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20–045 PDF 2005

S. HRG. 109–24

SOCIAL SECURITY: DO WE HAVE TO ACT NOW?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC

FEBRUARY 3, 2005

Serial No. 109–2

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon Smith ....................................................... 1

Opening Statement of Senator Herb Kohl ............................................................. 2

Opening Statement of Senator Thomas Carper .................................................... 3

Opening Statement of Senator Bill Nelson ........................................................... 5

Opening Statement of Senator Jim DeMint .......................................................... 5

Opening Statement of Senator Mel Martinez ....................................................... 6

PANEL I 

Douglas Holtz-Eakin, director, Congressional Budget Office, Washington, DC . 7

David Walker, comptroller general, Government Accountability Office, Washington, DC ............................................................................................................. 22

PANEL II 

David C. John, research fellow, Thomas A. Roe Institute for Economic Policy 

Studies, The Heritage Foundation, Washington, DC ........................................ 61

Robert L. Bixby, executive director, The Concord Coalition, Arlington, VA ....... 73

John Rother, director of Policy and Strategy, American Association of Retired 

Persons, Washington, DC .................................................................................... 112

APPENDIX 

Prepared Statement of Senator Larry Craig ......................................................... 131

Prepared Statement of Senator Hillary Rodham Clinton .................................... 132

Prepared Statement of Senator Susan Collins ...................................................... 132

Statement submitted by National Association of Chain Drug Stores ................. 134

(III) 

(1)

SOCIAL SECURITY: DO WE HAVE TO ACT 

NOW? 

THURSDAY, FEBRUARY 3, 2005 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. 

The committee convened, pursuant to notice, at 2:06 p.m., in 

room 628, Dirksen Senate Office Building, Hon. Gordon H. Smith 

(chairman of the committee) presiding. 

Present: Senators Smith, Martinez, DeMint, Kohl, Lincoln, Carper, Nelson, and Clinton. 

OPENING STATEMENT OF SENATOR GORDON SMITH, 

CHAIRMAN 

The CHAIRMAN. I will call to order this hearing of the Senate 

Special Committee on Aging. 

Today’s hearing is its first on Social Security in the 109th Congress. This is the beginning of a series of hearings this committee 

will hold on Social Security in the coming months. Anyone who listened to the State of the Union Address knows that this is Topic 

A on the Hill right now. 

It is with great hope that we convene as colleagues to examine 

this program, for we are truly at a unique crossroads as a nation. 

Social Security has been the most successful endeavor by government in attempting to assure income security for the elderly and 

the disabled and no other program has served the nation’s seniors 

so effectively for so long. 

Now itself at age 65, Social Security is a mature program, and 

as with anything that has evolved over so many years and touched 

the lives of so many Americans, the complexity of determining how 

to assure its continuance as an effective base of retirement and disability income for future generations cannot be understated. 

Social Security is the cornerstone of the nation’s multi-faceted retirement system, and as we will hear from the exchange among our 

witnesses today, how best to proceed involves more than examining 

how two trust funds can be brought into balance over the next 75 

years. The first of the baby boomers are only a few years from entering the ranks of senior citizens and the challenges that their 

swelling numbers will place on this and other vital programs of 

government are enormous. 

The President’s willingness to confront these issues, to take the 

lead, gives us a rare and perhaps small window of opportunity to 

set partisan differences aside, wherever possible, and attempt to 

achieve what many in recent years have felt was unreachable, 

2

greater retirement security not just for today’s seniors, but for our 

children and our grandchildren. 

I am pleased that we are starting off this series of hearings with 

the heads of Congress’ own support agencies. CBO and GAO have 

been reviewing and studying the problems of Social Security in a 

nonpartisan fashion for many years and their work has been and 

remains a vital tool in assisting the Congress in its consideration 

of these issues. 

Before we proceed, I am pleased to turn to my colleague, the 

ranking member of this committee, Senator Herbert Kohl of Wisconsin, and I know he has some remarks of his own. Senator Kohl. 

OPENING STATEMENT OF SENATOR HERB KOHL 

Senator KOHL. I thank you, Mr. Chairman, and we welcome our 

distinguished witnesses here today. 

Today, this committee will address the issue of Social Security, 

which the President pushed to the very top of the national agenda 

last night in his State of the Union address. I want to make very 

clear that while Social Security faces financial challenges in the future, it is clearly and indisputably not broke. Even using the most 

conservative estimates on economic growth for the next 40 years, 

Social Security will continue to be able to pay full benefits to seniors that have earned and deserve those benefits. 

It is important to remember that Social Security has been one of 

the most successful programs, as Senator Smith said, in our nation’s history. This program has reduced poverty among the elderly 

from what it was in the 1930’s, almost 50 percent, to 10 percent 

today. It has helped seniors live out their retirement years in more 

comfort and security than otherwise would have been possible or 

even dreamt of. So as we work to strengthen Social Security, we 

need to be careful to mend it and not to break it. 

We have all heard the arguments that Social Security will be 

broke, bankrupt, and not able to pay benefits to future retirees, but 

factually, that is not so, for even if we did nothing to fortify the 

program, which, of course, is not an option that we intend, but 

even if we did nothing, Social Security would be able to pay 78 percent of benefits in the year 2052. I believe that CBO will confirm 

that very important fact today. 

We need to take steps to strengthen and mend Social Security 

so that its promise of a secure retirement is just as real for seniors 

in the future as it has been for seniors up until today. But those 

who want to radically change Social Security need to clearly explain why we should so demonstrably alter a program that has 

been so successful and has kept so many seniors out of poverty 

over the years. 

It is also important to point out that under the President’s proposal, as has been explained so far, people are not given a choice 

between keeping what they have today or starting new private accounts. But whether you choose a private account or not, the President’s plan apparently requires significant cuts in the guaranteed 

benefit that seniors have come to rely on in their retirement. 

There are a variety of options to choose from to make Social Security solvent far into the future. We need to start considering 

those options so we can protect Social Security for the seniors of 

3

today and tomorrow. We need to have an honest dialog that gives 

us the real picture of Social Security’s finances and challenges. We 

look forward to this hearing with the hopes that we can begin to 

accomplish exactly that. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Kohl. 

Senator Carper, do you have an opening statement? 

OPENING STATEMENT OF SENATOR THOMAS CARPER 

Senator CARPER. I do, Mr. Chairman. Thank you very much. It 

is good to be here with you and Senator Kohl and see our witnesses 

here. We look forward to your testimony. I am going to be called 

out to another meeting here in just a few minutes, but I want to 

hear at least the beginning of your remarks, so I will be brief. 

I was elected to the U.S. House of Representatives in 1982 and 

was sworn in on January 3, 1983. One of the first things I learned 

as I was looking for the men’s room was that we had a crisis with 

regard to Social Security, not a long-time challenge, which is what 

I think we face today with respect to Social Security, but a real crisis. The system was going to run out of money soon if we did not 

act. 

Ronald Reagan was President then, and a year or so before I was 

elected, he and Tip O’Neill got together on an idea. They created 

a true bipartisan commission and their Commission, I think, with 

a number of members appointed by the President and at least as 

many members, maybe even more members appointed by the 

Democratic leaders of the House and the Senate. You may recall 

that those members included Alan Greenspan, who I think was the 

Co-Chairman of the Commission. They included Senator Bob Dole, 

my colleague Claude Pepper from Florida, and a number of other 

wise men and women. 

They came back to us in 1983 with a whole laundry list of recommended steps to take to shore up Social Security well into the 

21st century, and very much in a political environment, a highly 

charged political issue, we adopted those recommendations almost 

lock, stock, and barrel. 

The outcome of those actions with Social Security was it was 

strengthened, as Senator Kohl says, well into this century, to probably the middle part of this century. 

We have had an experience with another bipartisan commission 

more recently that was created on the heels of 9/11 and chaired by 

Governor Tom Keane and by my former colleague in the House, 

Congressman Lee Hamilton, a highly regarded Republican and 

Democrat, surrounded by folks who were Democrat and Republican, selected by the President and some by our Democrat leaders, 

but they did great work, I think, for this country, and led us 

through last year, literally an election year, certainly a highly 

charged election year, to a consensus around the steps that we 

needed to take, 40-some recommendations. In the end, we adopted 

almost all of them. 

I don’t know if maybe we couldn’t take a play out of the playbook 

of a couple of really good politicians, Ronald Reagan and Tip 

O’Neill, in this decade and apply it, again, not to a crisis but to a 

challenge that we face, a long-term challenge that we face in Social 

4

Security, and take a page out of our playbook from last year where 

we created the 9/11 Commission. 

I don’t know that Democrats or Republicans or any others should 

be knee-jerk opponents of creating private accounts, but if we are 

going to do that, or examine that or support that, I think we need 

to agree on a couple of basic principles and one of those is we are 

not going to do so in a way that increases our nation’s debt. It is 

all well and good we talk about giving young workers the opportunity to set aside monies to save for their retirement, but at the 

same time, increasing the debt, the burden of debt that they are 

going to inherit, is not what we should be about. 

Further, I don’t believe we should be doing this at a time and 

in a way that would reduce the benefits for those senior citizens 

who are going to be looking for them, either now or a few years 

down the road. 

Let me close with this, Mr. Chairman, if I could. I have just come 

from a meeting where folks were discussing options if we are ever 

to further explore not only how to shore up Social Security well beyond the middle of this century, but also to allow people to either 

establish accounts that are add-ons, which is what I, frankly, favor, 

or some would suggest a carve-out. 

Among the approaches that have been suggested, I think Senator 

Lindsey Graham has suggested that we help put Social Security on 

a sounder footing and enable a new benefit by raising the cap that 

now exists. We pay the payroll tax on income up to about, I want 

to say $90,000, but it has been suggested that we increase that. I 

think I have heard Chairman Greenspan talk about whether or not 

we should apply the CPI, Consumer Price Index, to the annual benefit and use that as the annual benefit increase each year instead 

of the wage index. 

I think President Bush said last night in his address, ‘‘I don’t 

know if it was Congressman Tim Penny, my former colleague, good 

friend, or former Senator Moynihan about indexing the full retirement age with life expectancy.’’ As we live longer, live healthier 

lives, maybe we could do that. 

Someone suggested at a lunch meeting where I was that maybe 

we should consider allowing Social Security to invest certainly not 

all or not the lion’s share of the trust fund monies in equities, not 

just in U.S. Treasury obligations, but some portion could be in equities, as well, which is what we do with our pension funds in the 

State of Delaware and, frankly, in a lot of other places. 

So those are all things that are on the table. I wanted to put 

them on this table, Mr. Chairman and my colleagues, and I thank 

you for the chance to do that and we welcome you today. Thank 

you. 

The CHAIRMAN. Thank you, Senator Carper. I don’t think you put 

anything on the table that the President didn’t put on the table 

last night. 

Senator Nelson, you arrived next. Do you have an opening statement?

5

OPENING STATEMENT OF SENATOR BILL NELSON 

Senator NELSON. Speaking of that, I wish that our distinguished 

panel, who I have had the pleasure of hearing both of you in these 

past couple of days, might clarify for us on what was changed in 

what the President said and what the White House put out with 

regard to what had been put out by the White House previously in 

the press. We don’t know the details of the President’s plan, but 

some additional information was released yesterday and I would 

like that to be filtered through the eyes of both of you and give us 

your interpretation and how that would affect the ultimate final 

product. 

It is no secret, Mr. Chairman. I have made a couple of fairly definitive statements this week, both in Florida and here on the Senate floor, that I am not going to support anything that is going to 

be a huge transfer of new debt out of the Social Security Trust 

Fund, nor am I going to support something that will have a diminution of the benefits. Now, I agree that everything ought to be on 

the table and if everything is on the table, then we can start realistically picking and choosing. 

I will just close by saying that I, too, was a Member of Congress 

when one of the finest examples of bipartisanship has ever been 

rendered in American history, and that was when Ronald Reagan 

and Tip O’Neill decided that they were going to save Social Security in the early 1980’s. They appointed this Commission, and it 

was bipartisan, and as a result of that, they came to an agreement 

and then they came to another very significant agreement, that nobody was going to play ‘‘gotcha’’ politics and that there was not 

going to be used the final result, which was a give and take in the 

process of compromise, otherwise known as consensus building, 

that they were not going to use that to someone’s disadvantage in 

the coming election. They honored that agreement and that is why 

we had the saving of Social Security back in the 1980’s. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator DeMint. 

OPENING STATEMENT OF SENATOR JIM DEMINT 

Senator DEMINT. Mr. Chairman, I really appreciate you holding 

this hearing. Obviously, the timing is perfect, as the President 

threw out a challenge to us and to the Nation last night to fix Social Security. The difficulty has been that there are so many different understandings of Social Security, how it works, the condition it is in. In groups that I speak to, it continues to amaze me, 

even people in Congress who have a completely different view of 

things like the trust fund and how the trust fund is going to pay 

for the program. 

I appreciate the folks who turn the numbers here to talk to us 

and I would hope you would speak to us in as clear of terms as 

you possibly can and correct me if I am wrong. 

My understanding is that within about three years, and maybe 

CBO has a little different numbers, but within three years, this 

Senate and its 10-year budget forecast will have to begin to include 

billions of dollars that go from the general fund to supplement Social Security benefits, and I think you need to tell us if that is true. 

6

There are so many people here who seem to think we can still put 

this off for decades when, if in 2018 or maybe it is 2020, I think 

the first year it is $16 billion, the next year it is $30-something billion, and within a relatively short period of time, we are talking 

hundreds of billions of dollars a year that we have to take from the 

general fund to supplement payroll taxes in order to pay benefits. 

I hope I am wrong, but if you gentlemen are here to tell us what 

the numbers are really like, I hope you will straighten that out. 

I hope you will also explain, again, if I understand it correctly, 

that the Social Security Trust Fund is merely a bookkeeping of how 

much money that has been borrowed from the Social Security and 

spent on other things, that there are no real assets in the Social 

Security Trust Fund, that there are no assets that can actually pay 

a benefit, that we have to make up every dollar in the trust fund 

with an exact replica from the general fund. It is one pocket to another. 

So I think if you can help us clarify the problem, and I agree 

with my colleague, Senator Carper, that all ideas should be on the 

table for a solution. But Social Security is a promise we should 

keep. It is not like another government program that we make up 

and start spending something on. This is money that we have 

taken from people over the years in return for the promise of some 

security in their retirement. 

I don’t think the problem with Social Security is that the benefits 

are too high now. I don’t think that the problem is that the taxes 

are too low. From the math that I have seen on this, if we could 

even save half of what people have been putting into Social Security, that even the lowest-income American worker would be a millionaire, if not close to it, if it was actually saved and invested in 

a government bond. That may not be exactly correct, but I know 

there would be a lot more money than there is now. 

But the first step in solving a problem is realizing we have one, 

and if you could help us clarify that today, I think you would do 

a great service to us and to the country so that we then, as colleagues, could sit down and say, we do have a problem, and when 

that problem begins is actually in three or four years. Then, I think 

we can put our best ideas together and come up with something 

that works for the future of this country. 

Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. Thank you, Senator DeMint. 

Senator Martinez. 

OPENING STATEMENT OF SENATOR MEL MARTINEZ 

Senator MARTINEZ. Thank you, Mr. Chairman. I wanted to thank 

you and Senator Kohl for holding this hearing and I also wanted 

to just thank you for allowing me to be a part of this committee. 

I am looking forward to serving here with you and to dealing with 

the important issues of aging in America, many of which I have 

been interested in for some time, particularly housing as people 

age. 

I also want to say it has been a pleasure in the past to work with 

Mr. Walker and I look forward to hearing from you today, as well. 

Mr. Chairman, I believe that the solvency of Social Security affects all Americans in every walk of life. I do believe that there is 

7

uncertainty regarding the funding for Social Security and I look 

forward to hearing the testimony here today on the issues before 

us and working with the committee in a bipartisan fashion to take 

steps that will perhaps help guide Social Security toward a solid 

financial footing and ensure it be there for the future. 

I think it is also vitally important that no matter what steps we 

take, as Senator DeMint was just saying, that we keep the promises made to seniors, those that are currently collecting Social Security benefits. 

I was so pleased last night for President Bush to speak so clearly 

to the fact that those that are 55 years of age and older will see 

no change and that our sacred trust and sacred bond to them will 

be kept, and whatever we do to secure and ensure the system there 

for a future generation, that it doesn’t impact them. 

Tomorrow, I am going to be in Florida visiting in Sun City Center, one of our large retirement communities, with my foster parents, dear people to me who took good care of me at a time in my 

life when I was in desperate need of help. For them in their years 

of now vulnerability to illness and what not, they and people like 

them don’t need to worry. It isn’t fair to say that they are threatened or that they are under some sort of a threat to lose their benefits or have a change that is going to dramatically impact their 

lives. That is just not what we are about to do or we are talking 

about doing or what the President’s plan, I think, clearly in any 

way will imply. 

I think another thing that I would like to stress as we delve into 

this debate is that it doesn’t appear to me, as I have studied the 

issue, that doing nothing is responsible. Simply saying there is not 

a problem, we will deal with it, or someone else will deal with it 

another day at another time, that is not an acceptable or really a 

responsible track to follow. 

So I would look forward to hearing from the witnesses today and 

then with my colleagues on both sides of the aisle, working toward 

crafting, as I think Senator Nelson has stressed so appropriately, 

in a bipartisan way a solution to this problem so that we can ensure a safe and strong retirement for the next generation, as well. 

The CHAIRMAN. Thank you, Senator Martinez, and we will have 

some housing hearings, as well, so we look forward to those. 

Ladies and gentlemen, our first panel consists of Douglas HoltzEakin. He is the director of the Congressional Budget Office here 

in Washington, DC. He will be followed by David Walker, comptroller general of the Government Accountability Office, also here 

in Washington, DC. 

Doug, you are up first. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC 

Mr. HOLTZ-EAKIN. Mr. Chairman, Senator Kohl, members of the 

committee, thank you for having the Congressional Budget Office 

here today to discuss this important issue. 

In my opening remarks, I thought I would focus on three things. 

I will spend a few minutes discussing the outlook for Social Security under current law so that in the interests of helping Senator 

DeMint, we can have the same sets of facts at our disposal, and 

8

then set the problem in the larger context of budgetary pressures 

facing the United States and economic policy issues going forward. 

Finally, I thought I would close with a few illustrative examples of 

the relative impacts of moving sooner versus later in addressing 

the Social Security financing problem. 

The outlook for Social Security under current law is in the diagram before you. The dotted line are dedicated receipts into Social 

Security. At the moment, those receipts lie above the outlays for 

benefits to retirees. Beginning in 2008, the leading edge of the baby 

boom generation will be eligible to retire. Shortly thereafter, the 

surplus of receipts in excess of outlays which are currently available to the remainder of the Federal budget will begin to diminish, 

and at that point, the cushion provided by the Social Security program will diminish thereafter until roughly 2020, at which point 

the system will take in approximately as much as it sends out. 

Dedicated taxes in will match benefit payments going out. 

In the decades to follow, under law, the accounting mechanism 

called the trust fund will indicate that benefits may be paid. The 

benefits paid will exceed receipts coming in. That gap will be made 

up by funds provided from elsewhere in the overall Federal budget, 

whether they be lower spending, higher taxes, or borrowing from 

the public, until in 2052, under our estimates, the trust fund will 

exhaust. There will no longer be the authority to pay full benefits. 

There will be an across-the-board cut of roughly 20, 22 percent in 

our estimates. 

At that point, at least some form of the program is sustainable 

indefinitely, where benefits are paid out equal to dedicated taxes 

coming in for the remainder of the current law scenario. That, of 

course, does not match expectations for benefits as scheduled under 

law, if we go to the next chart. 

You can see that under current law, outlays for benefits, benefits 

scheduled under current law, those that would be calculated given 

individuals’ working histories and payable under the program, exceed dedicated revenues for the foreseeable future. In terms of the 

magnitude of the problem, that is in the eye of the beholder. It is 

inevitably the case that with the outlays above the revenues, one 

must somehow add up that gap, year by year, over longer horizons, 

and most of the computations of the size of the Social Security 

problem are some variant of that calculation. 

In terms of when it hits, that, of course, depends on when one 

views the pressures as becoming most pertinent, whether it was 

when the surplus begins to diminish, whether it is the case when 

cash-flow deficits begin, or whether it is the case when automatic 

benefit reductions might come into play. 

Finally, there are at least two different notions of ‘‘fixed’’ that 

float around in this discussion. From the broad budgetary point of 

view, one notion of fixed would be when those two lines coincide, 

so that Social Security as a stand-alone program for the indefinite 

future would be able to finance itself and would require no help 

from the remainder of the budget. Alternative measures of fixed 

look at measures of trust fund balance, which may or may not also 

necessitate some transfers from the remainder of the general fund. 

Now, clearly, Social Security is an important policy issue in its 

own right. The program has a long and important history as a part 

9

of economic and social policy. But it fits in a larger budgetary picture which is quite pressing. Indeed, the rising payments for Social 

Security, those which coincide with the retirement of the baby 

boom generation, pale in magnitude when compared to the likely 

outlays for the health programs, Medicare and Medicaid. 

Over this same period, Medicare and Medicaid start at roughly 

the same place as Social Security, about four cents on the national 

dollar. While Social Security rises to about 61⁄2 cents on the national dollar, Medicare and Medicaid under extrapolations of history could rise to as high as 20 percent the size of the current Federal budget. No one believes that anything like that is even plausible, so it is typically the case that one assumes a more moderate 

growth rate going forward. In those scenarios, Medicare and Medicaid typically rise to 12 percent of GDP, or over half the size of 

the current Federal budget. 

Needless to say, the Social Security issues evolve in the context 

of rising budgetary pressures. To the extent that funds are necessary from the rest of the budget to sustain Social Security, they 

will compete with those funds, for those funds, with ever-larger demands in other areas. 

That suggests that from the point of view of solving this problem, 

it may be desirable to move sooner versus later, and indeed, one 

way to think about this is that current law is a de facto wait and 

reform strategy. Putting the program on autopilot means that you 

go until 2052, at which point, by law, the program is brought into 

balance through an across-the-board benefit cut. 

Alternatively, one could move proactively and sooner. That could 

have effects at the level of both the individual and in the aggregate. The next chart. 

To get a flavor of this, we included in the testimony, and I would 

be happy to discuss at greater length, a comparison of benefits as 

scheduled under current law with those benefits that would be payable if one were to take a very mechanistic approach to the existing 

Social Security program. I emphasize that this is for illustrative 

purposes only. It is a 10-percent reduction in retirement benefits 

at the point of retirement and is done in that mechanistic and simple fashion just to give you a sense of magnitude, not as a suggestion of a solution. 

But one can see that if you move that 10 percent cut up to 2012 

and thus affect those individuals who are—instead of waiting for 

a sudden benefit cut in 2053 affect those who were born in the 

1950’s, it will be possible to pay higher benefits compared to what 

would have happened with the cut for those in the later generations and that is the tradeoff for having lower benefits for those 

workers who are older at the moment. 

So there is a clear tradeoff at the level of the individual that has 

budgetary consequences, but it is also very important for economy 

policy. Social Security affects incentives to work. It affects incentives to save. Both the program and its reform will have large economic consequences. Those consequences will be felt in the aggregate, as well. 

To the extent that such a mechanistic move earlier approach 

were instituted and nothing else changed in the Federal budget, 

the advantages of moving in 2012 would manifest themselves as 

10

less pressure to borrow from the public and less cumulative debt 

outstanding. The light blue line shows the benefits of moving in 

2012. The darker line, waiting a decade and moving with the same 

size cut. 

In any event, moving sooner reduces overall borrowing, leaves 

less debt in the hands of the public. For the broad performance of 

our economy, less Federal borrowing transforms itself into higher 

national saving, a greater capacity to produce goods and services, 

and a higher standard of living going forward. 

So the tradeoffs involve benefits higher for those later if lower for 

those in the present and an economy that can perform better in the 

near term than would be otherwise. These are important issues in 

thinking about the issue of Social Security, not only in its totality 

but when it is best to move and to put it into long-term sustainability. 

I thank you for the chance to be here today. 

The CHAIRMAN. Thank you very much. 

[The prepared statement of Mr. Holtz-Eakin follows:]

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The CHAIRMAN. David Walker. 

STATEMENT OF DAVID WALKER, COMPTROLLER GENERAL, 

GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. WALKER. Thank you, Mr. Chairman. Senators, it is a pleasure to be here with you to talk about Social Security again. 

In the interest of full and fair disclosure, in addition to being 

comptroller general of the United States and head of the Government Accountability Office and working on this issue there, I was 

a public trustee for Social Security and Medicare from 1990 to 

1995. I was appointed to that position by President George Herbert 

Walker Bush. I have been on two Social Security Reform Commissions and I was involved with former President Clinton and former 

Vice President Gore in the effort in 1997 and 1998 to go around 

the country and help educate the public as to the nature, extent 

and magnitude of our challenge in this area. So I have been involved in this subject for a number of years and am pretty deep on 

the subject. 

I would respectfully suggest the following. First, I have a full 

statement I would like to have entered into the record, Mr. Chairman, if that is OK with you. There are lots of neat charts and 

graphs in there. But I will hit the highlights and get to the bottom 

line. 

While the Social Security program does not face an immediate 

crisis, it does have a serious financing problem that needs to be 

fixed and that is growing every day. For example, Social Security 

currently has a $3.7 trillion—that is trillion, not billion—gap between promised and funded benefits in current dollar terms. Given 

this gap and the large and growing fiscal challenges elsewhere in 

the Federal budget, not the least of which involve Medicare, which 

is roughly $27 trillion-plus, up over $10 trillion last year alone, it 

would be prudent for the Congress to act sooner rather than later 

to address Social Security. Failure to take steps to address our 

large growing and structural long-range fiscal imbalance will have 

serious adverse consequences over time to our economy, our quality 

of life, and ultimately our national security. 

There are a number of key points that I highlight in my testimony. First, solving Social Security’s long-range financing problem 

is more than making the numbers add up. Social Security is more 

than a retirement income program. It is also a disability program 

and a survivors income program. It is critically important to millions of Americans and always will be. 

Second, focusing on trust fund solvency alone is not only insufficient, it can be very misleading with regard to the state of the Social Security system. We need to put the program on a path of sustainable solvency. Candidly, the Social Security Trust Funds are 

nothing more and nothing less than a sub-account in the government’s financial records and badger accounts. They are not real 

trust funds. If you looked in Webster’s Dictionary, or if you have 

been a fiduciary for private pension plans and other arrangements, 

it is not a trust fund in the sense that any of us normally would 

refer to as a trust fund. It is a sub-account of the general ledger. 

The CHAIRMAN. David, for the benefit of everyone listening——

Mr. WALKER. Yes? 

23

The CHAIRMAN [continuing]. Can you clarify a point? Has the 

trust fund, the Social Security Trust Fund that so many seniors 

think is there or should be there, has it ever existed as anything 

more than just an accounting device? 

Mr. WALKER. It has always been an accounting device. 

The CHAIRMAN. Is that true from the days of Franklin Roosevelt? 

Mr. WALKER. It has always been an accounting device, to my 

knowledge, but that is not important. Let me explain what happens. Let’s take last year, for example. Last year, the Federal Government took in $151 billion more in 

payroll taxes attributable to Social Security than it paid out in benefits. The Federal Government ended up spending all of that money 

on other operating expenses. It replaced it with an IOU that is a 

non-readily marketable security. You can’t sell it to anybody. You 

can’t get any money for it. It is backed by the full faith and credit 

of the U.S. Government. It is guaranteed as to principal and interest. It has legal, political, and moral significance. It has no economic significance whatsoever. 

Ultimately, when you have to start drawing down on those IOUs, 

and that is what they are, then you are either going to have to increase revenues, cut spending, or increase debt held by the public. 

The surplus will start to decline in 2008. Social Security (ie, 

OASDI) it will go negative cash-flow in 2018. In 2042, all of the 

IOUs will have been redeemed and it is at that point when, if Congress does nothing, benefits will go from everybody being paid a 

dollar of benefits for every dollar of promised benefits to 73 cents 

in benefits for every dollar and it will get progressively worse over 

time. 

Yes, Congress could wait until 2042, as it did in 1983. That is 

where you were in 1983. The trust fund was going to be exhausted. 

There was still money coming in. Given where Social Security 

stands as compared to our broader fiscal challenges, it would be 

imprudent to wait why, because Social Security should be easy lifting as compared to Medicare, Medicaid, and some of our other challenges which are likely to take many years to address and are likely to require a lot tougher choices. 

So Social Security is part of our broader fiscal and economic challenge. Acting sooner rather than later can help in many ways, including the fact that by acting sooner, you don’t have to make as 

dramatic of changes and there is more time for transition. Furthermore, it is my earnest belief, having been involved in this issue for 

many years, that Congress has an opportunity to exceed the expectations of every generation of Americans in connection with Social 

Security reform. By that I mean every generation can get more 

money than they think they are going to get, and I will give you 

a personal example. 

My parents who are retired, they are going to get every dime of 

what has been promised to them. My son is 28. My daughter is 31. 

They are discounting Social Security to a much greater extent than 

they should, because even when the trust fund goes dry in 2042, 

there is 73 cents in revenue for every dollar of promised benefits. 

But they are discounting it much more than that. 

You have an opportunity to leave current retirees and near-term 

retirees alone, give them everything that is promised, make proVerDate 0ct 09 2002 09:29 May 13, 2005 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 H:\DOCS\20045.TXT SAGING1 PsN: JOYCE
24

gressively greater changes the younger a person is, but you have 

to do more than just individual accounts and you may or may not 

want to do individual accounts. If you do that, every generation can 

get more than they think they are going to get. That is what I 

would call a win. 

What is important about that is right now. Because last year 

may have been the worst year, in my opinion, in our fiscal history. 

We had huge current year deficits and, we increased our unfunded 

obligations by $13 trillion in one year, $8.1 trillion of which was 

the Medicare prescription drug benefit. We face serious financial 

and fiscal challenges. We need to send a signal to the markets that 

we are serious about dealing with these large and growing challenges and we need to send a signal to the American people that 

we are willing to deal with some of these large and growing challenges before we are about ready to hit the wall. 

By hitting the wall, I mean cutting benefits dramatically and 

suddenly to a bunch of people when the trust fund runs dry rather 

than trying to deal with it more prudently and more pragmatically 

over time. 

In summary, I note that GAO has been involved in this issue for 

a number of years. We have recommended three basic criteria for 

evaluating all Social Security reform proposals. First, how do they 

stack up against financing, sustainable solvency, not just solvency 

over 75 years, solvency in perpetuity, because even when the 

changes were made in 1983, it was known from day one that they 

were going to be out of balance within a year because of known demographic trends. 

Second, we need to balance adequacy and equity with regard to 

all the different stakeholders that rely upon Social Security in its 

many forms. 

Third, it is important to look at how it will be implemented, including administrative feasibility, which is particularly relevant if 

the Congress decides it is going to have individual accounts. But 

if you do have individual accounts, they are not going to solve the 

problem. There are pros and cons to individual accounts. You have 

to have other reforms, as well, in order to achieve these objectives. 

We stand ready, Mr. Chairman and Senators, to continue to assist this committee and the Congress in analyzing various Social 

Security reform proposals. But let me just say, it is not an immediate crisis. That is true. It is a large and growing problem and it 

would be prudent to act sooner rather than later because this is 

easy compared to the real heavy lifting that is going to have to be 

done to reconcile our large and growing fiscal gap, which now is estimated to be $43 trillion in current dollar terms, $350,000 for 

every full-time worker, $145,000 for every American. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Walker follows:]

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The CHAIRMAN. Gentlemen, a bipartisan group, including myself, 

recently were in Europe at a conference. I was in one meeting in 

which European demographics and economics were shared with us. 

I think to your point, David, if we don’t begin to do something, we 

will do serious damage to our economy, and my question is, are 

some of those European models examples of the damage that can 

occur, because what I saw is that their demographics are worse 

than ours. Their promises are greater than ours. They, frankly, 

make our problem look like a fairly good time. 

I don’t know whether you believe that to be true, but I would be 

interested in your opinion. But as I look at what you have just 

shared with us about the share of the nation’s payrolls that will be 

required to finance what is current law, I am wondering what you 

see for the American economy if we don’t figure this out, because 

you have used a static economic projection model, I assume, in 

what you have shared with us, and I am wondering what that will 

do to American competitiveness if we don’t fix this as against 

China and other emerging nations that have very different demographics, much younger workforces, and burgeoning economies. Do 

you have a comment? 

Mr. WALKER. Mr. Chairman, first, it is true that there are other 

nations, including in Europe, that have more difficult demographics 

to deal with than we do. It is true that there are certain nations 

that have larger relative unfunded commitments to deal with than 

we do, and in some cases, they are not as transparent with regard 

to the nature and magnitude of those commitments. 

But it is also true that some of them have started to deal with 

their problems before we have, the U.K. and Norway, just to name 

a couple off the top. It is also true that I don’t take a whole lot of 

comfort in the fact that if we have serious problems, just because 

somebody else has more serious problems than we do, that we 

should be comforted by that. I don’t think we should be comforted 

by that. 

As I said, ‘‘One can’t look at Social Security standing alone.’’ Yes, 

it is $3.7 trillion, but we face a $43 trillion problem and it would 

be nice if we could make a good downpayment by doing something 

with this $3.7 trillion, because ultimately, we are going to have to 

end up starting to deal with the balance. 

The CHAIRMAN. Do you have a comment, Doug? 

Mr. HOLTZ-EAKIN. The CBO does examine Social Security proposals in the context of a model that captures both the direct and 

the indirect effects on long-term economic growth. We have not 

done formal analyses of payroll tax increases that look to be on the 

order of 5.5 percentage points to close the long-term gap between 

the benefits promised and the receipts dedicated to the program. 

We have, however, looked in the context of the larger budgetary 

pressures, at the run-up in Social Security along with Medicare, 

Medicaid, projections for defense. These estimates were done at the 

end of December 2003. Qualitatively, it is the case that the United 

States’ success rests on three pillars, the reliance on private markets, a relatively small, contained government as a result, on low 

and relatively efficient taxes by international standards, and on 

flexibility. 

50

A large run-up in Federal spending of the magnitudes in that report would require much higher taxes and the taxes imposed, in 

our estimates, would have lowered capital accumulation, lowered 

labor supply, and reduced GDP over the long term, and that is a 

numerical result that we can go through with you. But qualitatively, that kind of spending has to financed somehow and it will 

have economic ramifications. 

The CHAIRMAN. How much of the future growth of Social Security can be attributed to tying its initial benefits to wages as opposed to inflation and how much can be attributed to the aging of 

the population? 

Mr. HOLTZ-EAKIN. In some work we did about two years ago, it 

broke about 50–50. Half of the rise in real outlays come from aging 

of the population, half from higher real benefits per recipient. 

The CHAIRMAN. Senator Kohl. 

Senator KOHL. Thank you, Mr. Chairman. 

Gentlemen, just to cover some of the ground that you have talked 

about in your statements, is Social Security going to be broke in 

2052, as we hear it said so often, or is it true that after the trust 

fund is exhausted, then retirees will, in fact, continue to receive 

benefits as a result of contributions that will continue to be made? 

Mr. HOLTZ-EAKIN. As I said in my opening remarks, some form 

of the program is sustainable indefinitely. 

Senator KOHL. Right. 

Mr. HOLTZ-EAKIN. I think that the date, whether it is 2052 or 

2042, is somewhat uncertain. But any group that has looked at 

this, whether it be the GAO, the Social Security actuaries, the 

CBO, agrees on the basic trajectory of the program. 

Senator KOHL. Your estimate was, I think, something like 78 

percent? 

Mr. HOLTZ-EAKIN. We see a 22 percent across-the-board cut necessary. The SSA actuaries have a bigger cut and earlier. 

Senator KOHL. Right. Depending on who looks at it, maybe somewhere between the mid 70’s up until the upper 70’s of what people 

expect will continue to be paid. 

Mr. HOLTZ-EAKIN. Yes. 

Senator KOHL. So it is not fair, or is it fair to say that Social Security at some point will be broke or bankrupt or anything else of 

that sort in the common vernacular as people think about it? 

Mr. WALKER. The program will never go broke. 

Senator KOHL. Right. 

Mr. WALKER. The trust fund will go dry. 

Senator KOHL. Right. 

Mr. WALKER. The program will never go broke. 

Senator KOHL. Right. 

Mr. WALKER. But Senator Kohl, you probably recall the real controversy about the ‘‘notch baby’’ issue back a few years ago. Imagine a notch baby issue of the magnitude of tens of millions of persons where on one day, you are receiving a dollar of benefits for 

every dollar promised, and the next day, you are receiving 73 cents 

in benefits for every dollar promised. I mean, that is what would 

happen if Congress does nothing and waits until the trust fund 

goes dry. 

51

Senator KOHL. That is true. There is no argument about that. 

But I just wanted to get those——

Mr. WALKER. You are right. 

Senator KOHL [continuing]. Again, very clear, that we are not 

talking about a program that at some point is going to be broke in 

the sense that people will not get any money out of it. That is not 

true. 

Mr. WALKER. It will never go broke. 

Senator KOHL. Right. Is it true that with relatively small 

changes, that decisions would have to be made, we could get Social 

Security solvent for another 75 years? Maybe not into perpetuity, 

if you want to put that as the goal, but in terms of making relatively small changes in terms of our economy, its size, we can get 

this program solvent through the 21st century into the 22nd century, is that true? 

Mr. HOLTZ-EAKIN. Small is in the eye of the beholder. I would 

caution you that any fix that involves making the trust fund last 

75 years involves a period where the trust fund is declining——

Senator KOHL. Sure. 

Mr. HOLTZ-EAKIN [continuing]. Each year in which that is true, 

those funds are coming from the remainder of the Federal budget. 

So it is far from the case that the overall problem is easy to fix. 

You could make the Social Security problem and hold it essentially 

harmless, but you will have a bigger problem elsewhere in the 

budget. 

Senator KOHL. Of course, but what we are talking about in the 

context, for example, of the President’s speech last night is Social 

Security. We are not talking about the entirety of our economy, the 

entirety of our—we are talking about Social Security and whether 

or not there are ways and means to make that program whole. The 

question I asked is whether it is true that we can make that program whole for many more years beyond 2040 or 2050 with relatively small changes in terms of our national economy. David. 

Mr. WALKER. Three comments, Senator. Relatively small is in 

the eyes of the beholder. Second, clearly, relatively small as compared to Medicare. 

Senator KOHL. Yes. 

Mr. WALKER. No doubt about that. You are going to have to take 

much more dramatic actions there. 

Second, I think there are a lot of positive things you can say 

about the changes that were made in 1983, but one of the things 

I would respectfully recommend to the Congress is that if you are 

going to go after Social Security again, you need to look for sustainable solvency, not just look for 75 years, why, because in 1983, they 

knew that the problem was going to reemerge because of known demographic trends. 

Right now, you have a situation that every year, we take a surplus year that gets lower each year and we add an increasingly 

large deficit year. That is due to known demographics. So if you are 

going to take it on again, I would strongly suggest you try to solve 

it for the long-term. 

Last, you could look at Social Security in isolation and say it is 

not that difficult, we can solve that for 75 years or in perpetuity. 

But I would respectfully suggest that one of the problems that we 

52

have is that we are looking at everything in isolation and we 

shouldn’t be doing that. We have to recognize that Social Security 

is a subset of a much bigger challenge. Not only do we have to deal 

with Social Security, we have to deal with Medicare, we have to 

deal with Medicaid, we have to deal with many other issues, and 

whatever you do with Social Security is going to have an impact 

on private pensions, personal savings, et cetera. 

Senator KOHL. But it is true that the President raised the issue 

last night and so he is making it front and center, and so we have 

to discuss it because he has directed our attention to a single, what 

he describes as a catastrophic problem, Social Security, and that is 

why we are talking about it and that is why we are addressing it. 

In that context and last, if it is true that we look to Washington 

to keep our eye on the ball, to see problems as they are and as they 

emerge and to look for ways in which we can solve those problems, 

and if it is true, as you have said, ‘‘That Medicare is by far a more 

serious problem’’, then why are we focusing on Social Security 

today, other than the fact that the President has decided that we 

are going to talk about Social Security? If Medicare is a much more 

serious and urgent problem that needs to be——

Mr. WALKER. I think you would have to ask the President. I 

would say that one of the reasons that it may be the case is because Social Security is a problem that is actually solvable. It is 

solvable in a way that you can exceed the expectations of every 

generation of Americans, and if you can do that, it would send a 

positive signal to the markets that we are willing to get serious 

about dealing with some of our large and growing long-term deficits, and second, that it could serve as a confidence builder among 

the public and potentially a momentum builder within the Congress to take on some of the more difficult challenges. 

You do have to deal with Medicare. I would respectfully suggest, 

Senator, that may take many years and many installments——

Senator KOHL. My time is up, but didn’t we just, at the President’s urging and request, just add on an enormous liability to 

Medicare? Didn’t we just do that with our eyes wide open, understanding then the same facts that we understand today? I mean, 

there was just a vote a few months ago. 

Mr. WALKER. Senator, you are correct in saying that when the Medicare prescription drug bill was passed, it added $8.1 trillion to 

our unfunded obligations. It dug the hole much deeper. Part of the 

problem is because at the time that that bill was discussed and debated, Congress did not have access to its long-term cost. That has 

got to change. Congress needs——

Senator KOHL. Well, the administration had access to it. We 

didn’t. 

Mr. WALKER. I don’t know that they had the 75-year costs. There 

was a difference——

Senator KOHL. It was very clear that people within the administration knew that the cost of that was far more than what we were 

told what it was. But, and finally, I end, because I know my time 

is up, it is ironic and perplexing that now the President is talking 

about these unfunded, probably, Social Security, and we have got 

to deal with it, got to understand what it means into the future, 

and if it is not dealt with, there are dire things that can occur. But 

53

just a few months ago when we were dealing with the Medicare situation and he and others were urging that we pass this tremendous unfunded liability, there was no discussion of it in that context at all. So if we are mixed up and confused and trying to understand what is really happening, I hope you, at least, Mr. Walker, 

can understand. 

Mr. WALKER. I have for several years, Senator, said that the 

Congress should have at its disposal before it passes legislation, 

whether it be tax legislation or spending legislation, the estimated 

long-term cost and implications of that legislation because we have 

been digging the hole deeper rather than filling the hole lately. 

The CHAIRMAN. Thank you, Senator Kohl. 

We have been joined by Senator Clinton and Senator Lincoln. We 

have each made opening statements, if you would like to make one, 

please feel free to do so or we will get to you shortly on questions. 

Senator Nelson, you are next. 

Senator NELSON. Could you all address the question that I had 

raised in my opening comments? What was changed last night? 

Mr. WALKER. Do you want to go first? 

Mr. HOLTZ-EAKIN. With the stipulation that we are far, far, far 

from a lot of detail on what we know was proposed, we have looked 

at the transcript of the speech, at the policy book that has been released, and at the transcript of a briefing which provided some 

background, and I think three things stand out in contrast to Commission Plan 2, which was widely discussed prior to the State of 

the Union. 

First is in the contributions to the plan itself, as we understand 

it, there is a $1,000 cap which is now indexed to general wage 

growth and which then also goes up by $100 each year in addition 

to whatever wage growth there might be. So there is a rising cap 

on the contributions. 

Second, there is a series of phase-ins in both when the program 

starts and then who is eligible to contribute to individual accounts. 

Then third, in terms of the computations at the end of the working career, there are accumulations in the individual accounts that 

come from contributions. In Commission Plan 2, each contribution 

was, for purposes of calculating total benefits, that contribution 

was assumed to have a 2-percent real return. At the end of the 

working career, all these fictitious 2 percent earnings were used to 

calculate offsets to the traditional benefit. That 2 percent return 

has now been changed to 3 percent. 

So there have been some, essentially, details on money going in, 

timing of eligibility, and calculation of total benefits at the end that 

look a little different from Commission Plan 2, but an enormous 

amount remains to be specified in terms of annuitization and many 

details. 

Mr. WALKER. Senator, I would say there are still a lot of issues 

that have to be addressed to figure out how you are going to pay 

for the individual accounts. Commission Plan 2 provides some insights, potentially, as to what the administration has in mind, but 

it is not clear that they intend to necessarily go with Commission 

Plan 2. 

There are several things that I took out of last night’s State of 

the Union, and I was there as you were and others. First, I heard 

54

the President say that if you are 55 years old or older, you will not 

be affected in any way, shape, or form. Presumably, that means 

that whatever the benefits people 55 and older have been promised 

and in whatever form they will get it. 

Second, the language that I heard appeared to say that individual accounts would be optional. He didn’t actually use the word 

optional, but that is what I inferred, at least, that it would be optional for people under 55. 

Senator NELSON. He said voluntary. 

Mr. WALKER. Voluntary. Well, then that is optional. That tells 

me it is optional. The question is——

Senator NELSON. What does that mean to you? 

Mr. WALKER. Well, what it means to me is that you wouldn’t 

automatically have to take part of your payroll tax and use it to 

fund an individual account. You might be able to stick with the 

current system, and part of the question would be is if you did take 

part of the payroll tax and use it for an individual account, what 

would the tradeoff be? How would your defined benefit promise 

otherwise be affected? That hasn’t been defined yet, and that is 

something that obviously would have to be defined. 

There are a number of important details that would have to be 

defined before, A, you can really understand it, and second, before 

you can cost it and think about what the potential implications 

would be for individuals. 

Senator NELSON. So we are really reacting to something that we 

don’t know what the specifics are. We are having an academic discussion about various things that we might put on the table, but 

at this point, we don’t know what is on the table by the President. 

Mr. WALKER. Senator, I would suggest there is one thing that is 

important in addition to getting the details filled out. As was mentioned by one of the members earlier, you can’t solve a problem 

until you admit that you have a problem and I think there is work 

still to be done in trying to help convince people, not only here 

within Washington but outside the beltway, what is the nature, extent, magnitude, and timing of the problem and what are the relative pros and cons of acting sooner rather than later? But you are 

right, a lot more details have to come out as to what the potential 

solution might be and what the pros and cons of that potential solution might be. 

I might mention one more thing, Senator. It is very important in 

analyzing reform proposals that, as we have said at GAO, you have 

to look at a package. There are pros and cons of every reform element. 

The other thing is to benchmark the reform package against both 

promised benefits and funded benefits, because not all promised 

benefits are funded. Therefore, if somebody is to say, ‘‘Well, this 

represents a cut of X percent from promised benefits.’’ Well, if you 

are under 40, all your promised benefits aren’t funded and if you’re 

under 30 none of your benefits are fully funded. As a result, you 

are really comparing apples and oranges unless you consider both 

the funded benefits as well as the promised benefits. 

Senator NELSON. You know, you talk about you don’t have a 

problem unless you recognize there is a problem, and we had a 

problem back in the Great Depression and it was addressed. I 

55

know that just on a basic set of values that we have a problem if 

we don’t, and are not admonished and follow the necessities put 

out in the Good Book about honor your father and your mother and 

take care of the widows and orphans. I know that elderly poverty 

is now 10 percent, and it is down from 35 percent in 1959, and I 

sure don’t want it to go back the other way where it is increasing. 

So I am going to look at this with a very, very careful eye, Mr. 

Chairman. 

The CHAIRMAN. Thanks, Senator. 

Senator DeMint. 

Senator DEMINT. Thank you. I believe I heard you say that it 

confirmed what I thought that in 2018, or thereabouts—I know 

there may be some difference between CBO—the real strain is 

going to begin from Social Security on our general fund, that it is 

going to require billions of dollars of infusion from the general fund 

to supplement the current Social Security system to meet promised 

benefits, that the trust fund is an accounting mechanism that just 

tells us how much the general fund owes Social Security. 

So there is no money there to pay and we have to come up with 

new money to make good on our promises to seniors in 2018, which 

I believe, as I said before, that this Congress, this Senate, and our 

budget cycle three or four years from now is going to have to begin 

to budget for huge amounts of transfers to Social Security. To me, 

that is an urgent crisis that we need to address, particularly if we 

are going to address it differently than we have before. 

Mr. Walker, you talked about the fix in 1983. What did we do 

to fix the program in 1983? 

Mr. WALKER. Well, there were a number of reforms. I mean, 

there was an increase in revenues——

Senator DEMINT. How was that——

Mr. WALKER [continuing]. In payroll taxes——

Senator DEMINT. An increase in payroll taxes. 

Mr. WALKER. There was an increase in payroll taxes. There was 

a gradual increase in the normal retirement age from 65 to 67, 

phased in over a number of years. 

Senator DEMINT. So a reduction of benefits. 

Mr. WALKER. You could look at it that way——

Senator DEMINT. Yes, you could. 

Mr. WALKER [continuing]. As many people probably did, a modification, at least. Others. Those are two that I recall right off the 

top of my head. The taxation of the Social Security benefits——

Senator DEMINT. Right. 

Mr. HOLTZ-EAKIN. Expanded coverage for seniors. 

Mr. WALKER. That is right. There was an expansion of coverage, 

as well, as to who would be covered by the Social Security system. 

Senator DEMINT. Well, it is my understanding that this program 

has been fixed many times that same way, is to increase the taxes 

and to somehow, through raising the age or indexing, as we are 

talking, as cutting the benefits. My contention is people are putting 

enough in the system not to have their benefits cut. I think what 

we are struggling for, is there a way to fix this system, which I 

think we have established by any rational basis today that we are 

in a crisis if we consider hundreds of billions of dollars, even trillions, of debt that faces an unfunded liability, is there a better way 

56

to fix the program than cutting benefits again and raising taxes 

again. 

I think we are at the point now where we are taxing labor at 

such a high rate, and these payroll taxes are part of it, that corporations are beginning to wonder, should they locate their headquarters in America anymore. It is an additional tax on labor. 

We are providing a poverty-level, or just barely above it, a poverty-level benefit for folks who have paid into this, and I think the 

program should be focused on low- and middle-income workers. 

The idea of raising retirement to people who need it the most are 

the ones that are most likely to have done manual labor their 

whole life and are the least likely to want to continue to work well 

into their old age, my hope is that we won’t look at cutting benefits 

again and we won’t look at raising taxes again. 

For my colleagues, I think that is what we have struggled to look 

at. The only solution to me appears to be, unless you are willing 

for these little adjustments, which these little adjustments are always cutting benefits and raising taxes, is to make the money that 

we are collecting work harder, and I think that is all the President 

is talking about. The average American family now is putting in over $5,000 a 

year of taxes into Social Security, if you count the employer and 

the employee side. If we can just begin to save and let compound 

interest work with a part of that to supplement Social Security, it 

is not going to fix the whole problem, but it could lower the financial strain, and as you said, and I think the best thing said today 

is exceed the expectations of every generation. 

We have got to meet our promises to seniors, and I think we 

have the opportunity now to make every American a saver and investor, to begin to actually save Social Security taxes for the first 

time, which I think it is interesting when I talk to groups back 

home and I explain to them all this money that has been going into 

it and I say, ‘‘You know, we haven’t saved one penny of that’’, and 

they smile like I am teasing them because they think we are doing 

that. 

But I appreciate the presentation today, just the clarity of the 

financial strain that we have. I recognize that we have even a bigger unfunded liability with Medicare, but the solutions there will 

be much more abstract. The demand on the system is much less 

predictable. I think, as you said, again, Mr. Walker, this is solvable, but only solvable if we take it on now before we get right in 

the middle of these huge deficits. 

So thank you for putting the numbers to an issue we have been 

talking about and I think that will help us solve the problem. 

Mr. Chairman, I yield back. 

The CHAIRMAN. Thank you. 

Senator Clinton. 

Senator CLINTON. Thank you, Mr. Chairman, for holding this 

very timely hearing, and I thank our witnesses. 

This is an issue that generates as much heat as light, and there 

is so much emotion, ideology, that it would be very welcome to 

have this debate basically run by the two of you. Let us look at the 

facts, let us look at the evidence, and then let us try to reach the 

appropriate conclusions. 

57

I must confess that I am disappointed in the President’s decision 

to pursue this issue in the way that he has chosen to do so. I do 

not agree there is a crisis. I agree there are some long-term challenges, as there are with every aspect of government. Addressing 

those challenges requires people to work in good faith and to arrive 

at solutions that will hopefully solve the problems we confront. 

I have been asking myself for quite some time, what is the reason for the President’s approach, which does emphasize a lot of crisis language, a lot of very dramatic rhetoric, and I conclude, in 

large measure, because of ideological drivers as opposed to policy 

or values that are at stake. 

When I look at the unfunded liabilities that we have, we compare 

Social Security to $3.7 trillion, Medicare to $8.1 trillion, the tax 

cuts, if extended, to $11.1 trillion. When I think about the situation 

that we were in in 2001, where we had balanced our budget on a 

current account basis, where we were building up a surplus, where 

we had our financial destiny much more in our control than we had 

had previously or that we have today, when I realize that we are 

at the beck and call of foreign lenders to pump in approximately 

$50 billion, give or take a month, to buy our debt, it is very discouraging to me that we would take this issue, put it in isolation, 

whip up a lot of scare tactics for ideological reasons, and I hope 

that the American people are smarter than that. 

There are steps that we could take, depending on our choices and 

values, right now to deal with Social Security. We could do some 

things that some in this body would call tax increases, such as rolling back income tax cuts for those above a certain level of income 

or retaining the estate tax at some level, that would make a big 

contribution. 

But what really concerns me is that the average working American, who has been paying in with a payroll tax into Social Security, whether you call it a trust fund or you call it an accounting 

device, it is an obligation of the U.S. Government. Those payroll 

dollars have largely funded the upper-end income tax cuts and it 

is, you know, a transfer of wealth. We talk about building wealth 

and building ownership for middle-income and working-class people. This is one of the biggest transfers of wealth that we have seen 

in our country, and now we are sitting here talking about ripping 

the rug out from under the existing social insurance system and it 

is just astonishing to me that we would be having a conversation 

on these terms. 

What is also troubling to me is that the third of the people who 

are in Social Security who receive survivor benefits and disability 

payments are basically left out of this conversation. These are people, especially on disability, for whom this is, in most instances, 

their sole income. For survivors, it is often the difference between 

being able to afford some luxuries for a child growing up and going 

to school than not. So there is a whole third of our people on Social 

Security that are being left out of this conversation. 

So I think there is room to have an honest, evidence-based conversation about what to be done with Social Security, to raise the 

issues, to have a mature conversation in the American public, and 

to make some tough decisions. You know, it is a social insurance 

58

program. There are other ways we could incentivize wealth creation and savings. 

We could, for example, as some have recommended, make 401(k)s 

automatic unless you opt out. That would dramatically increase the 

participation rate in 401(k)s. We could come up with different ways 

of funding add-on accounts that would not go to the point of carving out payroll tax. There are ways we could address both the longterm solvency of Social Security and we could address wealth creation and ownership. 

But we are just whistling in the dark if we don’t think our longterm fiscal situation is heading us right off a cliff, and it just is beyond me how people who call themselves conservative could have 

the gall to support economic policies that are sending the younger 

generation into the biggest deficit and debt hole that any generation has ever inherited. 

So I respect greatly the purpose of this hearing and am glad we 

are having it and particularly these witnesses, but if we have ever 

needed an honest debate where people look really at what is happening and put it into the context of the Medicare debt and the fiscal debt, our trade account deficit, and then try to say to ourselves, 

what are the responsible positions to take, it is now and I fear that 

we are going off on this tangent on Social Security in the wrong 

direction. It will make the situation worse and it will break faith 

with the social insurance program that Social Security is supposed 

to be. 

Mr. Chairman, thank you for giving me the opportunity to vent. 

[Laughter.] 

The CHAIRMAN. Senator Lincoln? 

Senator LINCOLN. Thank you, Mr. Chairman, and I would like to 

add my thanks to you and to Senator Kohl for your leadership and 

bringing us to a timely hearing on such a very important issue, allowing us to vent, but also to discuss some of our options of what 

we want to do in terms of these long-term solutions. 

I was with both of these gentlemen yesterday. I am delighted to 

be with you today. I am not sure if I am going to see you tomorrow, 

but—— [Laughter.] 

I am hoping that you both will be a very real part of helping us 

find the solutions in the long term of how we can create solvency 

in a program that truly has meant a tremendous amount to a lot 

of the elderly people. Again, I want to reiterate Senator Clinton, 

not forgetting the disabled community as well as the survivors of 

many recipients. 

I have got a couple of questions and I think I will go straight to 

those. Mr. Holtz-Eakin, according to an analysis by your own CBO, 

future retirees would fare worse under the Commission’s plan than 

if no action were taken at all in Social Security. I think the chart 

under there says the current benefit which a median wage earner 

born in the 1990’s and retiring at 65 would receive $23,300 annually. If no action is taken the trust fund runs out but does not go 

broke, the system does not go broke, the worker would receive 

$18,000. Then under the Commission’s plan, the worker would receive only $14,500. 

59

So it appears from this that retirees would be worse off under 

the Commission’s plan than even if no action were taken. Is that 

accurate? 

Mr. HOLTZ-EAKIN. Yes. Those are our estimates for the middle 

quintile of the earnings distribution. 

Senator LINCOLN. So, in essence, we know we have something to 

do, but we also know that there is great potential to go in the 

wrong direction in terms of making decisions and taking action 

that could, in turn, really do more harm than good. 

I guess especially concerning our younger workers, because if the 

graph is correct, our younger workers would be hit twice, it appears. First, they will have a reduced benefit, and then, second, 

they will be responsible for repaying additional borrowing, as Senator Clinton mentioned, this enormous pitfall of debt that we are 

going to be establishing—that would be required to set up these 

private accounts. Is that fair to say? 

Mr. HOLTZ-EAKIN. In our estimates in the aggregate, it is the 

case that the introduction of the individual accounts early on have 

a negative impact on the balance in the program between receipts 

and outlays, but past 2065, it switches as the accounts begin to 

accumulate. 

Senator LINCOLN. Sixty-five? 

Mr. HOLTZ-EAKIN. Two-thousand-sixty-five, in the aggregate. 

Senator LINCOLN. Right. So it takes us a little while to get there, 

before that turnaround happens. 

Mr. Walker, I appreciate your input. I understand that the Federal spending for Medicare, something we talked about yesterday, 

is rising at a much faster rate than the Federal funding for Social 

Security, and you have mentioned that here today. I know as a 

matter of fact that the Medicare costs we see will exceed Social 

Security costs by 2024, twice as much as Social Security by 2078. 

In addition, the Medicare Health Insurance Trust Fund, which 

alarms me enormously, will be insolvent by 2019, the year after the 

general treasury is supposed to pay back that IOU to the Social Security Trust Fund that we borrowed in 1983 that Senator DeMint 

brought up. 

So I guess I am not trying to negate the fact that Social Security 

is facing a very long-term, real financial challenge and we need to 

address that, but if we were to prioritize these in terms of economics, in terms of crises that we are talking about, I don’t know, but 

what has been presented almost seems to me that Medicare and 

health care costs are a bigger issue. How do you see it? 

Mr. WALKER. The Medicare unfunded obligations are over $27 

trillion of which $8.1 trillion relates to the new prescription drug 

benefit alone, as compared with $3.7 trillion for Social Security. Arguably, Medicare and Medicaid are a subset of a much larger challenge, and that is the overall health care system. There are many 

who believe that our health care system is in crisis and that it represents our No. 1 domestic policy challenge. I would say that other 

than our large and growing fiscal imbalance, they’re right. So there 

is absolutely no question. 

But I would also respectfully suggest, Senator, that the nature, 

extent, magnitude and emotion associated with health care is also 

multiple times greater than Social Security and that, ultimately, 

60

there is going to have to be a comprehensive reform of the entire 

system in installments which will require many years and many 

tough decisions. While I would encourage the Congress to get on 

with it sooner rather than later——

Senator LINCOLN. On Social Security? 

Mr. WALKER. On both. 

Senator LINCOLN. Both. 

Mr. WALKER [continuing]. I would encourage Congress to recognize the totality of the challenge and the need to start getting on 

with it sooner rather than later. I do honestly believe, as I said before, that while the Social Security challenge in dollar terms is 

much less, that it is something where you can exceed the expectation of all generations. You can gather some momentum. You can 

gain some credibility. You can enhance your confidence. There is 

something to be said for that. 

Senator LINCOLN. So if we are looking for legislation, don’t look 

for a work of art. Let us consider it a work in progress as we do 

things incrementally to improve both of these programs. 

Mr. WALKER. My personal opinion, Senator, is to deal with our 

large and growing fiscal gap, it is going to take a generation or 

more to deal with it, and I am just being straight with you. 

Senator LINCOLN. All right. Mr. Chairman, just briefly, if I may, 

I am also especially concerned about the effects of privatization on 

women. We know that women do live longer. They become more dependent on these programs, both Medicare as well as Social Security because of various demographic factors, some of which I have 

mentioned. But they also have a greater chance of exhausting 

sources of income. Social Security’s progressive benefits provide 

women with some sense of economic security, and without these 

benefits, I know from the statistics in Arkansas that 66 percent of 

the women in Arkansas would be poor. 

Do you all agree that privatization will put more women at risk? 

Is that an agreeable thing to say, that women are at a far greater 

risk if we don’t do this correctly than if we do—instead of doing no 

harm, we do great damage? 

Mr. HOLTZ-EAKIN. I think the question is, what is ‘‘this,’’ and I 

would echo what David said earlier about looking comprehensively 

at any reform plan. The major risk comes in two pieces. The first 

is longevity and the degree to which the plan includes an annuity 

that is similar in type to the one that Social Security offers now, 

indexed for inflation and lasting the lifetime of the recipient. 

The second is the degree to which those who have adverse labor 

market careers are reliant exclusively on the individual contributions to the account to fund such an annuity. 

So to the extent that there are provisions somewhere else in the 

plan that make sure the annuity is present and make sure that it 

is of sufficient magnitude, that can be addressed. 

Senator LINCOLN. Definitely, it is a part of the principles we are 

espousing. I just would like to echo Senator Clinton, because in 

Arkansas, nearly 40 percent—we are way above the national average of Social Security beneficiaries that are receiving those benefits 

as disabled or survivors and we have not addressed that at all and 

I hope that we will. I know with the leadership of these two gentlemen and this committee, we will. 

61

Thank you, Mr. Chairman. Thank you, gentlemen, for joining us. 

The CHAIRMAN. Thank you very much. 

Are there Senators with any further questions? If not, thank you, 

gentlemen. We appreciate your contribution to this hearing. We no 

doubt will be calling on you in this and other committees in the future, as you certainly described well the problem we have to resolve. 

We will call next our second panel. Our first witness will be 

David John, research fellow, Thomas A. Roe Institute for Economic 

Policy Studies of the Heritage Foundation, Washington, DC; Robert 

L. Bixby, executive director of the Concord Coalition, Arlington, 

VA; and John Rother, director of Policy and Strategy, American Association of Retired Persons, here in Washington, DC. 

Gentlemen, thank you. David John, we will start with you. Welcome. 

STATEMENT OF DAVID C. JOHN, RESEARCH FELLOW, THOMAS 

A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, THE 

HERITAGE FOUNDATION, WASHINGTON, DC 

Mr. JOHN. Thanks for having me. Chairman Smith and Senator 

Kohl, thank you very much for having me. As mentioned, I am 

David John. I am a research fellow at the Heritage Foundation specializing in Social Security, other retirement, corporate governance, 

and other such fun topics. 

Social Security has a major place, but it is only one of a number 

of significant aging discussions that we need to have as a people 

over the next few years. We can’t ignore the whole question of 

weaknesses in both our defined benefit and defined contribution 

pension plans. We can’t ignore the whole question of what is retirement. Currently, it seems to be a bright line. One minute, you are 

employed; the next minute, you are retired. I don’t know that as 

a people we can afford that in the future. I don’t even know that 

it is desirable for those of us who are going to be approaching that. 

Last but not least, of course, we have medical questions. But for 

the moment, let us concentrate on what is doable, which is to save 

Social Security first. 

Social Security, as Senator Kohl mentioned, has been an incredibly successful program. My grandmother, who actually lived in 

Milwaukee, financed all of her retirement based on Social Security. 

However, times change and companies and programs need to 

change over time, also. In 1935, U.S. Steel was one of the biggest 

companies in the United States. It no longer exists, at least not 

under that name. AT&T was the controller of telephones, and now 

AT&T is changing. In 1935, the Chicago Cubs were in the World 

Series. They lost. But times have shifted over the last 70 years. My 

grandfather, for instance, was a master mechanic at Harley-Davidson at that point. 

This is a debate that gets lost, unfortunately. We talk about billions and trillions and bend points and trust funds and things and 

that is really not what this is all about. This is about people. This 

is about not necessarily my 85-year-old father, who lives in retirement. This is about my 18-year-old daughter, who is a freshman 

at Villanova studying nursing. 

62

If the current activities continue, if we do nothing, Meredith 

faces a future where she will pay 100 percent of her Social Security 

taxes throughout her working life. She will pay 100 percent of her 

share of a total of $5.6 trillion to repay the bonds in the Social Security Trust Fund. Ten years before she retires, if you use the Social Security estimate, the same year she retires if you use the 

CBO estimate, the Social Security Trust Fund runs out and essentially she gets 73 cents on the dollar. That is not exactly the kind 

of future I want to leave for my daughter. 

This is a real problem. The trust fund is a real problem. My 

daughter is thoroughly convinced that her credit card is not a real 

problem because she doesn’t pay it. However, it is a major part of 

the family finances, or at least it can be if she gets carried away. 

[Laughter.] 

If we do nothing for Social Security at this point, we will start to run $100 billion annual deficits in 2022. Those will go up to 

$200 billion annually in today’s dollars 5 years after that. 

According to the Social Security Administration, doing nothing adds $600 billion a year to the cost of reforming Social Security. 

That is about $50 billion a month. 

What to do? I happen to be very strongly in favor of a personal 

retirement account. The simple fact is that Social Security, because 

of an index change that was done during the Jimmy Carter administration, has offered my daughter significantly higher benefits 

than it can afford to pay. We need a simple structure that is easy 

to understand with a default fund which is something similar to a 

lifestyle fund. 

A lifestyle fund has most of your investments in index funds 

when you are young and it gradually shifts to bonds when you are 

old. What that means is that the difference between retiring in 

1999 and 2000 is taken care of, essentially, because virtually all of 

your money is in bonds at that point. 

The future Social Security benefits will be paid from a Social Security Part A, which is the government-paid benefit, and Social Security Part B, which is a personal retirement account. There is a 

fairly simple formula that would determine how much would be 

paid from what. 

What is key about this is that the sad fact is that only about 50 

percent of the American workers have some sort of a retirement 

savings plan outside of Social Security. A personal retirement account would allow these workers the opportunity to build assets. 

The sad fact is that no matter what, Social Security can’t afford 

to pay my daughter what it has promised her, but at least with a 

personal retirement account, she has the opportunity to make up 

all or most of the difference between what it promises and what it 

will be able to pay. 

There are a lot of other proposals out there. Let me just address 

one very quickly. One of them suggests that all we have to do is 

raise the payroll tax cap from $90,000 to $150,000 or $200,000 and 

we have solved most of the problem. The Social Security Administration addressed that in an October 2003 scoring memo which 

found that if you completely got rid of that, which means that Donald Trump gets to pay payroll taxes on 100 percent of his earnings, 

what that does is to move the date where Social Security starts to 

63

spend more than it takes in from 2018 to 2024. If Donald Trump 

is allowed, as under the current system, to receive benefits on all 

of that money, then basically the $100 billion deficits in today’s dollars begin in 2029, not 2022. That is scarcely saving the system. 

If, on the other hand, we make a major shift in the way Social 

Security is operated and we start to make Social Security into some 

form of a welfare program, meaning that we are only going to pay 

Donald Trump benefits on the first $90,000 of his income, and basically we are going to take all the taxes on the amount above that 

and say, ‘‘Thank you,’’ then the $100 billion deficits start in 2031 

instead of 2029 or 2022. 

Essentially, small thoughts and small solutions aren’t going to 

work. This is too big a problem. We need to think very seriously 

outside of traditional boundaries and come up with a solution that 

guarantees people like my daughter a decent retirement income. 

Thank you. 

The CHAIRMAN. Thank you. 

[The prepared statement of Mr. John follows:]

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The CHAIRMAN. Robert Bixby, welcome. 

STATEMENT OF ROBERT L. BIXBY, EXECUTIVE DIRECTOR, 

THE CONCORD COALITION, ARLINGTON, VA 

Mr. BIXBY. Thank you, Mr. Chairman, Senator Kohl. This is an 

incredibly well-timed hearing. I congratulate you on your foresight. 

Thank you for inviting me to testify. 

I am here representing the Concord Coalition, which is a bipartisan organization that argues for fiscal responsibility. It is cochaired by former colleagues of yours, Bob Kerry and Warren Rudman. 

Sitting here, it occurred to me that you get some interesting experiences working with the Concord Coalition. Last night, when I 

was listening to the State of the Union Address, I agreed with 

many of the comments that President Bush made about the future 

of Social Security and the nature of the problem. Then this afternoon, hearing some of Senator Clinton’s remarks, I agreed with 

those, too. If you think about why, it defines how the Concord Coalition thinks about this problem and how we suggest you might 

want to look at it. 

If you look at the cost of the system in the out years, just look 

at it as it builds over time and ask yourself, how are we going to 

pay for it? You see that the cost gradually increases and that the 

taxes flowing into the system don’t keep up with that and so a gap 

opens up in 2018 or 2020. We know it is coming sometime around 

that time. It gets bigger and bigger and wider and wider from that 

point on. 

That is the essential problem with Social Security. Promised benefits can’t be paid under the stream of revenue that we have dedicated for them, and the trust fund really doesn’t have too much to 

do with that. It does have legal significance, but it doesn’t have an 

economic significance. It doesn’t change the equation. 

But Social Security is part of a larger picture. It is part of the 

retirement security challenge. It is part of the budget. It is the 

largest program in the budget. It is part of the economy. What we 

do with Social Security has a big effect on those things. 

When I heard Senator Clinton talking about the larger fiscal 

challenge, I think she is absolutely right to raise that issue, as 

well. You can’t really separate them. These things are intertwined. 

I have been looking at some numbers that the Government Accountability Office did last year. Every year, they do long-term scenarios and they look at the consequences of current law over 50 

years, 75 years, whatever. If you look at 2042, which is only significant because it is the year we talk about as the year of trust fund 

exhaustion, and people say, ‘‘Well, the trust fund is solvent until 

2042’’, so there is no problem. 

In 2042, under the so-called baseline extended scenario, which 

assumes that all of the tax cuts are allowed to expire on schedule 

and that discretionary spending grows no faster than inflation, 

Federal spending at that point would be up to 34 percent of GDP 

and the debt as a percentage of the economy would be at 164 percent of GDP. It is at 38 percent of GDP today. Net interest would 

cost us more than Social Security, Medicare or Medicaid. 

74

In other words, we are headed toward a fiscal cliff and we are 

going to go over that fiscal cliff long before 2042. So—and by the 

way, this is not the worst scenario by any means. I mean, we could 

run much bigger budget deficits if we don’t get them under control. 

So my point here is that we are—our overall fiscal policy is 

unsustainable and it is going to be unsustainable sometime in the 

2030’s. So if what you are saying is, ‘‘Well, we don’t need to worry 

because the trust fund is going to be solvent until 2042’’, or if in 

the case of private accounts you are saying, ‘‘Well, we can do the 

borrowing now because we are going to get big savings in the 

2050’s or 2060’s, my point is we are going to go over the cliff before 

that.’’ The government is going to be bankrupt before the trust 

fund is, and that is the larger problem that Senator Clinton talked 

about. 

So I will wrap up by saying that as we address Social Security 

reform, and I think it is essential that we do so and it is essential 

that we do so sooner rather than later, we can’t duck the hard 

choices here. We can’t fund all future benefits and not raise taxes. 

You are going to have to make some hard choices, and this is true 

regardless of private accounts. Private accounts don’t solve the gap. 

They may have some good effects for younger workers. They may 

be very sound. The Concord Coalition is perfectly in favor of private 

accounts. But we think they should be funded with new contributions, new savings into the system, and not with borrowed funds. 

But whether you do private accounts or don’t do private accounts, you are going to have to face some hard choices about can 

we afford all the future benefits that are promised, and if we are 

going to, then you are going to have to raise taxes to pay for them 

because the deficits that occur in the rest of the budget just become 

unsustainable. 

Thank you. 

The CHAIRMAN. Thank you. 

[The prepared statement of Mr. Bixby follows:]

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The CHAIRMAN. John Rother, welcome. 

STATEMENT OF JOHN ROTHER, DIRECTOR OF POLICY AND 

STRATEGY, AMERICAN ASSOCIATION OF RETIRED PERSONS, 

WASHINGTON, DC 

Mr. ROTHER. Mr. Chairman, thank you, Senator Kohl, Senator 

DeMint. It is a privilege to be back in front of the Aging Committee. I was the staff director here for four years. Today, I am the 

policy director for AARP. 

I will leave my full testimony with you and just summarize briefly, given the time. 

The CHAIRMAN. We will include it in the record. 

Mr. ROTHER. I agree that this debate needs to be about people 

just as much as it is about dollars. AARP believes that Social Security does need to be strengthened for our children and our grandchildren, but that the solution should not be worse than the problem. In our view, private accounts that drain money out of Social 

Security will only cut its guaranteed benefits, increase the federal 

debt, and pass the bill on to future generations. Private accounts 

are risky, expensive, and unnecessary as replacements for Social 

Security’s guaranteed insurance protections. AARP is working to 

strengthen Social Security, not dismantle it. 

We believe that all Americans, young and old, have a stake in 

this debate. We do not find the generations divided. When it comes 

to Social Security, America, we believe, is a house united. We have 

done a series of recent surveys, the latest one we release today, of 

Americans 18 and older that shows that people of all incomes and 

all generations would prefer to strengthen the existing system with 

as few changes as possible. They would not favor radical changes 

that would undermine its purposes. 

There are sensible and workable solvency options to explore that 

could make a real and lasting difference and restore the program 

to fiscal stability. My full testimony includes several of those that 

we have been using in an educational way around the country to 

help people understand the tradeoffs that will need to be made in 

order to strengthen this program. 

We do believe that we should avoid Social Security changes that 

add huge new sums to our nation’s debt. I certainly agree with Bob 

and the Concord Coalition on this point. Doing so would burden all 

taxpayers with additional interest costs and further increase deficits, which in turn threaten our ability to finance essential health 

and service programs for Americans young and old. 

So we think that all generations have a stake in this debate and 

we do not believe that seniors are somehow exempt from it. 

Social Security was never intended to be the sole source of retirement income but a foundation and this foundation must be 

strengthened. Social Security replaces, on average, only about 40 

percent of pre-retirement income. We support savings and investment options that are in addition to, not in place of, Social Security. 

Last night, the President mentioned the Federal Thrift Savings 

Plan. That is a very good model, but I want to point out that it 

is on top of a Social Security benefit and a defined benefit pension 

for Federal retirees. So it serves a very important savings function 

113

on top of a guaranteed base of Social Security and pension benefits. 

It should not be used as a model to replace that guaranteed base. 

In fact, if there is a crisis in retirement income today, it is the 

fact that only half of private sector jobs even offer a pension and 

only 70 percent of employees in those firms participate in one. So 

we are at eminent risk of the largest generation in our history, the 

boomers, being completely unprepared to finance their own futures 

beyond Social Security. 

AARP is working to ensure retirement security for all generations. Any agenda to strengthen our nation for the future in addition to Social Security must also include strong Medicare benefits, 

a viable Medicaid program, and opportunities for meaningful employment for older workers. These are family issues that demand 

Americans of all ages be engaged. We certainly are going to work 

with the public across the country and will work with members and 

Congress on both sides of the aisle to make sure that Americans 

can continue to age with security and dignity and that we can restore confidence in the single most important domestic social program we have, our Social Security program. 

Thank you. 

[The prepared statement of Mr. Rother follows:]

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The CHAIRMAN. John, as I have read the AARP literature, it 

seems, as you have stated here, that not a lot needs to be done because there isn’t really a problem until 2042, but that is not really 

what you are saying. 

Mr. ROTHER. No, not at all. 

The CHAIRMAN. You are admitting that there is a problem. Are 

you saying the sooner we get to it, the better? 

Mr. ROTHER. Yes. It is certainly true, as a defender of the system, that more modest changes are possible now than if we wait, 

and the longer we wait, the more difficult the choices will be. So 

I think it makes good sense to act sooner rather than later. 

The CHAIRMAN. Your proposals are to raise the wage cap, is that 

correct? 

Mr. ROTHER. We have done extensive polling work and community forums around the country. Consistently, we have found the 

single most popular option of all the ones out there would be to ask 

those who have benefited the most in recent years to contribute 

more, and the way to do that is to raise the wage base up from its 

current $90,000 a year to something more in line with the historical standard, which would probably take it up to around $140,000. 

The CHAIRMAN. Some have suggested that we means test Social 

Security. I am not, but some have suggested that, so Bill Gates 

doesn’t get it or Donald Trump—they always pull those names out 

of the air. Do you favor such a thing? 

Mr. ROTHER. No, Senator. The current Social Security benefit formula returns less of a benefit as a percentage of pre-retirement income to people who have more of an opportunity to save for themselves. It provides a more generous benefit for people at the low 

end who generally have not had an opportunity to save or be part 

of a pension plan. We think that is the appropriate way to structure it, and that is the way the system works today. 

The CHAIRMAN. David, as you listened to the President last 

night, and we all listened, clearly, there is a funding obligation 

here if we are going to be fiscally responsible on this. Whether it 

is $800 million or $2 trillion, do you have any recommendations as 

to how we would do that if we were to go to personal accounts? 

Mr. JOHN. Essentially, there are going to be four mechanisms 

that can be used, whether this is used to repay the trust fund or 

to pay general revenue costs of establishing personal retirement accounts. Those four are fairly simple. 

We can borrow the money, which means we are going to pay it 

back. 

We can raise taxes in some form or another, but we have to be 

very careful with that. For one, it is a slippery slope, and for another thing, it can have a very serious impact on the economy. 

Third we can cut other government spending, which has always 

been one of my favorite choices, but as I learned the hard way, it 

is a lot easier to talk about than it is to do. 

Or last but not least, we can change Social Security benefits, and 

any of those four would work. 

What I personally would love to see done would be to see something like a BRAC, Base Realignment and Closure Commission, 

type structure that looked over government programs, identified 

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fulness, and basically close them down or merge them or do something along that line. 

But this is going to be a long-term problem. At some point or another over the 30 or 40 years that we deal with these, all four of 

these methods are going to come into play here. 

The CHAIRMAN. As to Social Security or all entitlements? 

Mr. JOHN. All entitlements, when it comes down to it. 

The CHAIRMAN. Robert, as I listened to my colleague, Senator 

Clinton, I certainly admire her passion. I was only a Senator for 

half of the Clinton years. On the surface, a lot of what she said, 

I agreed with, except I do remember that when I came to the U.S. 

Senate in 1997, the budget—and I was on the Budget Committee—

that President Clinton presented to us showed deficits for as far as 

the eye could see. What closed that and produced the surplus was 

a stock market bubble and we began to get tremendous revenues 

from what eventually exploded in the last year of his Presidency. 

Whether you like the tax cuts or not, the recession was short and 

it was shallow and we are seeing increases to revenues now. I 

guess as against China, we are certainly not growing at 11 percent, 

but we are growing at a rate that is the envy of the Western world, 

of the industrialized world. That is the part that wasn’t said. 

But clearly, we have got to do something. It does seem to me that 

we have got a problem on the spending side and obviously the revenue side. My hope is that the revenues will grow with a growing 

economy. 

What does the Concord Coalition, bottom line, what do you want 

to see us do with this? 

Mr. BIXBY. Well, I think there are only two ways to address the 

problems here. One is to control the long-term cost growth and the 

other is to try to grow the economy, to make the remaining costs 

more sustainable. Those are hard choices. Neither one of them is 

a free lunch. 

One could conceive of a plan that could try to trim the promised 

benefits more to a level that would be sustainable without raising 

the payroll tax. You would have to do that gradually and over time 

and you would have to look at the adequacy of the benefits. But 

at the same time, you could perhaps help the system and increase 

national savings to help build the economy with a system of mandatory private savings accounts that would be part of the Social Security system. But if you were to do that, in order to result in real 

savings, they would have to be funded with new money, so there 

is no free lunch in any of this. 

Overall, I would strongly urge you to look at whatever reform 

you adopt by looking at the year-by-year results for the budget and 

for the economy and not to get hung up on abstractions about the 

trust fund or the perceived benefits of private accounts. I think 

both are important and I think they have a role, but ultimately 

from the Concord Coalition’s, ‘‘eat your peas’’ point of view on fiscal 

policy, when we add all of these things up, you have to ask, ‘‘Is the 

path that we have set for ourselves sustainable? ’’ Right now, it 

isn’t, and so whether we are talking about Social Security reform 

or Medicare, Medicaid, taxes, whatever, we need to get back on—

a sustainable path. 

126

I should say, Mr. Chairman, I am not one that says, repeal the 

tax cuts and the problem is solved. I want to be clear about that. 

Whatever one thinks of the tax cuts, and at Concord, we didn’t 

think they were a particularly good idea, but they didn’t cause this 

problem and repealing them is not going to be the solution to this 

problem. 

The CHAIRMAN. Do you attribute any of the growth we are seeing 

now, a short and shallow recession and the growth we now enjoy, 

do you attribute any of that to the tax cuts? 

Mr. BIXBY. Yes. I think short-term tax cuts were a good idea. 

Our problem with the tax cuts is more the long-term effect and 

whether more was done than needed to be done for short-term fiscal stimulus, although that is probably the subject for a different 

hearing. [Laughter.] 

The CHAIRMAN. My recollection, and I don’t mean to be partisan, 

Herb, and you can counter me here in a second, but my recollection 

is that when we passed a $1.3 trillion tax cut to get the economy 

going, we were also turning back additional spending of over $2 

trillion from our friends on the other side. So I think there is blame 

to go around, I suppose, but it does seem to me that the tax cuts 

at least have helped to get us back to growth and reemploying people. 

Mr. BIXBY. I would just say that I agree with what Comptroller 

General Walker said in that I think last year was a bad year and 

that cutting taxes while adding a major new entitlement program, 

is an inconsistent mix and I would hope that we go in the opposite 

direction, anyway, in our future fiscal policies. 

The CHAIRMAN. Thank you. 

Herb. 

Senator KOHL. Thank you, Mr. Chairman. 

Mr. John, back in 1935, if you were engaging in that debate to 

create Social Security, would you have supported Social Security 

back then or would you have opposed it? What I am asking you is 

whether you generally support the idea of any kind of social insurance programs. 

Mr. JOHN. I 100 percent support it. 

Senator KOHL. You support it? 

Mr. JOHN. I do support—if I were living in 1935, I would have 

supported Social Security at that point. If I lived today and the 

question comes up, social insurance, yes or no, the answer is yes. 

This is not a society that is going to let senior citizens starve in 

the street, and thank goodness for it. 

Senator KOHL. Good. Mr. Bixby, some argue that borrowing 

money to create private accounts would not hurt the economy since 

we are taking the borrowed money and investing it. Therefore, it 

would have no effect. What is your view on that? 

Mr. BIXBY. Well, I don’t agree with it. I think that there is a 

huge amount of borrowing involved although, you would have to 

see the details of any plan, obviously. But one of the goals of Social 

Security reform should be to improve national savings and help 

grow the economy. Private accounts presumably would do that, but 

if you are going to borrow the money to do it, you are just taking 

money from one pocket, putting it into another, and national savings wouldn’t be improved that way. They would probably actually 

127

decline because people would tend to save less if they were saving 

through Social Security and the government would be stuck with 

the debt. 

But the problem I have with a lot of these so-called carve-out accounts that require a lot of borrowing is that even if they promise 

to pay the money back sometime in the future, the savings are so 

distant, that they come after we have already gone over the cliff 

that I talked about. If we are already headed over a cliff by 2040 

and we borrow a lot in the interim, presuming that we are going 

to get savings back in 2060 and beyond. 

Well, we are never going to get to 2060 on the current path. That 

is what we need to worry about. So I would urge not looking at 75-

year summaries of these things, whether we are looking at private 

accounts or the trust funds. Again, just follow the money on a yearby-year path and see if we are on a sustainable course. 

Senator KOHL. I believe you have advocated mandatory private 

accounts. Why shouldn’t working people have a choice? 

Mr. BIXBY. Social Security is a social insurance program, first 

and foremost, and frankly, I think everybody should have the same 

rules. I mean, choice doesn’t seem important in a system that is 

designed to protect people from bad choices. So if we are going to 

do private accounts, I think that they should be a mandatory part 

of the system. 

The other thing is that if you do voluntary accounts, I just can’t 

imagine the complexities of that sort of thing. There would probably be notches and what not and difficulties with people opting in 

and then wanting to opt out again. I don’t know how you could control that. 

The other thing with voluntary accounts is I think there would 

be a tendency, and John probably knows more about this than I do, 

having studied savings behavior, but—lower-income people tend to 

be more risk averse and they might well opt not to take the personal accounts. But they are the ones that would benefit most from 

it in the sense of building up savings, because if you also at the 

same time were doing something to reduce the defined benefit, the 

guaranteed benefit, the cut can get quite substantial over the long 

term. If they opted not to take the private account that would help 

make up for they could find themselves in much worse conditions. 

Upper-income people probably would take the account, but they 

would probably save less in some other area, so we wouldn’t be increasing savings that way. 

So I really think there are a lot of, while it sounds like a good 

idea, I think in practice, voluntary accounts would be very problematic. 

Senator KOHL. Mr. Rother, what role will Social Security play in 

the retirement of future retirees and will it be more or less important than it has been for the prior generation? 

Mr. ROTHER. Today, as you know, about two-thirds of retirees receive most of their retirement income through Social Security, and 

we would like to think as a result of a rising economy and higher 

living standards that this would change for the boomers. However, 

the studies that we have commissioned from leading universities 

show that, in fact, that is not going to be the case. Part of it is the 

result of the decline in offering of defined benefit pension plans 

128

from employers. The rise in defined contribution plans, the 401(k) 

that replaces the old plans have not succeeded in offsetting the 

losses in plan value that people are not contributing enough, they 

are not investing very wisely, and they are pulling their money out 

before retirement. 

The other part of the problem is that we have a wage structure 

in our country that is getting more bifurcated where we have exaggerated winners and losers. People with lower educations are not 

keeping up with rising standards. This is true for many people in 

the boomer generation their wages aren’t keeping up. 

They no longer have a defined-benefit pension. Their health costs 

are going through the roof, and they are responsible for more of 

those health care costs. These are the people, and it is going to be 

a very substantial number of boomers, who are going to be in real 

trouble when they no longer can work. That is exactly the crisis 

that I think we should be paying more attention to rather than just 

the dollar numbers in the trust fund. 

Senator KOHL. I thank you. Mr. Chairman, thank you very 

much. I think it has been a great hearing. 

The CHAIRMAN. Thank you, Senator Kohl. 

One question, Robert. Is the Concord Coalition opposed to private 

accounts? 

Mr. BIXBY. No. 

The CHAIRMAN. You are not? 

Mr. BIXBY. No. We have said a lot of very favorable things about 

private accounts. Our concern is whether they are funded or unfunded. Unfunded private accounts don’t seem like much of an advantage over unfunded trust funds. 

The CHAIRMAN. I thought it was interesting, your comment that 

the people at the low end who probably are in jobs with companies 

that don’t provide them with a pension and therefore they only 

have Social Security those individuals are the ones that would gain 

the most from the compounding interest of a personal account. 

Mr. BIXBY. Yes. I think they have a real advantage, and particularly for younger workers, the people that don’t save enough now 

and people that would have a long time to buildup assets. 

My essential point about private accounts is that they are not a 

free lunch. They have to——

The CHAIRMAN. They have to be paid for. 

Mr. BIXBY. Right. Exactly. 

The CHAIRMAN. Do you have any recommendation for that? 

Mr. BIXBY. The Concord Coalition has not taken a specific position on reform items, but I would say the funding for accounts 

should come from some sort of new mandatory contribution, which, 

of course, some people would say is a tax increase. My argument 

back on that would be at least it is going into directly funding a 

worker’s account and it is not going into the government, which a 

tax increase would, and so a Republican should say, ‘‘It may be a 

higher tax in that sense, but it is going to fund a private account 

and it is not going into creating a bigger government.’’

The CHAIRMAN. John, would it be fair to say that AARP is ideologically opposed to personal accounts on any basis? 

Mr. ROTHER. We actually favor private accounts, just so long as 

they are on top of the——

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The CHAIRMAN. So you would favor Social Security Plus? 

Mr. ROTHER. Yes, and as I have emphasized the real problem 

today is that half of our workforce doesn’t have access to a payroll 

deduction mechanism for funding their own savings, so that is 

where the solution lies. We favor—and we think you could do it on 

a voluntary basis or mandatory basis, but we do favor a system 

open to every American worker that would allow them to save for 

retirement in addition to their Social Security. 

The CHAIRMAN. So hypothetically, if we were in gridlock here 

until 2042, but we were able to do Social Security Plus, you would 

see the benefit to your members—you and I won’t be here, but—

well, maybe not—— [Laughter.] 

You look pretty vigorous. 

Mr. ROTHER. Thank you. [Laughter.] 

The CHAIRMAN. But our children who would have a Social Security Plus, the quarter-percent cut that they would take, and they 

are going to lose roughly 27 percent under current law, that you 

think Social Security Plus would more than make that up? 

Mr. ROTHER. Well, I want to be clear. We favor strengthening the 

Social Security system first and foremost. 

The CHAIRMAN. But say we weren’t able to. 

Mr. ROTHER. Well, I——

The CHAIRMAN. This system won’t allow us to deal with it. One 

side wants to increase benefits, the other won’t raise taxes, and you 

just get to gridlock, hypothetically. In that instance, the Social Security Plus account would really help your members, I assume. 

Mr. ROTHER. Well, I don’t know if it would help our members, 

but it would help our future members, our children, quite a bit——

The CHAIRMAN. Exactly. 

Mr. ROTHER [continuing]. Particularly since the current defined 

benefit pension structure is eroding in the private sector. We need 

something that is available to all——

The CHAIRMAN. Do you think it would make up at least the 27 

percent cut they are scheduled to take? 

Mr. ROTHER. Well, only——

The CHAIRMAN. Or would it even be more than that? 

Mr. ROTHER. Well, that would depend on how much people put 

in. The amounts that are being talked about today, two, three percent of payroll, are not going to be sufficient to replace Social Security’s guaranteed benefit. I think the amounts serve well as a savings supplement. They do not serve well as a replacement. 

The CHAIRMAN. David, do you think with program cuts or ending 

programs, do you think we could find $2 trillion? 

Mr. JOHN. Oh, I am pretty sure of it, especially spaced over a certain period of time, yes. 

The CHAIRMAN. Do you have any programs you want to recommend? 

Mr. JOHN. I think we actually have a fairly long list that we 

could send over, if you would like. 

The CHAIRMAN. We would be pleased to receive those. 

Gentlemen, you have been great. Thank you. We respect your 

views and we are charged with weighing them and coming up with 

what we hope will not be gridlock, but something that our country 

can live with and retire on. 

130

We are adjourned. 

[Whereupon, at 4:07 p.m., the committee was adjourned.] 

(131)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR LARRY CRAIG

I want to thank and commend the Chairman for holding this hearing—and this 

series of hearings—on the future of Social Security. 

These hearings are very much in line with those held by your predecessor. There 

are many arguments and misunderstandings out there, and much information to be 

digested and discussed, on the future of Social Security. I don’t think it would be 

possible to hold too many hearings on this topic, to help make Members of Congress, 

the media, and the public better informed. 

The first, critical point to make of course, is this: For everyone now in, or nearing, 

retirement, Social Security will not change. The President said it again last night, 

our colleagues have confirmed it, and it bears repeating. We are looking at the future of the system, because we also want the best for our children, our grandchildren, and all of today’s younger workers. 

The President highlighted the future of Social Security in his State of the Union 

address last night. He has been discussing it and doing good work on it for four 

years, including his establishment of the distinguished, bipartisan Commission to 

Strengthen Social Security in 2001. 

I hope and believe we all share the commitment articulated by the President last 

night: ‘‘Social Security was a great moral success of the 20th Century, and we must 

honor its great purposes in this new century.’’

Idahoans, of course, have been even farther ahead of this curve. All the way back 

in 1996, I held a series of town hall meetings across Idaho—the ‘‘Seniors to Seniors 

Meetings’’—in which we tried to bring together everyone from seniors in high school 

to senior citizens for this kind of informed discussion. We’ve had numerous Idaho 

events in the following years. 

In those gatherings, I have been consistently reassured that, once all the information is on the table, most folks from grandparents to grandchildren are ready to take 

a constructive part in saving and strengthening Social Security for the 21st Century. 

In choosing the topic for this hearing, Mr. Chairman, you have asked: ‘‘Do We 

Have to Act Now?’’

Some have said that we do not have to act now. They say, ‘‘There is no Social 

Security crisis.’’ They say Social Security only has a ‘‘problem’’ or faces a ‘‘challenge’’. They say, essentially, ‘‘Let’s wait until the long term to fix the long term,’’ 

or maybe, ‘‘Let’s just tinker, for now’’. 

Waiting for a crisis to happen is never a good strategy. That’s why, Mr. Chairman, I appreciate your holding these hearings. And I look forward to us asking, 

‘‘How should we act? 

I also want to join my Chairman in welcoming today’s witnesses. We’ve all worked 

together before. These witnesses and their organizations are facing the issues 

squarely and are deeply responsibly involved in the national discussion of Social Security’s future. 

In fact, David John (Heritage) even joined us a few years ago for one of those 

town meeting tours around the State of Idaho. 

Thank you again, Mr. Chairman. I look forward to continuing to work with you 

and the Committee.

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PREPARED STATEMENT OF SENATOR HILLARY RODHAM CLINTON

Thank you Chairman Smith and Ranking Member Kohl for holding this hearing 

today. The debate over the future of Social Security has significant implications for 

every American and it is critical that we bring the facts to light and have a debate 

that allows the American public to make an informed decision about what they 

think the future of Social Security should be. 

And as we consider this issue, it is important that we recognize the financial challenges facing Social Security and commit ourselves to fixing them. But tactics designed to scare the public into thinking that Social Security is ‘‘in crisis’’ or ‘‘about 

to go broke’’ are inaccurate and do a disservice to the debate. 

In fact, Social Security will continue to run annual surpluses for decades to come. In 2018, Social Security will have $5.3 trillion in reserves, growing to $6.6 trillion 

in 2027. In fact, Social Security will not be ‘‘bankrupt’’ even in 2042 or 2052 when 

the Trust Funds are exhausted. This is because payroll taxes coming in to the Trust 

Funds will be enough to finance 70–80 percent of benefits. 

Now, there is obviously a problem, and I do think that we need to act sooner rather than later, but this is not the crisis that some would have us believe. And it certainly doesn’t mean we should ‘‘throw the baby out with the bathwater.’’

Social Security is the bedrock of our senior’s retirement security and must remain 

so. Carving private accounts out of the Social Security system undermines the fundamental nature of the program, requires substantial benefit cuts, and drives up the 

national debt with trillions in new borrowing. The costs and the risk to the retirement security of millions of Americans from privatization are too great. 

I look forward to hearing from our witnesses today, and I am hopeful, Mr. Chairman and Mr. Kohl, that your leadership on this issue and the hearings we will hold 

over the next weeks and months will help inform this debate and bring us to a 

broadly bipartisan consensus on the future of Social Security. 

PREPARED STATEMENT OF SENATOR SUSAN COLLINS

Mr. Chairman, thank you for calling this afternoon’s hearing to examine the longrange financing problems facing Social Security. I understand that this is the first 

in a series of hearings that the Committee will be holding to discuss the challenges 

facing this tremendously important program, and I commend you for giving us the 

opportunity to explore these issues thoroughly. 

Social Security has been a huge success. It is our nation’s largest and most popular government program. More than forty-seven million Americans depend on Social Security, and, for two-thirds of them, it is their major source of income. For 

many older Americans, Social Security is the safety net that makes the difference 

between poverty and an adequate standard of living. 

And Social Security is not just a retirement program. It is also a disability insurance program and a life insurance program that provides families of active workers 

with protection worth more than $12 trillion—more than all of the private life insurance currently in force. 

Unfortunately, as successful as Social Security has been, the system faces serious 

long-term financing problems and is not sustainable in its current form. While the 

system is sound today, it will not be able to meet its obligations to future retirees 

unless it is modernized. 

Social Security is currently running a surplus because the program is taking in 

more in payroll taxes than it is paying out in benefits. But before too long, this will 

no longer be the case. Our Social Security cash surplus begins to decline in 

2008—the first year in which the baby boomers can begin to collect Social Security. 

By 2018, payroll taxes will not be sufficient to pay benefits and we will either have 

to raise taxes, cut spending, go further into debt, or use more general fund money 

if we are to continue to meet our full obligation to Social Security beneficiaries. By 

the year 2042, the trust fund will be completely exhausted if steps aren’t taken to 

save the program. 

At the root of Social Security’s problems is the simple fact that America is growing older. Today, more than 30 million Americans are 65 and older. These numbers 

will rise dramatically as the ‘‘tidal wave’’ of baby boomers—all 76 million of us—

sweeps into retirement. Moreover, it is not just that there will be more older Americans in the next century. It is that older Americans will be living longer and longer. 

And the rapidly increasing number of older persons is only part of the equation. 

The ‘‘baby boom’’ was followed by a ‘‘baby bust,’’ and the inevitable result is that 

there will be fewer workers to support each retiree in the future. In 1960, there 

were five workers for each beneficiary. Today there are scarcely three, and by 2030, 

there will be only two. 

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Last night, the President laid out his plan to overhaul Social Security. Other 

Social Security reform plans have been proposed by both Republican and Democratic 

members of Congress, as well as by a variety of public policy groups. While there 

is a consensus that action needs to be taken, there is less certainly about what 

should be done, how soon it should be done, and how quickly a consensus plan can 

be forged. 

Clearly, action must be taken to preserve Social Security for not just current, but 

future generations. And the sooner we begin to deal with Social Security’s financing 

problems, the less disruptive the solution will be. 

Given the universal importance of this program, however, it is crucial that any 

changes be carefully thought out, thoroughly understood, and have a solid basis of 

bipartisan support that cuts across all age and income groups. 

Mr. Chairman, that is why hearings like this are so important. They give us the 

opportunity to discuss the scope and nature of the problems facing Social Security 

as well as to explore the ramifications of the various proposals to modernize the program. 

Again, I thank you for convening this important hearing, and I look forward to 

hearing the testimony from our witnesses.

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