty eight months no one i don't think any economist would seriously argue that this is a sustainable course of action for this country to take and so i would simply like to ask do you or do you not agree with david walker's assessment of our current budget situation and do you or do you not agree that one can never have a strong social security system when the underlying u s treasury is broke or nonexistent thank you very much mr chairman i think they interested as to anyone who wants to respond i think that's a good question and we have a very large budget deficit today four hundred twelve billion dollars last year the largest on record in dollar terms and we have a projected very large deficit in the future forty three trillion dollars according to i think we need to be addressing both of those now first of all some social security plans would reduce the deficit in two thousand and seventy five and increase it enormously today i think that's the wrong way to go it's also important to understand where these deficits come from the deficit last year didn't come from social security social security in fact ran a significant surplus as we look forward over the next seventy five years of the forty three trillion dollars we heard about before twelve trillion where the tax cuts that were passed assuming they are extended nine trillion was the prescription drug bill half of our long term deficit was passed and signed into law in the last five years social security is a trivial portion of it now addressing social security could help and i think one should do that but it want to look at what we're doing to ourselves we are running up massive bills that our children simply will not be able to pay and we need to address this problem and we need to address it right now and  spending in this country the problem is not the question of whether or not we borel or whether or not we tax in order to fill that spending the problem is the spending in the congress is inability to get a rein on spending which includes mandatory entitlement spending including social security medicare and medicaid if you can't get a handle on those programs in the future the mount of borrowing or the amount of taxes necessary to pay all those benefits are going to cripple the economy we may have to shift a written statement serve you guys are clever enough when someone else ask a question you can work your answer in the next round i would only respond dr for a minute when you talked about how much the tax cuts were going to be used afraid to phrase if they made permanent which clearly allowed you to extrapolate into the future but then when you talked about a surplus for social security had you said if they're made permanent it says we know they're permanent you have to grapple eight into the future and i believe that was the point that was being just as i actually is very short term surplus i use the same assumption that the deficit in social security under current law is precisely zero trillion dollars because benefits are reduced automatically in twenty forty one i was assuming that we continue to pay benefits at the current level and calculating that in exactly the same way i was doing for the tax cuts and i'm sure colleagues on this side of the aisle of the agree with you in terms of the benefit cuts that are supposed to take place in two thousand and forty one just as they're willing to panel as this has been a long but important hearing and i'd like to direct a couple of my questions to individuals on the panel i'd like to begin with commissioner apple what years were you the so security commissioner hundred ninety seven to two thousand and one nine hundred ninety seven two thousand one so president clinton was president during that time yes the because there's a lack of democrat ideas when it comes to fixing social security for the long term i thought i'd discuss the one democrat idea it's been on the table for a long time and you probably recall that president clinton save social security first state of the union speech got great applause both sides of the aisle we all thought it was great and president clinton at that time proposed investing so security  security in the stock market at that time were you so security commissioner at that time yes it was so was president clinton's proposal your idea i was involved in discussions in the white house about it i supported it the the  what the president said at that point in time when we had large budget surpluses growing was let's use those budget surpluses to save social security first i believe a courageous so was the now did president clinton oppose using payroll taxes to be invested in the stock market or did he propose general revenue funds the what the president proposed is that some about fifteen percent of the social security surplus is which would be  would be invested to try to get a slightly modestly higher rate of return that is a debatable issue as to how much of the rate of increased rate of return and as one of the architects president clinton's plan to invest so security payroll taxes in the stock market what time and what was your projected growth that you anticipated for those funds one invested in the stock market at the time the the investing in equities if i'm remembering correctly would resolve debate about what those rate of returns would be a fundamental difference between individual accounts and collective investment is the individual risk that's involved if we have collective investment if there is a decline in the markets then there is in the stock market and today you stand by that endorsement you still believe that that is a good idea i think that it's one of the options that should be seriously considered i still generally think that it's a good thing to get to explore you know  what was that structure mandatory or voluntary part was it mandatory or voluntary it was centrally invested funds by so individual individual didn't have a choice as to whether or not they were going to do the risky scheme of playing the stock market what the president proposed were voluntary add on individual savings accounts coupled with market i was focusing on the investment in th at the state local pension funds we see in state and local pension funds not an insignificant share that is in diversified portfolios and one of the things that i think is worth exploring is whether to do the same thing with social security the the the thing that's i think that's new that's from from my perspective over the last several years is the question about the rates of return has received an awful lot more attention with a lot of concern that those rates of return and commissioner i would note that looking on the best way to look at project or turns is look at history and over the last ten years i know in my own personal thrift savings plan and in my money's in the s and p five hundred plan the c plan that's grown at a rate of eight percent on average over the last ten years the bond funds have grown at an average rate of four percent and outside economists tell us separate a return on so securities about eight tenths of one percent well it's really as you noted and when you proposed investing in the stock fun trying to compare rates of return in a social insurance system in an investment system is apples to oranges trying to determine how an intergenerational finance system the pools resources could compare if the money was available to be used in investments is comparing apples to oranges not an appropriate comparison thank you mr chairman thank chairman go back to adam smith in the marketplace and think that one older gentleman from texas wish to inquire thank you to the witnesses but it's my belief that americans ought not to be misled into viewing this hearing as representing some type of academic discourse about the best ways to preserve social security for future generations nor should anyone be deluded into the notion that those who are committed to replacing social security with a risky privatization plan are down and out in the polls and that they've given up on that approach anyone who believes as i do that we need to preserve and strengthen social security and who underestimates our chairman mr thomas and who underestimates the ideological behind this privatization movement anyone does that at their peril and at the great risk to anyone who depends on the social security check one capitol hill newspaper has already reported that a privatization plan will be before the house in july and only a week ago chairman thomas analysis of that less than a loss from this very moment he would probably have a bill before us quote to fix social security for all time but we've got some steers down in texas that have been fixed for all time and mark crn is that the same thing is about to happen to social security there's no doubt that social security faces a clear and present danger that social security is in crisis and it is a crisis that was from those who control decision making here in washington and who zealously believe that community solutions as opposed to individual independent plans are just somehow inherently flawed they think that every initiative that has public in front of it as in public education are social in the title such as social security needs to be eliminated in the form we have known them in the past they think that this great country can rely on the principle of every person for themselves and if you fall behind where you just need to tighten your belt and get by on your own if they can destroy a community solution that is as effective and successful as social security has been for this last many decades they think they can destroy the belief in government as a source of a solution to any social problem today is merely the prelude to a preconceived conclusion what is driving this privatization effort has very little to do with concerns over solvency everything to do with the demands of ideology with all due respect to the testimony of all of the witnesses here whether i agree with you or not the most remarkable aspect of this hearing is not who's sitting at this witness table but who is not there there's a giant gap in that witness table as crowded as you are around it and it's a gap on filled by anyone who is here testifying for the bush administration there is no administration spokesperson to answer questions about specific legislation of a president who insists that privatization is non negotiable that it is the linchpin of his social security plan perhaps because the last administration spokesperson who did sit where you are who appeared here treasury secretary snow admitted that the administration plans to raise the social security trust fund for every dollar in it two point six trillion dollars over the next decade and that president bush will spend every one of t point six trillion dollars for nonsocial security purposes i have a question for mr apple but mr emanuel says he needs to leave and i yield a minute to him like come back if i have any more time and i think my colleague from texas it is will pass to former president clinton all the warm comments that he's received from the other side of the aisle the fact that a i'm sure you can all sign a card all pass along because when he introduced his ninety three budget which did not receive a single vote republicans that put us on an economic plan towards reducing the deficit we added twelve years to the life of the social security trust fund which was a first step to saving social security and i agree with mr lindsey the best thing you can do so security is have a growing economy and that's exactly what happened in one thousand nine hundred three and to all those who mentioned about faisal security first and just stroll down memory lane so security first was about not doing tax cuts was in fact about investing the surplus in so security and allowing in fact general investments by the sole security administration to get a slight better return and also allowing us to invest in social security and strengthen the nation's saving rates as well as the individual savings rate and in fact what is done over the last five years is the reverse of social security first which was a tax cut that ended up spending the surplus plus whatever else we had and still security and so still all those who want to claim president clinton  in fact that in the last four years we've done everything opposite what he suggested that is a build a surplus and be safe first before you've done a tax cut that rated it but i'm sure his heart will be warmed by the concomitants that were said here by somebody who participate in the ministration and also somebody represents over twenty eight thousand employees and united airlines they all enjoy the security that comes with full security after what happened to them thank you very much for my colleague from texas  gentleman from florida listen cordwood to the chairman yes i would restore my friend leaves there was a different view on what happened because frankly what happened was the democrat majority along with president clinton pas the highest tax increases in the history of the united states and american people elected a republican congress that didn't spend it this year all that revenue that had been raised with that tax increase and the surpluses began after the congress our listeners that it was the tax on social security beneficiaries that was part of that ninety three plan so if you were receiving social security in order to raise revenue the president's plan was to tax social security proceeds so they played a shell game i don't know where we came up with the fixed steer analogy from texas but on social security reform the democrats are truly shooting blanks i'd like to ask mr apple during his tenure haven't we seen a lot of expansion of disability claims that maybe not  characteristics a lot of new ways in which parents can enter their children in s s i based on a diagnosis that's loosely constructed in order to gain family benefits generally no it's my belief the disability program united states relative to most other international world internationally developing developed countries has a relatively low disability population in terms of the comparing our do not think that this is a system the disability system that is rife with fraud and abuse no i do not is there a need for a examination of disability definitions given the changes that have taken place generally yes i think this is a relatively  d comparing us to so many other countries we have a relatively lean and a very inexpensive disability system i would urge the committee go very very cautiously about major changes to the disability rolls mr posen i was humored by the ranking members constant request of explaining why you've been listed as a democrat but i think it's because you're an endangered species that you're one willing to step up and at least offer suggestions so i applaud you for thank you i'd like to ask mr ferman you've gone through great detail and i was very impressed by your thorough review of the system your critique of the sidecar you also stated a minute ago that and forty one we can pay the benefits we're paying today that your comment under the current system no my comment was when you talk about there being a four trillion dollar deficit or an eleven trillion dollar deficit you are assuming the current schedule benefits are continued if you did not just look at the deficit under current law there is no deficit at all because benefits are automatically reduced did you take a chance to to look at any mechanism by which we can create solvency for get accounts we don't  accounts what would they be well there's a number of plans that are out there this if you look very thoroughly at the numbers you must write crunch numbers peter diamond and peter orszag have a plan former social security commissioner but these other plans i referred to get sustainable solvency one of them with a much much smaller benefit reductions than what the president's plan what they are and actually they some of those plans have very moderate reductions and moderate duction moderate and most all in the to be part of the program but ultimately you still have to fix the program the system is collapsing under its own weight i need nor the obvious if we sit here and say it can't fix itself let's just skip this can down the road i think all of our witnesses testif if you would get the president to agree to only talk about private accounts in academic seminars then i'd agree to sit down and talk to him about what to do about reforming it but it was not to give them a question in defense of the president if somebody tells me to bake a cake and says i'll give you every ingredient but the six say the cake won't take so in respect to the president i don't think you can discuss a plan without at least discussing every option that senator leahy was profound on fox this week when i asked a question and he said oh the present we've got to have everything on the table open except but except well i don't know how you do it if you don't at least have the academic exercise we may be proven concerned there should be no discussion about the fact the once someone goes through the process of being determined disabled they should not have to wait twenty four months to go on to medicare the twenty four months provision was put in by the former majority to save money that is not the way you should save money in this system and i would hope there would be no disagreement that we would make that change as we look at other unfair structures that have been there for far too long thank the gentleman for yielding thank you chairman couple points i want to make then i want to ask a question of us are firm and number one  and i just missed the last go around so maybe this is covered but no one's talking about undoing no one's talking about not having a safety net one thing that has not been discussed here today is the issue of generational fairness and that's something that isn't discussed here let me give you a case in point current seniors my mother she's seventy years old she gets about a five percent rate of return on her payroll taxes that she paid now and her retirement i at my age and most workers in my core to  get about a one percent rate of return on our payroll taxes that we pay my children i have three young toddlers right now they're scheduled to get a new i get a one percent rate of return on their payroll taxes that they pay when they retire that's assuming we can come up with the four trillion today we would need to set aside to pay them their promised benefits that we don't have the money for so if you do not use personal accounts as a part of the solution then you're confining future generations for sure to get much worse benefits relative to the day's seniors only through personal accounts can you achieve in equal measure a benefit under today's standards now the word proposition been used over and over and over and over no one is talking about giving people some of their payroll taxes and going outside so security taking it to a stockbroker and wishing him good luck have a nice day hope you invest it well that would be privatizing it no one's talking about that what we're talking about is a system with inside of social security run by so security overseen by so sturdy managed by so security for workers that have a voluntary option of choosing a fund within the so security system like we have with our thrift savings plan so we're not talking about going outside of the system the last point i want to make is is a form of question you mr berman and that is i look at your your testimony on page seven you refer to explicit expos debt versus implies a debt and you say that the borrowing to pay for personal accounts takes all of explicit debt explicit that are bonds that cannot be defaulted on and actually have to be paid whereas the current system of implicit debt the total amount of implicit debt is based on projections and it's not legally binding so my question is this the rock solid guarantee that we have that you refuse you referred to is an implicit debt that is not legally binding yet if you're a worker and you choose a personal account you go into a treasury bond that is explicit that they actually have to pay you your benefit isn't it more of a solid guarantee that you're going to get your benefit if you choose a personal retirement account if it's just a form of two questions one is some financial markets treat explicit debt very differently than social security is a four trillion dollar implicit debt i have absolute faith that congress is going to eliminate that and buy your implicit debt that you are at ever materialize and congress willing to do that right i believe congress and we had a hope congress will do i certainly hope congress does that the second thing is the private account is no more guaranteed the supreme court has said you can change the tax rates you can tax withdrawals from the account you can tax accumulations you can change the offset you can change the cumulation if you got into problems with solvents in a private account system those private accounts could be reduced serious things easily as the tradition is saying we can't bind the hands of the future congress that is correct but what we can do is insulate people against market risk the current benefit inflates benefit guarantee in the future for people is whatever congress to use to give it congress has historically honored those commitments in fact has generally in the past had raised benefit a liver time change benefit that benefit is not subject to market risk your account of them we're in is subject to market risk all the other risks in terms of what congress can do you can you all could change the tax rate two hundred percent on our income tax dollar and call me ask you this is a tremendous number of risks out there you like times are not let me ask as united by the same age and we're you and i will probably  get a one percent return if all things go well we come up with the money to pay this unfunded liability if you were given the personal account option like the president's plan provides what would you do would you take it would make no financial sense for me to take it i could do the same exact financial transaction right now by selling some of the bonds in my portfolio do you have any of the violence in a portfolio i have portfolio and i have bonds and i could sell them the president's plan gives people the option of borrowing at a relatively unfavorable interest rate i wouldn't recommend that anyone do that so so you would say i'm going to trust a future politician for my benefit rather than getting a bond in my case that's not the way that the president's plan doesn't doesn't change that in any respect it takes a benefit offset out of your existing benefit it doesn't give you any more security in any meaningful political sense and it gives you less security in the markets you want to respond if  we're going to fix your mr and of we're going to fix your your benefit by somehow filling this four trillion dollars hole in your rate of return almost certainly house fall because you're going to have to put more taxes in to deliver that benefit and you can only look at the benefit side of this program if you're going to be taking more money off of people's table it's going to have as much of an economic effect as you are if you adjust your benefit time and i know a lot of you want to respond again i can assure you written responses to those questions will be read by the committee and the chair is tempted to ask the members of the panel which tense are you in and dr she bears structure based on some of the analysis of how you really wouldn't have to rely on social security and therefore doesn't make any difference gentleman from north dakota couple moving to seven million per couple in the year twenty or nine that would eliminate the tax problems for ninety nine point seven percent of the people in this country could dedicate the overage as a dedicated revenue stream into the social security trust fund that would take care we're running the numbers some substantial percentage of the shortfall potentially are roughly equivalent to the benefit cut proposed in this progressive  indexing so because ninety nine point seven percent wouldn't have any tax that's one form of contribution to the trust fund that really would not be reflected in reduced economic consequence to the individual recipient but you know what i want to get this down to brass tacks but you can respond in writing so i just don't have my times going to go so short i expect you will respond you know it's one thing for a ph smart albeit rightward leaning economist type from wisconsin to talk about how they make these funds work and what the best investment strategies might be i'm thinking of how this all works for average family social security north dakota that the benefit is eight hundred thirty four dollars average benefit as i look at the risk on the private savings side questions about pensions conversions of pensions to defined contribution plans defined contribution plans that raise issues relative to people whether people are participating whether people are saving enough whether they're investing wisely whether they're managing the assets through retirement years about managing their longevity risk nothing but questions nothing but risk seems to me that in the when strategy that basically knowledge is the risk they already have on the private savings side and adds risk into the foundation of income in retirement social security is a risk on risk investment proposition now people don't really manage risk portfolios in that fashion you augment risk by less risk and so risk risk at the end of the day i believe is going to really expose people one in three we know depends upon that social security check for ninety percent or better of their income two in three for most of their income now how much risk do you want to put into that foundation to me it just flies right in the face of economics i thought it was very interesting when the secretary of labor was here she denied having taken any action with the p v g c portfolio but indeed she  was voted and signed the minutes of a board motion that moved the equity position of p b g c from thirty percent down to fifteen to twenty percent if you look at risk i'm much more comfortable with risk in an aggregate class like a pension fund than one person with one account how they do determines how they do and so i think that there's a little schizophrenia even within the administration equities are bad for pent defined benefit guarantee corporation although the secretary of labor either didn't know or denied her action inappropriately or versus social security or risk is good let's jump all over it i'm i want to get to the benefit cut issue that was discussed earlier by congressman mcdermott and i think this really gets to the nub of the question i need to ask mr apfel or for dr firman to to address this the bottom line when we talk intergenerational fairness it looks to me like the progressive indexing reduction reduces the social security benefit to a dimension that that benefit even when added the private account cannot produce an income replacement benefit that we presently enjoy to address it briefly it seems to me that if for goal is to replace somewhere around seventy percent approve retirement earnings which seems like to be above the minimum that there ought to be a foundation that can be counted on no matter what happens to individual investments that ought to represent a significant piece of that combining these two proposals as the president has both the privatization and in the reduction in the guaranteed benefit coupled with the the middle class benefit reduction that's taken place means that so securities that foundation is going to be replacing infant testable share over time for a very large number of people and growing over time i think that's just putting too much on savings for the future that's putting individuals at risk over time if the foundation is going to become smaller and smaller and smaller and from what i've seen of the the numbers it doesn't seem to me that people will be living with more income that not only will there be losers for sure but eighty three extended the age of retirement would you find out it's a benefit  it wasn't actually mr chairman i was heavily involved with those discussions not as a member but as it wasn't a benefit it was a benefit reduction and how what percentage of the population were affected by that benefit at that point and the people who were on the rolls none was pretty no no no the question you just responded to was a prospect of one in terms of the future not the current rules and i'm asking you about that change in age is it a benefit cut the answer is yes and how many did of effect one hundred percent of the population all i'm doing that for is to understand if we're going to argue on the point of no change in this structure and that certain things are ruled off the table by definition you cannot reach an agreement which will address the problem in front of us that would truly reduce this discussion to an academic exercise and one of the things we have as a responsibility is t and i find those questions helpful because it's important to note that at least we be consistent on what facts and options are across the board for future retiree's i have a district in east texas perhaps a lot a lot like america has some very wealthy neighborhoods of has some very very poor communities out of the eleven counties in my district nine of them are heavily democratic some of them very union strong union areas i've done about thirty so security workshops people are smart they get this they know there's a serious problem so security they know the trust fund is really a debt they know we've been spending the money and i've noticed just in the last two and a half months in our workshops where whereas i used to have spent the whole time on the problem how we got there what the future looks like things like the now they go right to the solutions i want to know the ideas they want the real solutions to this problem we're thankful that we've got models all around us that we can look at it not just the federal employee retirement system but in texas to galveston model work for twenty four years voted in by the imp workers themselves they get about twice on average about twice their retirement paycheck is so security would have provided they have a disability program that would embarrass the social security system and they've got a death benefit that between seventy five thousand two hundred twenty thousand plus keeping the account with interest itself so we've got to miles look at that my seniors my workers even our young people we talked to they have an interest in personal accounts in their quest and they normally come down to this you know if we can make sure the workers can't touch that account if we can make sure the government can't touch that account in the police can find a good responsible way to start those they have a real real interest in it because their thought is putting real money in a real account seeing it grow steadily over the years as a has in galveston in other programs they see that as a way one way of really addressing this so my question is to the panelists who see personal accounts as part of the long term solution and dealing with the issue of prefunding in perhaps i could start with mr lindsey what ideas do you have for prefunding these accounts to start them in a way that we can afford and in a really moves  i think it's obviously the more you can first of all the question prefunding it gets to the discussion about ownership i think that if one of stablish is personal accounts it is more difficult for the congress to spend the money just firm it is technically correct that congress can always change the rules on anything but the whereas on this history indicates that there been no reluctance to spend the money in when it's in a trust fund i think in the case of a higher res or any other account for the thrift savings plan the congress is respected private ownership and i think that that would be one of the ways you would put a necessary condition for prefunding the system would be to establish some kind of a private plane that congress would resist prefunding system obviously increases the savings rate obviously strengthens the economy and  way that the government can use compound interest to help solve the problem as was pointed out earlier president clinton proposed using compound interest investing social security trust fund in the market the only question is  protect it from being spent and the reason for a personal account is to prevent that money from being spent congressman if i if i might real quick sir just on that point today we released a letter four hundred fifty major us economists including five nobel laureate saying that the only way to really fix social security is to include personal account as part of that that's the only way to really build ownership rights and the only way to deal with the funding issue is to include individual accounts so this is certainly among economists the respective way of achieving this will perhaps was chairman i can ask for a response by my letter for any members who want to respond to that in any ideas first of all commissioner apple i think an observation is is necessary not really a question but i was intrigued by your dialogue with philip illinois earlier and specifically the part about the utilization of market forces compound interest is as mr lindsey just referred to as a solution kicked around back during the clinton administration my observation quite frankly sir is that the major thing that has changed since then is that that was president clinton and now it's president bush talking about using those same market forces as perhaps a portion of the solution or so security challenge i think that's the most significant change that that has occurred a second if i might mr ferman i've find find this one just striking and i'm going to refer to it to mr schreiber's chart once again the oft cited chart today on your page twenty your testimony it i but the the observation is this that the very portfolio which and i was going to ask you this question but you all already given us the answer that you i assume probably have and i assume to take advantage of the market and i assume t build retirement benefits and wealth for yourself you want to deny to the working poor when we have in front of us at least a concept to do just that to give these people people like i and my parents were for a good long  part of our life frankly an opportunity at ownership in the united states of america that formerly and currently tragically for mostly just the wealthy has been available you're going to deny that to the working poor who have already fewer options i find that very inconsistent with the logic that usually prevails from that side of the aisle my third observation if i might is that when i was an employer and i probably was until i came to this congress just two years ago one of the days of great celebration was when we instituted four hundred one k s and deferred compensation plans that took advantage mr lindsey of compound interest rate of return to market ownership those things that we're talking about here today and i have no doubt that they were celebrating that they understood that so here's my question and i don't think we've really gone this direction although  we can create these things called personal accounts that we have a concept out there doing and over a course of of years there is a nother class of investors out there and that's a pool of investment capital something i as a banker always thought was one of the most limiting things to economic expansion that creates jobs at the working poor so they always need and i agree access to capital do we not have the potential mr lindsey of providing enormous economic stimulus through this this this this newfound investment capital source absolutely in fact i think one of the points that actually  was the need that we have in this country to save more and to be able to invest more that's going to be the ultimate foundation here i would commend the person one can say is a way of restraining spending and b in my testimony wh recommended was a way of increasing the saving rate using social security reforms that option your right arm i thank the gentleman a further observation of some one off wants to still pine in the time i have remaining i would invite that but we have all all of us i'm sure on this committee probably every member of congress have been counseled lobbied by all kinds of constituent groups one thing that is absolutely obvious to me is th two groups who came to me and said i just do not change anything we're the folks from my state colorado with para the public employees retirement account and the federal employees who have the thrift savings plan i said why is that because i've got a personal account i can direct that money and it's working anybody want to offer an opinion contrary to that why that is a bad idea or i think the federal employees that have that also have social security that's one of the great things about the system and are we not talking about that same possibility well some of both it and yet either and yet i've heard resound inly today that we want to deny that choice to a substantial part of american working people and i for the life of me don't get it i yield back mr chairman thank gentleman gentleman from california mr thompson i wish to thank you mr chairman appreciate the opportunity to talk to these witnesses today i just want to commend my colleague from tennessee mr tanner already left just for bringing up the issue of the possibility of having a strong social security dollar an a weak u s dollar that i think he was right on and the fact that we have this tremendous debt seven point seven trillion dollars four hundred twenty five billion dollar deficit doesn't even take into account the hundred sixty billion that was borrowed from social security to make ends meet this year and now this discussion about social security and you call it whatever you want privatization our personal accounts and and the fact that this adds an additional two trillion dollars to that debt i think puts us in a pretty tough spot and we've heard from some today that the social security is a bad deal and that  accounts will make things fair i just i don't think it's fair that we continue to pass bills that we don't pay for that we talk about proposals that are going to cut benefits to workers and we compile on a mountain administration that if things continue to go the way they're going that by twenty forty we will take in as many federal dollars as it will take to pay the interest on our national debt so if we continue to do things the way we're doing in this regard we're going to cut everything social security medicare medicaid all other programs and i think that's important too to this discussion  said but basically there's no money there there's no trust fund it's a bunch of ious and i think this caused a great deal of concern and i think it derailed the important debate that we should be having this trust fund is it there is there money well we do we do have a trust fund but some people are under the view that these surpluses have been building up and are invested in that trust fund that unfortunately have found in the days of what do people have but is there a trust fund is it there is aggressive and will today but it doesn't have the it doesn't have the surpluses invested instead it has special issue treasury bonds which are good money they will be read but congress will have to appropriate the money or borrow the money to fund them so i think it's a bit of the same as using it so we should we should not say that the trust fund bonds will be dishonored they will be honored thank you really i mean my time is the same action that congress would have to take to make good on any notes that we have a debt to foreign countries yes but this is for all of this is four trillion dollars debt roughly equal to the amount of publicly held treasury debt that's built up over the last thirty years so it's a big not like you mr ferman and in some of your work you've  suggested that in analyzing this progressive index plan that median wage income folks thirty six thousand five hundred dollars will see a benefit cut of about twenty eight percent is that correct in fact that number is based on the this particularly interesting to me because the average median income in the seven counties in my district is thirty six thousand four hundred and ninety nine dollars and social secure he tells me that the average person in my district gets a monthly check of nine hundred thirty six dollars and i think it's important to note that while we talk about a percentage here and a percentage there that this means that the average benefactor in my district making nine hundred thirty six dollars a month is going to see a reduction down to about six hundred and seventy three dollars a month so that's two hundred sixty dollars cut that they're going to just got a limited amount of time mr apple to explore this just a little bit more in your testimony you said that workers making about sixty thousand dollars will see about a ninety percent cut in their social security that's with the defined benefit combining both the private accounts the reduction in the security benefits and the the middle income reduction or the sliding scale system so working on the same information that i got from social security administration folks who make sixty thousand dollars a year in my district are going to see a cut of seventeen hundred fifty dollars a month from their monthly check and i just think it's important to put numbers without because this is critical for the well being of folks who depend on this care and benefits whether or not they have add on benefits private accounts other investments this guaranteed benefit component of whatever the portfolio may be thank you gentleman from pennsylvania to inquire into that with the gentleman yield to the chair i tell a gentleman from california these concerned about those number and wants to sit down and work with the chairman to make sure that any structure we create doesn't at all entertain those kinds of numbers to do that as long as the gentleman from california doesn't tell me what i have to not be able to say we're sitting down and discussing and as long as california doesn't tell me what i can put on the table i'd love to sit down with the gentleman and make sure that the gentleman's concerns are completely alleviated as we address the shortfall in social security and i don't know whether the ground rules that i just offered you would be acceptable you wouldn't be able to put any other countries on the table it's understood that  thompson i think there would be no reduction in benefit levels from today they would every one of them would grow and the purchasing power would grow so a girl in real terms and in nominal terms thank you i actually want to take off on some of the subject matter the most about started with but first i want to reemphasize something that i think we're not keeping at the front of our minds and i think it's important and that is that when so security was set up there were gobs of workers working for every person who is retired and receiving social security benefits and those who don't see some urgency and looking at this program and restructuring this program now i think are ignoring the fact that the demographics have changed so drastically that we now only have three point three workers working for every person who is receiving so security benefits that in itself is a problem but don't forget that these people who are receiving these benefits are  receiving them for a much longer period of time there is huge stress stress on the system and it's just going to grow birthrates within the next twenty years or so the only be two people working for every person on social security or to get to the point where we can't even operate a pay as you go system very quickly very quickly now i understand that people in the income bracket of those here at the table and probably the members are not going to be terribly affected by changes in social security we are not going to be dependent upon so scary benefits for retirement let me tell you most of the people in my district are and i've spent a lot of time out there listening with to them and talking with them and listening to their ideas about this and i can tell you that the people who seem to be the most interested in this are the people who are gonna be most affected i did gentleman stand up at a meeting not too long ago he probably makes about thirty five thousand dollars a year and he said to me why can't i invest more than four percent myself people are a lot more sophisticated today than they were in one hundred thirty five and one hundred fifty as far as investment and i think some of the panelists have actually been quite disrespectful to the american people when they suggest that these people are just going to starve if we give them the opportunity to invest some money for god's sake if they made enough money to set aside to invest they would love to and that's why this gentleman and many others have come up to me and ask for us to make sure we give them an opportunity to actually receive a little more bang for that buck twelve point four that is a lot of money one of the i can't remember which witness but one of you and i think that's an important point to make question i'd like to ask is mostly i will start with mr posen because i think you work a little bit in the investment field i would expect that most of your clients or your company's clients are not folks that i'm talking about well i think most of the low wage workers unfortunately don't have enough to invest right i would have been supportive of personal retirement accounts and i mean they are personal retirement accounts because we're not handing the money over so that as harry reid said they can take it loose at vegas this is a very carefully investor the count mr chairman did you use my time shares watching the time  piece of the pie who currently don't have enough extra money to invest i think the answer is yes if we get them in a balanced account with a long term investing program with good diverse there you go  school to kind of share with him all of your ideas on how we're going to solve this problem for him and all his classmates as we go across a panel i think i have a pretty good idea what i can tell him i think i can tell him what at least used to think when you were a commissioner i'm not sure i can tell me you think today berman i'm really struggling and what to tell him you think the solution is i can tell him what you're against but i want to be able to share with him what you're for can you help me out sure i think one idea is something we heard about before which is to take the revenue from the reform the state tax raise the exemption to seven million dollars get almost everyone off of the estate tax the remainder dedicate to social security that would be a step we could move forward i would rather do that than cut benefits of the same magnitude that have been proposed by the president for the middle c you think small business owners we should not repeal the estate tax on the small business owner but let me just ask you earlier referred to the diamond plan i think is at a plan that you think is a  viable potential solution i think that's certainly an option that this committee should consider in fact it's the only plan the chief actuaries ever scored that gets sustainable solvent see without general revenue transfer doesn't it doesn't it plan increase taxes by increasing the taxable dollar that we can get on the revenue side is one dollar less of benefit reductions if your plan is four trillion dollars of benefit reductions that'll solve the problem and that's a perfectly reasonable plan if you think that's too much in the way of benefit reductions then you need additional revenue every dollar of revenue is one dollar less a benefit reductive meet anyone willing to get that revenue you have to be willing to accept the responsibility for opposing those benefits on the aspect of hunter i think a long time ago in your opening statement  you said something to the effect that transition costs were not new or additional debt could you expand on that a little bit the every time payroll taxes come in the door  today they are in effect borrowed and spent so it's been characterized as an implicit debt but it's a debt nevertheless so debt obligation of federal government if rather than spending that money we invested or allow workers to invest in a personal account that's a dollar less that the government is borrowing so every dollar that goes into personal accounts is actually a reduction and now that does create a cash flow crunch so if the government turns around and borrows a new dollar to alleviate the cash flow crunch it hasn't borrowed an additional dollar it's simply refinance the old debt and that is a classic corporate workout you refinance the debt to free up cash and then it gives you time to restructure and what you're talking about with personal accounts is restructuring it creates larger profits more productive outcomes and allows the personal accounts get higher benefits it's not rocket science it's not blue do it's not magic we do it all the time in the corporate world people do it all the time with their homes very straightforward one other thing i think my son and many others struggle is that we debate these particular ideas and not a package of good ideas and i think ultimately this is dissolution is going to have to be a package of good ideas and oppose and i think i've heard you talk about that could you just comment on that you know i think i think this has to be a package if we just have benefit constraints which i think we need if we have some new revenue we have to provide some what i call sweeteners positive aspect of the package so that voters will feel good and that we will also enhance the retirement income through other aspects whether it be expanding the roth ira or the low income tax credit so i think we definitely have to think of the package so it's somewhat misleading to be only isolating our comments and criticisms on one particular idea at a time i think that's unfortunate i think we sometimes take one particular idea and push it to the limit where when we're really realistically talking about a combination of ideas  i've got a list of about twelve or more proposals in the back of my testimony some of which have not really been discussed much at all that i think would help restore solvency as i've indicated earlier i think that we have a middle aged retirement system and i think in terms of protecting people in terms of replacement rates in terms of giving them same's accounts we can and go in extraordinary way if we recognize that and really build a base system of protection for getting personal accounts protected for truly sick people with twelve or fifteen years of life expectancy left and give them a really good going to invest we could do that in the current system we could even wipe poverty out among the elderly start with that as a base and then build upon that build the private savings part if we want to build the private same part as some people want more middle age retirement build up on that that's the way i would build on the system but one morning i would think there's a tendency in all politics to do it is i don't believe there's a free lunch and i'm afraid that both the trust fund accounting issue and the personal account issue at times gets off into the notion of the argument that somebody can move money around to be a free lunch if i take money from you and give it to me i might be better off are going to be worse off there's no free lunch everything you do as our representatives in budgetary only is taking from one person giving to the other hopefully you do it away in the long run and thank you mr chairman and thank you to the witnesses for sitting so long just in response to the free lunch the poor people in this nation have been watching the rich people and those who are better off than them have free lunch for a lot of years and they're worried about th free only free lunch that they retire lived on for years and years to years to be renovated what i'm talking about and it's not a free lunch and i'm also security and when i go out and i have done probably ten or twelve sessions of social security talking to the people my congressional district and social security is something they earned is not a welfare benefit and i think that we really need to be clear that the people who have paid into social security a their checks and they are expecting they are expecting that wall of us regardless of our party are going to guarantee them that benefit that they've earned that president roosevelt said it would not be someone that they would be administer  on to but it would be a part of the money paid out to those who have earned it and it is my belief that there is no way that we can continue all of the programming of s disability survivor benefit retirement benefit if we take money out of that pot to create a private fund and i have talked to lots of my constituents and when i say to them in addition to that is if your children are the age of my colleague over there forty talk to them about saving and creating their own retirement account and not relying upon false security and we should be debating and discussing what do we want to do to increase the dollars from school security without causing those security dollars to be in debt it in order to create a private fund it was never intended to be a reprise of fund it was never intended to be and individual out it was not create d like that that people on expecting that from them that are want to change a program that has been in place and has been good to seniors and administer for one percent of its cost for seventy five or more years i want to go to ms doctor f and there were several answers you want to give that you got cut off from please feel free to use a little bit of my time thank you very much for that but if i went to my employees and told them i gave them a for a one k plan they'd all cheer by then told them but by the way i'm taking away your social security benefits i think they'd be at the very least a little bit less excited than they were at first blush and that is in effect the way the president's plan works there are ways to encourage families to save and moderate income families to save and i take a back seat to no one on that we have the savers credit right now it is the only tax incentive for moderate income families to save it expires in two thousand and six the president that is the only tax thing passed in two thousand and one he's not proposed to extend the only thing that helps middle and moderate income families save and it's the only part of the tax cut that he wants to expire if you genuinely care about encouraging wealth creation for moderate income families there are a lot of ways to do it that will genuinely make them more wealthy not just cut your social security benefit and give you something else and that would be an excellent step one could take if it's the difference between a thrift savings plan that i and my colleagues enjoy and federal employees enjoy and the proposal of a private account under social security is the difference is that somebody who retires with receiving plan is going to get about half of the income they need in retirement from social security that's the floor it's a pretty minimal floor and then on top of that they're going to build using their four one k s and iras and i think more middle income families do need to be able to build on top that  rug out from under you subject entirely to the market that's a completely different thing from a four a one k plan has nothing to do with wealth creation for moderate income family and lastly deficit spending causes a dilemma for private for security going out into the future is that i think that's exactly right i mean there is a group gene has no such thing as a free lunch private accounts don't add money to social security they take it out of it they make what you need to do even larger than you do what you'd otherwise need to do mr chairman i'm giving you two seconds back thank you very much thanks gentleman very much  and to conclude this particular hearing it's a real pleasure for the chair to recognize the newest member and i just want to assure you mr nunez that every other member who is more senior to you i warmly welcome you to the committee because all of them were at one time in your position and they aren't anymore thank you gentleman from california's recognize thank you mr chairman and it's a pleasure to be here with you my colleague from california and to come into the committee for the first time on a very important debate called social security and one of the advantages of going last  there is an advantage is that i've got to hear everyone's testimony and i've been fortunate to hear mr ryan about his plan we've heard about mr shah's plans mr bush's plan mr thomas  and several plans have been discussed mr tanner pointed out that four hundred fifty of qana missed i think today wrote a letter to some of the nation's most important economists have said that we can't solve the social security crisis without some type of private accounts and i think there's something to be said for that referring back to the plans that have been discussed here by my colleagues  on the ways and means committee and i'd like a yes or no answer to this question please and we'll start with mr lindsey did you hear any of the democrats today offer a plan to save social security mr linds to explain the rules and that is a member has every right to ask whatever question he so chooses there is no obligation part of the witness to respond directly or otherwise thank you mr chairman there is an occasional free lunch mr posen i heard a witness say the diamond plan but i haven't yet heard  increase borrowing for magically to pay for social security or to solve the long term solvency problem but you have heard plans at least proposed by the republican side of the aisle that that entails drastic levels of new borrowing that i i think put it so security then a full risk that's that's fair enough that you have your points on the legislation but but at least there's been plans that have been offered for discussion which i think it's important to have all of you here to analyze that these plans and add to the discussion and i want to thank all of you for dedicating your  large portion of your lives to trying to solve the problems that we face which still security but and i appreciate your opinion that there's problems with the plans on the side of the aisle well it's better than having no plan in my doctor i did not hear today but i will tell you in the good news is especially before this last presidential election i spent many hours on the capitol hill talking to democrats on this side and on the other side of the capitol and i will tell you that there are many who are very interested in personal attacks and that's the reason i started off this morning by saying seems like a long time ago now unfortunately the political climate may not be right to do it all right now that's the reason i encourage the committee to do what i think is perhaps possible and what the chairman's leadership may actually happen because everyone everyone in the country realizes it's wrong to spend the surplus and a good number of your colleagues on both sides of the aisle recognize that the best thing to do with those surpluses is to invest we can have an interesting debate on how they should it's been a long hearing and i may have missed it but i actually didn't hear anyone on i on the republican side on the side embrace any specific steps to improve solvent in terms of reducing benefits or raising revenues if you want to another and were very willing to take up security form in a bipartisan manner are gone and it seems to be be now simply a matter of misinformation and very partisan debate on that side of the aisle and this is a shame and i say this is someone who is not a expired committee and the chair would hope that members are on this committee to first of all listen even if they have an idea they might want to solve the problem the courtesy of listening to other ideas so that their ideas can be tested in the crucible of competition on ideas which one does the best with the least and all the other criteria that we use to judge between plants so the chair is not upset at this time that individual members haven't formed or are willing to come forward with a particular plan with the chair is concerned a little bit about having been on this committee and on the subcommittee at the time that we looked at it previously more than twenty years ago i can't recall at any time a member telling another member you cannot come to the table with a particular idea or i will come to the table to discuss ways in which you can deal with this issue that is new that is shocking to this chairman and it is sad that people would spend the time and energy to get elected to office the time and energy to get on this committee and then say you have to drop your ideas before you get to hear  mine i have no problem with them bringing their ideas i have a problem with people telling me i can't bring mine and that's not to say that my idea may be an idea that's out there i just don't think you should say that about any idea if you're here to try to solve problems for the american people i want to thank all of you i think it's one of the best panels we've had in a long time and i say that with no exception because i don't want someone to sit there and not express how they feel based upon particular subject matter we need the interaction between our to be a very bright and talented people as a gentleman from california said it was spent years looking at this subject matter it is not an easy subject matter to deal with everybody says it's easier than medicare i will simply offer this evidence we have changed the medicare law three times and we're probably going to change it another five we have not addressed social security in more than twenty years this opportunity in th opinion cannot be missed even if the changes are at least shoring up to move on to additional discussions as we mature and grow in our knowledge about how we can make changes but more importantly as we know we have to respond to the aging americans the aging society and the fact that today's seniors i believe are far more competent knowledgeable and understanding than seniors in the 's on the way in which they can assist in taking