S. HRG. 109–244

FISCAL YEAR 2006 FIELD HEARING

HEARINGS

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

March 23, 2005—THE FUTURE OF SOCIAL SECURITY

(

Printed for the use of the Committee on the Budget 

FISCAL YEAR 2006 FIELD HEARING

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22–428pdf 2005

S. HRG. 109–244

FISCAL YEAR 2006 FIELD HEARING

HEARINGS

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

March 23, 2005—THE FUTURE OF SOCIAL SECURITY

(

ii

COMMITTEE ON THE BUDGET 

JUDD GREGG, New Hampshire, Chairman 

PETE V. DOMENICI, New Mexico 

CHARLES E. GRASSLEY, Iowa 

WAYNE ALLARD, Colorado 

MICHAEL ENZI, Wyoming 

JEFF SESSIONS, Alabama 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

JOHN ENSIGN, Nevada 

JOHN CORNYN, Texas 

LAMAR ALEXANDER, Tennessee 

LINDSEY O. GRAHAM, South Carolina 

KENT CONRAD, North Dakota 

PAUL S. SARBANES, Maryland 

PATTY MURRAY, Washington 

RON WYDEN, Oregon 

RUSSELL D. FEINGOLD, Wisconsin 

TIM JOHNSON, South Dakota 

ROBERT C. BYRD, West Virginia 

BILL NELSON, Florida 

DEBBIE STABENOW, Michigan 

JON S. CORIZINE, New Jersey 

SCOTT GUDES, Majority Staff Director 

MARY NAYLOR, Staff Director 

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C O N T E N T S 

HEARINGS 

Page 

March 23, 2005—THE FUTURE OF SOCIAL SECURITY ................................. 1

STATEMENTS BY COMMITTEE MEMBERS 

Senator Conrad ........................................................................................................ 1

WITNESSES 

Bixby, Robert, Executive Director of the Concord Coalition ................................ 23

Blake, Venus, Retiree From Fargo ......................................................................... 28

Cheney, Janis, State Director of the North Dakota AARP .................................. 21

Savelkoul, Stuart, Housing Coordinator at Dickinson State University ............ 30

(1)

THE FUTURE OF SOCIAL SECURITY 

WEDNESDAY, MARCH 23, 2005

U.S. SENATE, COMMITTEE ON THE BUDGET, Fargo, ND 

The committee met, pursuant to notice, at 10:35 a.m., in the 

Prairie Rose Room, 1401 Administration Avenue, North Dakota 

State University, Fargo, North Dakota, Hon. Kent Conrad presiding. 

Present: Senator Conrad. 

Staff present: Sarah Kuehl and Catherine Peterson. 

OPENING STATEMENT OF SENATOR CONRAD 

Senator CONRAD. I want to welcome everyone to the North Dakota State University campus for an important Senate Budget 

Committee hearing about the future of Social Security, and I want 

to extend a special thanks to the witnesses for their testimony here 

today. 

We have on the witness panel Janis Cheney from the North Dakota Chapter of the AARP. 

We have Bob Bixby, who is here from The Concord Coalition, the 

national organization that advocates fiscal responsibility while ensuring that Social Security and Medicare are secure for all generations. 

We have Mrs. Venus Blake, a retiree from Fargo, who’s here to 

tell us a little bit about what Social Security has meant to her and 

Stuart Savelkoul from Dickinson, North Dakota, who recently graduated from Dickinson State University. I understand that you were 

president of the student body there; is that correct? 

Mr. SAVELKOUL. Once upon a time. 

Senator CONRAD. Once upon a time. Well, it is good to have you 

here as well to give your views on Social Security. 

Each of the witnesses will be asked to testify for five to 7 minutes. Then I will ask the witnesses some questions to further draw 

out their views on Social Security and the challenges that we face. 

Before we get to the witnesses’ testimony, I would just like to 

make some brief opening remarks about where we are with respect 

to Social Security and the funding challenge that we face. I believe 

the President has rightfully indicated that there is a long-term 

funding challenge that we need to address and the sooner that we 

do it the better. 

I think we all recognize the extraordinary importance of protecting and strengthening Social Security. This has been one of the 

most successful enterprises that the Federal Government has ever 

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embarked on to provide retirement security for Americans and it 

has played an absolutely critical role in the lives of many people. 

I think many of you know my life story. My parents were killed 

when I was young and I was raised by my grandparents and during all of my growing up I received a survivor’s benefit. My family 

was of moderate means and that survivor’s benefit was very important to me and to my brothers. 

In part, it enabled us to go on to college and get advanced degrees and played a critical role in our ability to succeed, so I think 

I have a first-hand understanding of how important Social Security 

can be for North Dakotans and Americans. 

The fundamental reality is that we face a funding challenge not 

only in Social Security but in Medicare. Of course, we have a larger 

funding challenge as well, don’t we, because we are running these 

massive Federal budget deficits, and all of these things will put 

enormous pressure on the fiscal condition of the Federal Government. 

We are running record budget deficits now and we see no end in 

sight. With the budget that has just passed Congress, according to 

the calculations of those who favored the budget, it will increase 

the debt by over $600 billion a year each and every year of the 5-

years of that budget. That is an enormous accumulation of additional debt on top of an already surging Federal debt that we experience today. 

Now, with respect to Social Security, and this affects Medicare 

as well, here is the fundamental problem that we confront. We 

have got a demographic change that is occurring with the retirement of the baby-boom generation that’s going to take us from 

around 40 million people eligible for Social Security and Medicare 

to 81 million by 2050, and it is a very dramatic rise in the people 

eligible for Social Security and Medicare.

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While we clearly have a shortfall in Social Security, we have an 

even bigger shortfall in Medicare. In fact, the Medicare shortfall is 

eight times as large as the shortfall in Social Security. My own 

strong belief is we need to work on both of these things as well as 

the budget deficits. Why? Because this extraordinary level of borrowing is making us increasingly indebted, not only to those who 

buy government bonds in this country but to people who are buying 

government bonds all around the world. 


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In fact, foreign holdings of our debt have gone up almost 100 percent in the first 3 years of this administration. I don’t believe that 

strengthens the country. I believe that weakens us and makes us 

more vulnerable. 

And if we look at this chart, the green bar here shows the Social 

Security surpluses, the blue bar shows the Medicare surpluses and 

deficits, the red bar shows the President’s tax cuts, both those already passed and those that he advocates extending.


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What you see here is that at the same time the trust funds of 

Social Security and Medicare go cash negative out in the range of 

2020, the cost of the President’s tax cut proposals explode as well. 

The combination drives us, as you can see visually here, right over 

the fiscal cliff. 

We think we have big deficits now. But we have not seen anything yet unless we take action. That is why it is critically important that we understand the challenge facing the country and the 

need to respond. 

Unfortunately, the President’s budget proposals make this situation worse. Why? Because the budget he has sent us assumes that 

the Social Security money that is available over the next 10 years 

will all be used for other purposes. The Social Security surplus, 

every dime of it under the President’s plan, will be used to pay for 

other things, some two and a half trillion dollars.

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Some may be wondering, well, how can there be surpluses in Social Security when we are talking about all these shortfalls? As you 

know, for the near future, Social Security is taking in more money 

than it is spending for current Social Security retirees. It is that 

difference, the flow of income coming in over and above current expenditures, that constitute a current surplus. But that surplus 

won’t last very long. 

According to the Congressional Budget Office, and they have just 

revised these numbers, by 2020, more money will be going out than 


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is coming in. And by 2052, the Congressional Budget Office is telling us Social Security would only be able to meet 78 percent of its 

obligations. So clearly there is a gap to be closed here, and I think 

it is important that we all know the information. 

The President’s budget makes the problem worse because he is 

taking for the next 10 years all the Social Security money that is 

available and using it for other purposes. That is what he is doing. 

He is taking money that is raised through excess payroll taxes over 

and above what is needed to pay benefits now and he is taking that 

money, $2.5 trillion, and using it to pay for other things. 

When Social Security was last reformed, I believe it is very clear 

that Members of Congress and the President at the time thought 

that these surpluses now would be used for one of two purposes, 

either to pay down debt or to prepay the liability that everybody 

knows is coming. 

Unfortunately, that is not how the money is being used. The 

money is being used to pay benefits, but that money that is over 

and above what is needed to pay current benefits is not being used 

to pay down debt, not being used to prepay the liability, instead it 

is being used to pay for other things. 

Many of you know I was the sponsor of lockbox legislation to prevent this, to prevent Social Security money being used for other 

purposes. I actually got that passed in the U.S. Senate, but it never 

became law. So now we are in a circumstance in which it is possible to use the Social Security surpluses for other purposes. I 

think that is a mistake, but that is, in fact, what is occurring. 

The President makes the situation worse again by proposing to 

divert additional money out of Social Security to begin private accounts or individual accounts. 

Let me be clear. I’ve always thought there was a kernel of a good 

idea in individual accounts, but I do not think that it is a good idea 

if it is financed by massive debt, by massive additional deficits, and 

I do not think that it is a good idea if it is financed by steep benefit 

reductions. 

I proposed to my colleagues in 2001 actually setting aside, at 

that time, $900 billion in surpluses to either pay down the debt or 

to prepay the liability in Social Security. One way of doing that 

would have been to establish individual accounts. So I proposed to 

my colleagues a budget that would have provided $900 billion for 

that purpose. Unfortunately, that budget was not adopted. 

Under the President’s plan, over the next 10 years he will take 

$750 billion out of Social Security to fund the beginning of private 

accounts. That is just the tip of the iceberg, because over the next 

20 years, the cost of the President’s proposal is over $4 trillion. And 

the President proposes borrowing all of that money.

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Adding to the already record deficit and debt, I do not believe 

that is wise. I do not believe that is sustainable. I think that hurts 

the younger generation, who will be expected to pay this bill. I 

think it hurts the current generation and the current economy by 

requiring additional borrowing at a time when we are already 

reaching our limits on borrowing. 

What difference does it make? Well, very simply we are reading 

in the paper every day the difference it makes. As we borrow more 


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and more money, part of it is being borrowed from abroad. Here 

are the countries that we are currently indebted to. 

We now owe Japan over $700 billion. We owe China almost $200 

billion. We owe the United Kingdom over $160 billion. We owe the 

Caribbean Banking Centers over $90 billions. We owe South Korea 

over $68 billion.

I don’t believe this borrowing from abroad makes us stronger. 

Some people say, well, this is an indication of how attractive we 

are as a place to invest money. That is one way to look at it. I don’t 


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believe any country has ever strengthened itself by becoming more 

and more indebted to foreign nations and that is precisely the 

shape we are in. 

What difference does it make? Well, we have seen the difference 

that it makes, haven’t we? Just a few weeks ago, South Korea announced that they were going to begin to diversify out of dollar denominated securities because the dollar has been going down so 

sharply in value. Over the last two and a half years, the dollar has 

lost 33 percent of its value compared to the euro. 

You saw a headline in Newsweek about the amazing shrinking 

dollar. That is what they are talking about, and it is the combined 

effect of budget deficits and trade deficits and the fact that we are 

borrowing more and more money from abroad. The result is people 

are putting less value in our currency. 

They are concerned about our ability to pay all of these debts 

and they are concerned about what it means to the economic 

strength of America and what it means to the economic health of 

the world. 

Let us go to the next chart. Social Security, I think we all understand, is critically important in our society. We have in North Dakota over 114,000 people that are receiving Social Security benefits, 

62 percent of them are retirees, 14 percent are widows or widowers, 9 percent are wives and husbands of Social Security eligible 

beneficiaries, 9 percent are disabled, 6 percent are children. So we 

have a very large part of North Dakota’s population that receives 

Social Security benefits.

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The average monthly Social Security benefit in North Dakota is 

$859 for retired workers. For widows and widowers, their average 

benefit is $845. For disabled workers, their average benefit is $814.


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I have had many people come to me over the years and tell me 

how critically important these benefits are to them. I remember so 

well an elderly woman, frail and sickly, coming to one of my town 

hall meetings and telling me that the only income she had was 

from Social Security. She had no other income from any other 

source. She had prepared on a little piece of notebook paper her 

budget, and she had approximately $800 a month of Social Security 

income. She paid over $200 a month for rent. She paid over $200 

a month for prescription drug benefits. She had $150 a month of 


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utility costs, water, sewer, heat and light, telephone, and you add 

it up. She had very little money left over. 

When she calculated how much a month she spent on food, she 

had very little money left. Social Security was all that was standing between her and not being able to meet her most basic needs. 

We know nationally that two-thirds of retirees rely on Social Security for more than half of their income. Two-thirds rely on Social 

Security for more than half of their income. Thirty-six percent get 

less than 50 percent of their income from Social Security, but 31 

percent get at least 90 percent of their income from Social Security 

and 33 percent get 50 to 89 percent of their income from Social Security.

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So clearly Social Security is playing a very important role in the 

economic lives of tens of thousands of North Dakotans. Without Social Security, we know that nearly 50 percent of beneficiaries would 

be in poverty. With Social Security, only 9 percent of seniors are 

in poverty. Without it, 48 percent of seniors would be in poverty.


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I think it is important to understand the elements of the President’s plan, because the first part of the President’s plan is to 

sharply cut benefits over time by changing from what is called the 

wage index to a price index. The effect of that change grows very 

sharply over time. 

In 2022, benefits on average would be cut 10 percent. By 2042, 

they would be cut 26 percent, and by 2075 they would be cut by 

46 percent.


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Now, those are steep cuts in benefits and it is important to understand that they apply to everyone. Whether you choose to have 

an individual account or not, those benefit cuts apply. 

The President’s private accounts work somewhat differently than 

has been described or at least the descriptions that I have heard. 

I have heard the President say that the private accounts belong to 

you and nobody can take it away from you. That is true as far as 

it goes, but that description leaves out a very important feature of 

his plan. 


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The way these private accounts work, as I’ve come to understand 

it from talking to the President’s people and I have talked to them 

repeatedly, is somewhat different than the way it’s been described. 

Let me give you an example. 

If you set aside in a private account $1,000 a year for 40 years 

and you earned six and a half percent rate of return on that investment every year, at the end of 40 years you would have $92,000 

in your accountin today’s dollars. But that is not yours free and 

clear. Under the President’s plan, they assume that money was 

loaned to you by the Social Security Trust Fund and they expect 

it to be paid back with interest.

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What am I talking about? That thousand dollars a year that you 

put in your private account they assume was loaned to you by the 

Social Security Trust Fund, and they expect to be paid back that 

$1,000 a year that you put aside, that $40,000, plus they expect to 

be paid back with interest. They expect to be paid back a 3-percent 

real rate of return. That is 3 percent plus inflation. 

So in this example, you owe back $78,000, but you don’t owe it 

back out of your individual account. You owe it back by taking a 

further reduction in your already cut traditional Social Security 


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benefit. Now, I know this is somewhat complicated and somewhat 

difficult to follow. I know it seems odd that you would have to pay 

back some of this money, but that is the way it works. That is the 

way it works. 

Yes, you have an account. Yes, you have an investment. Yes, 

your name is on it, but it is also true that under the President’s 

plan they assume much of that money was loaned to you and that 

you must pay it back. 

Now, what happens if you don’t get a six and a half percent rate 

of return on the money that you invest? What happens if you only 

get a 5-percent rate of return on the money that you invest in the 

private account? Well, here is what happens under that example. 

If you set aside $1,000 a year for 40 years and you only earn a 

5 percent rate of return, you would have in your private account 

$64,000. But wait a minute. You owe back the $78,000. Because remember, under the President’s plan, the assumption is that your 

account contributions were loaned to you and you have to pay them 

back. The President’s plan says the amount that you would be required to pay back is the $1,000 a year plus 5.8 percent compounded.

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So you still owe back the $78,000, even though you only have 

$64,000 in your private account. Again, you don’t pay it back out 

of your private account. That is the little wrinkle in all this. 

Even though they assume it has been loaned to your private account, you do not pay it back out of your private account. You pay 

it back by taking an additional reduction out of your traditional Social Security benefit, which has already been cut. 

Now, I know this sounds hard to believe, but that is the way it 

works. I have spent many hours with the President’s representaVerDate 0ct 09 2002 07:58 Mar 28, 2006 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 C:\DOCS\22428.TXT TISH PsN: LAF

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tives so that I could understand, how it works. They have confirmed to me that that is how it works. 

I think we will just end on that point and we will go into other 

explanations as we go forward. 

Just to recap, No. 1, I agree with the President that we have got 

shortfalls in Social Security. In 2020, Congressional Budget Office 

says the trust fund will have more expenditures than revenue. 

By 2052, they say Social Security will only be able to meet 78 

percent of its obligations, so clearly we have got a shortfall. It is 

also true we have an even bigger shortfall in Medicare. 

According to the General Accounting Office, a shortfall in Medicare is eight times the shortfall in Social Security, and on top of 

it all we are already running record budget deficits. 

My strong belief is we must tackle all of these things. We need 

to put it all in front of the American people so they can see the 

challenges, the financial challenges, that we face. 

The result of all this is we are borrowing more and more money. 

We are borrowing more and more money from ourselves, we are 

borrowing more and more money from abroad and that puts us at 

risk. If these central banks that are buying American debt decide 

they are going to buy less of it, we would then have to substantially raise interest rates in order to attract the capital to finance 

our growing dependence on foreign borrowing. That is the economic 

reality. 

Yesterday you saw the Federal Reserve again raise interest rates 

and you saw the stock market go down. That is what is at risk 

here, an ever increasing pressure to raise interest rates, an ever increasing pressure to borrow more and more money and to go deeper and deeper into debt. 

That is why I believe there is a kernel of a good idea in individual accounts, but I do not think it is a good idea if it is financed 

by massive borrowing. I do not believe it is a good idea if it is financed by steep benefit cuts. 

Senator CONRAD. With that, I want to turn to our witnesses, and 

again I just conclude by saying the other concern I have with the 

President’s proposal is the way these individual accounts would 

function. This idea that the money is loaned to you and you are required to pay it back makes it very likely that many people would 

owe back more than what they have in their private accounts. 

Again under the President’s plan you don’t pay it back out of your 

private account. You pay it back by reducing your already cut traditional Social Security benefit. That to me makes it a much less 

attractive plan. 

With that we are going to turn to the excellent witnesses that 

we have with us today, and I am going to first call on Jan Cheney, 

the North Dakota State Director for the American Associated of Retired People. Welcome and please proceed. 

STATEMENT OF JANIS S. CHENEY, STATE DIRECTOR, 

AMERICAN ASSOCIATION OF RETIRED PERSONS AARP 

Ms. CHENEY. Thank you very much. Good morning, Senator 

Conrad. I’m honored to have this opportunity to testify on behalf 

of AARP North Dakota about Social Security and its importance for 

America’s families. 

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We at AARP view Social Security as an obligation to current and 

future generations of Americans. We believe it is our responsibility 

to make sure their Social Security benefits will be there when they 

are needed. 

And, we believe that we must advocate today to strengthen Social Security for our children and our grandchildren. Social Security faces challenges in the years ahead, but the solution should not 

be worse than the problem! 

Social Security is the only guaranteed, inflation proof, lifelong 

benefit that millions of workers, present and future, can count on. 

I believe that Social Security’s promise embodies our deepest values as Americans. It reflects the obligations between generations, 

between parents and children, between grandparents and grandchildren. It also represents our commitment to those in retirement, 

those at work, and those workers who are disabled and their families. 

The promise of Social Security has endured for 70 years and 

AARP believes we should not be putting an expiration date on it. 

One of every five Americans faces retirement with no income except from Social Security. Social Security is all that stands between 

those beneficiaries and living in poverty. And for nearly two-thirds 

of the people age 65 or over, Social Security provides at least half 

of their income. That alone is reason enough to protect and 

strengthen Social Security’s guaranteed benefits. 

But Social Security wasn’t designed just for retirement. It also 

provides valuable disability and survivors’ benefits. 

Here in North Dakota, Social Security is crucial to the economic 

security of many people. In December 2003, 114,220 people were 

getting Social Security benefits, including 71,190 retired workers, 

15,860 widows and widowers, 10,410 disabled workers, and 6,990 

children. 

At AARP, we recognize the challenges that Social Security faces 

in the coming years, and we believe that the sooner we take action 

to meet those challenges, the smaller the adjustments that have to 

be made. 

But we also recognize that there is a right way and a wrong way 

to renew the promise of Social Security for future generations. 

Some are proposing to create private accounts in Social Security 

with money that would otherwise be used to pay benefits and go 

into the Social Security Trust Fund. That, in our view, is the wrong 

way to deal with the challenges facing Social Security. AARP is 

firmly opposed to private accounts that divert money from Social 

Security. 

Private accounts that drain money out of Social Security clearly 

are a solution that is far worse than the problem. They would cut 

guaranteed Social Security benefits substantially while passing a 

huge burden of debt on to future generations. Even worse, they 

offer a false promise that people can build wealth that they might 

be able to pass on to their children and grandchildren. 

These plans could leave our children and grandchildren with 

more debt, less security and, quite probably, less income. We 

should not leave such a legacy to our future generations. 

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AARP strongly supports private savings and investment accounts 

when they are funded by the individual or, hopefully, his or her 

employer. 

Such private accounts are excellent savings tools, but in addition 

to Social Security, not in place of Social Security. Workers should 

not have to relinquish any portion of their Social Security benefits 

to invest for their retirement. 

It is extremely important that our children and grandchildren 

begin setting aside money now to invest and save for their retirement. But, under no circumstances should we weaken Social Security by taking money from it to create private accounts. 

Another fundamental fact we need to know, despite everything 

we may have heard, is that Social Security is not in crisis. It’s not 

going broke. The trust fund will be able to pay 100 percent of 

promised benefits through 2042, or perhaps longer, when the 

youngest of the baby boomers will be 78 years of age. 

After that, fully 70 percent of promised benefits could still be 

paid, even if no changes are made. Now is the time to take steps 

to strengthen Social Security’s long-term solvency to ensure that 

full benefits can be paid for decades beyond. 

We believe there are sensible ways to ensure Social Security’s 

long-term solvency, and we will fight to ensure that the only guaranteed source of retirement security and long-term disability insurance for America’s families is not put at risk needlessly. 

Once we put aside the misguided idea of taking money out of Social Security to fund private accounts, we need to have an honest 

debate about the serious options available to us. 

First, we must ask two important questions. 

As a nation that claims to value the well-being, dignity, and security of every citizen, do we really want to abandon those principles and leave millions of older Americans to fend for themselves? 

And, as a nation who has always recognized the bonds between 

parents and children, do we really want to use Social Security as 

a generational dividing line, pitting old against young? 

The Reverend Martin Luther King once said, ‘‘Our lives begin to 

end the day we become silent about things that matter.’’

Social Security matters to us. We cannot afford to be silent about 

it. By speaking out and working together, we can preserve and 

strengthen Social Security for generations to come. Thank you. 

Senator CONRAD. Thank you for that testimony. 

And next we will hear from Bob Bixby, who is here representing 

The Concord Coalition. Let me just say this is an organization that 

I have great respect for because they have been many times a voice 

in the wilderness about the importance of being fiscally responsible, about paying your bills, and for the Federal Government to 

balance its books. Welcome, Mr. Bixby. 

STATEMENT OF ROBERT L. BIXBY, EXECUTIVE DIRECTOR, 

THE CONCORD COALITION 

Mr. BIXBY. Thank you, Senator Conrad. I’m very happy to be 

here today to discuss the future of Social Security, which is, of 

course, an important issue for all Americans. The Concord Coalition is a bipartisan organization. We are chaired by former SenVerDate 0ct 09 2002 07:58 Mar 28, 2006 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 C:\DOCS\22428.TXT TISH PsN: LAF
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ators Bob Kerrey from Nebraska, a Democrat, and Warren Rudman, a Republican from New Hampshire. 

Our organization was started in 1992 in response to the huge 

budget deficits that we had at that time. In the late 1990’s when 

things turned into surpluses, people said, well, I guess you can disband and we said, well, no. There’s still that long-term challenge 

out there that needs to be addressed and, unfortunately, in the last 

few years big budget deficits have come back again, so we’re back 

to our original problem. 

Short-term deficits and long-term deficits are even worse so, unfortunately, we are still around being the pain in the neck to both 

political parties and asking them to make the hard choices and do 

the right thing on fiscal responsibility. 

It’s often said in that regard the political system only responds 

to a crisis. If that’s true, we’re in big trouble, because there is no 

immediate crisis, but there is a very serious long-term problem, 

and that problem can be made so much easier if we start taking 

modest steps now phased in slowly over time to address it. 

This isn’t a problem—this isn’t something that’s going to sneak 

up on us. We know the problem is coming. The baby boomers are 

here. Senator Conrad and I used to be cute little kids some time 

ago with coonskin caps and, you know, the first of the baby 

boomers is going to qualify for Social Security in just 3 years. Kind 

of a frightening thought. 

And that signals the beginning of a great demographic shift in 

this country, which will see a much older population. People are 

living longer, which is a good thing obviously. As President Clinton 

used to say, ‘‘This is a high-class problem,’’ but it does make the 

future of Social Security and Medicare and the long-term care portion of Medicaid much, much more expensive and that’s our problem, but we can see it coming if we can take some modest steps 

now to deal with it. 

Basically with Social Security the problem is, and Senator 

Conrad’s charts show this very well, that the system promises more 

in future benefits than it can deliver under current law. There’s a 

set tax rate. There are benefit formulas. You plug in the demographics and the system is running an ample surplus at the moment, which is the reason we have no immediate crisis, and sometime in about 15 years the system will begin paying out more than 

it is taking in, and then it will look at that trust fund and say you 

got to cash in some of these bonds that have been accumulating. 

And as a budget person, I look at the fiscal consequences of cashing in the bonds in the trust fund, which means the Social Security 

Administration will have to go to the treasury and say pay up, and 

so the treasury at that point will have to find the cash to make 

good on the bonds in the trust fund. 

So it’s important to keep in mind from a budgetary and an economic standpoint that once the system begins paying out more 

than it takes in the rest of us are going to have to make good on 

those promises and we have to look at the consequences of that as 

well. 

Sometimes, you know, when we say there’s no crisis or say that 

the trust fund is solvent for, you know, 40 or 50 years, when I say 

that that in itself is sort of a problem because it creates a false 

25

sense of security that we don’t have a problem for 40 years. You 

have to keep in mind that, say, in 2041 or sometime in the late 

2040’s even as the trust fund is fully solvent it will be running a 

deficit. 

In other words, the treasury will have to make good on bonds that are worth about $300 to $400 billion a year. That’s the cash, 

operating cash, deficit in Social Security at the time, so that’s 

about the size of our entire Federal budget deficit at the moment. 

So it’s not an inconsequential thing. It’s not as if we can say, 

well, the trust fund is solvent for 40 years so we don’t have to 

worry about it. There are real world economic and budgetary consequences that hit far sooner than that. It’s also important to keep 

in mind that Social Security is only one part of this major fiscal 

challenge that we have coming up. 

The demographics are the same for Medicare and quite frankly 

the problem there, as Senator Conrad said, are much, much worse. 

If you sit around worrying, as I do sometimes—maybe I’m a little 

bit unusual. Most people don’t sit around thinking about the budget deficit in 2030 I suppose, but if you do, you worry much more 

about Medicare than you do Social Security. The problems are 

much, much greater. 

If you look at overall fiscal policy, it’s truly unsustainable on its 

current course. Even as we have no immediate crisis but the—

where we’re headed right now and it’s a combination of factors, but 

you look at the cost growth of Social Security, Medicare, and Medicaid, and by 2030 they could cost about 18 percent of the economy. 

Now, this is the way that economists speak about these programs. It is a shorthand way but sort of bear with me. If the three 

programs now cost about 8 percent of GDP, let’s just say they cost 

8. By 2030, they could cost 18. 

Now, that’s more than we pay in taxes now. We pay about 17 

percent in GDP in taxes. So what I’m saying is the cost of these 

three programs is going to put enormous pressure on the Federal 

budget. You know, we have to borrow for everything else, defense, 

education, health care, whatever in the discretionary side of the 

budget, homeland security. 

I mean we’re talking about a truly unsustainable situation, and 

the cost of borrowing is reflected in interest in the Federal budget. 

The Federal Government, like every other creditor, has to pay interest. The GAO that Senator Conrad referred to, the General Accounting Office, that now changed their name and they call themselves the Government Accountability Office, did some long-term 

scenarios and they found on our current course by 2040 net interest, just interest, costs on the debt could consume all Federal revenues. 

Now, obviously that’s not going to happen. I mean it is just ridiculous, but it shows what an unsustainable fiscal path we’re on. We 

are on track where spending could reach like about 30, overall Federal spending about 30 percent of GDP by 2050 or so. That’s about 

where it was—it is levels not seen since World War II. 

Now, Federal tax rates hover usually around 18 percent of GDP. 

As I said, they are lower now. That’s really the essence of our overall fiscal problem. You can argue about whether we should both 

spend and tax at 25 or 30 percent of GDP or you can argue about 

26

whether we should both spend and tax at about 18 percent of GDP, 

but nobody in their right mind would argue that we can spend at 

30 percent of GDP and tax at 18 percent of GDP. It doesn’t work, 

and that’s the course that we’re on. 

It’s important to recognize this because it has implications for 

what we do with Social Security and Medicare what sort of reform 

options we pick. 

You know, I mentioned before that the trust fund is solvent until 

the 2040’s, but it will be running big budget deficits. Keep in mind 

that if our overall fiscal policy is going over a cliff by 2040, you 

know, it doesn’t matter if the trust fund is solvent or not if the 

Federal Government is bankrupt because that’s where the trust 

fund gets its money from, so you have to look at the overall fiscal 

policy. 

Conversely, let me talk now about personal accounts, because 

that’s gotten a lot of attention. If you’re looking at this situation 

and you say I’ve got an idea. Let’s borrow trillions of dollars more. 

That doesn’t make any sense. We’re already going over a cliff by 

2040 or sooner. Borrowing trillions of dollars more in the interim 

only means that you’re going to go off the cliff somewhat sooner. 

Now, in fairness to the President’s plan, what they have tried to 

show is that if you implement some of these plans, there’s some 

models that show very large savings in future years, enough to balance the system. It’s not the private accounts that get the savings 

by the way. It’s the price indexing that Senator Conrad showed in 

one of those charts, which reduces the guaranteed benefit. 

But again if fiscal policy is going over a cliff by the 2040’s or 

sooner, a program that says we’re going to get big savings in the 

2050’s and 2060’s is irrelevant because the government is going to 

go off the fiscal cliff before then, so what we need to do is sort of 

step back for a minute and look at overall fiscal policy, look at Social Security’s role in that. 

When we look at Social Security reform, we can address first the 

basic problem, which is the imbalance between what the system is 

going to pay out and what the dedicated revenues are. Personal accounts don’t address that. The President acknowledges that they 

don’t address that. That’s the essence of the problem with Social 

Security. It’s going to require some hard choices. Somebody is going 

to have to give up something in the form of higher contributions, 

in the form of lower promised benefits. 

If you phase them in now, it is not as bad of a problem. If you 

wait, you’re going to have to have drastic tax increases, sudden 

benefit cuts, things that are very politically painful and the default 

option is that you just keep running up the national debt. 

I should say that I error on the side of making benefit cuts. 

That’s why The Concord Coalition is always so unpopular, but the 

reason why is that long-term spending growth is a real problem 

here. In order to pay full benefits that are promised under Social 

Security and Medicare and avoid massive deficits, you would have 

to raise taxes to levels that are unprecedented in this country. 

Now, maybe future workers will want to pay those higher taxes, 

but if they do they would be a lot different than us because we 

won’t pay them. So we’re sort of assuming if we rely on tax increases alone or if that’s our primary role of reform, the future taxVerDate 0ct 09 2002 07:58 Mar 28, 2006 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 C:\DOCS\22428.TXT TISH PsN: LAF
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payers won’t mind paying much higher rates than we’re willing to 

pay for ourself. We’re a lot richer as a nation than we were about 

40 years ago, but we pay about the same in taxes as a percentage 

of the economy. 

Also, I think that the cost of Medicare is such that the cuts there 

are a lot more difficult. I think that the reason that I would favor 

some sort of benefit reductions in Social Security is that I think 

that people can adjust their behavior over time to make up for the 

savings and it’s a lot more difficult to adjust for health care prices 

because you never know when one is going to hit. So if we’re going 

to pay more money, I would rather do it for Medicare. That’s what 

I’m saying. 

Private accounts. Let me close by just saying about private accounts. I’m not an opponent of private accounts. I just don’t like 

borrowing to pay for them. I think it makes a lot of sense to bring 

new money into the system and put the money into private accounts. I mean if you’re going to—that could be the ultimate 

lockbox. If we bring new money into the system without some way 

of turning it into genuine savings, then it might just result in higher taxes today. The money is going to get spent on something else. 

One way or the other, we need to increase savings. We need to 

increase individual savings. We need to get the government to stop 

running big budget deficits because that detracts from the national 

savings. So if we had a system of accounts that were funded with 

new money, that would increase savings. 

That’s not an easy choice either, because you’re asking people to 

pay more money, but the more money wouldn’t function like a tax. 

It wouldn’t go to the government. It would be in your private account. It wouldn’t have the deficit affect that the President’s plan 

would have and it would increase savings. 

So whatever we do here there are hard choices. None of us 

should be diluted into thinking there’s a free lunch out there. We 

got an unsustainable situation, but it is not unsolvable. It is very 

important that we get to it soon. All options should be on the table, 

but whatever we do it should seek to increase savings both for the 

good of the economy and the good of the long-term retirement security of our population. 

And we’re not doing a very good job of being savers right now 

and it should be fiscally responsible, because in the long-term running up the debt is just—that’s a tax increase on future generations. Somebody is going to have to pay for it. 

So with that, The Concord Coalition never cheers people up. 

That’s not our role, but I think that the good news from me is that 

I think that the American people are willing to make hard choices 

if things are explained to them. 

I’ve always found in field events that we do at The Concord Coalition that the American people are actually quite rational and 

quite willing to sit down and go through and set priorities and 

make hard choices. That’s what we’ve already done as a nation, 

that’s what we need to do now. 

Senator CONRAD. Thank you, Bob. 

Next we will hear Venus Blake. Venus is a retiree, and she will 

tell us her experiences with Social Security and what it means to 

her. 

28

STATEMENT OF VENUS BLAKE, RETIREE FROM FARGO 

Ms. BLAKE. Well, good morning and thank you for calling this 

meeting together so we can discuss Social Security, and I guess 

after listening to Bob, I’m glad he made that presentation because 

I think it is a very, very serious problem that we need to be aware 

of and that we’re not that aware of. It’s too easy to go on living 

from day-to-day on our Social Security check without thinking of 

where it is really coming from. 

My name is Venus Blake. My husband and I have lived in Fargo 

for 35 years. We were both raised in rural North Dakota. I was 

born in Hannah up in Cavalier County. He grew up in Underwood, 

North Dakota. We lived in small towns. We’ve lived in Fargo for 

35 years and raised our family here. I’m 80 and he is 87, so we 

have been quite aware of the Social Security problem. 

When I was growing up at a young age, there wasn’t a Social Security problem or there wasn’t Social Security. I can remember my 

parents, you know, were farmers. That was their heritage, and I 

can remember after the crops were sold—and this wasn’t discussed 

around the dinner table but in the corners you’d hear well, you 

know, grandma has to have some money now and, you know, 

there’s got to be money that’s going to go to grandpa. 

This is what we would be hearing, you know, in the background. 

This is where the retired generation got their income, from their 

homesteads, from the businesses that they had established and the 

next generation that was running them. It was a responsibility of 

this mature generation to support that older generation because 

there wasn’t any Social Security and that’s what we grew up knowing. 

Now, my mother lived until she was 94, and so she had been receiving Social Security for quite a while, and her check was certainly not very large because the earnings were really quite small 

after the depression and but she was living with us. We were fortunate enough to have a large enough home that she had a room, but 

everybody else was busy. The mail that came nothing was usually 

for grandma there, you know, and grandma’s main purpose in life 

seemed to be letting the dog in and out, you know. 

Everybody else was going on with their life, but she knew the 

day that Social Security check was coming in the mail and she 

knew there was going to be something in the mailbox for her. It 

might not have been that large, but she would endorse that check 

and give it to me and I would cash it and take the money back to 

her and then so she would have her money. 

And then every so often she would come down the stairs with 

this little note, you know, and say now when you’re going to the 

store, Venus, you know the Cream of Wheat is almost gone and 

look for those good cookies. You know the ones I like. 

She would be able to do that because she had this money from 

Social Security and it gave her some dignity that she wasn’t just 

living off her relatives, you know, because she had been an independent person all her life, and I’m sure that this is true of any 

of your parents. This is the way they survived. 

Now, I met my husband at Minot college. We were both teachers. 

I guess my first teaching experience was during World War II and 

we had to grow up pretty fast back there in the 1940’s, and the 

29

people that were in charge knew that any person that was interested in teaching were going to be herded into the educational system, so I found myself in a consolidated school with one room with 

23 children and eight grades, and I have said to this day that I 

know that I learned more than they did in those 2 years. 

But after that I went back to school and my husband also and 

he taught until his dad became ill with cancer and we decided we 

had to live in close proximity to them, so he took a job out at Garrison dam where people were going to work in those days and he 

never went back to teaching. I never went back to teaching because 

I had four children and I was busy raising these four kids. 

If we had gone back to teaching, we would have had a retirement 

system. We would have to have paid in and contributed but the 

school board would have also matched that. If we worked for the 

railroad, we would have had a retirement, but we worked for small 

businesses and a lot of times I was self-employed so we paid into 

the Social Security system on our own. 

We realized we were not having a retirement from anybody else. 

We knew that anything that we had would come from our own 

earnings and from our own property, so we knew that we had that 

responsibility; although, it certainly wasn’t easy to put aside retirement and set up retirement like we’re saying to our children now 

should be setting up retirement, but when the kids were going to 

school the most important thing was that they get their education. 

Our retirement was going to be coming after these kids were educated and it did. 

When we were ready to retire, we had lived quite frugally. We 

hadn’t gone on vacations and blown it so we owned our house, we 

owned our car, and we had Social Security. We’re very, very glad 

that we have that Social Security that we get now. 

My husband gets a small veteran’s pension and we had a little 

inheritance, but without the Social Security we would be in very, 

very tight straits, and I think about so many other people in North 

Dakota that don’t have retirement through their work because 

there weren’t the kind of businesses. 

We had so many rural—our farmers didn’t have a chance to set 

up. The time came when there were systems set up and now we 

have the 401 plans but then there weren’t plans. People just had 

to save for themselves for retirement and this is what we had to 

do. 

Like I said if it weren’t for that Social Security that we get now, 

life would really be very, very tough, and I guess as I said I’m glad 

to hear what Bob had said, you know, how important a system it 

is and that it is a system that has to be maintained and especially 

for us around here who have not been in positions to be working 

for companies that are going to have a retirement system set up. 

I don’t know how many of you out here in the group are receiving 

retirement from their work other than what they had paid in. I 

know those of us that are old enough are certainly on the Social 

Security system, but how much other money is coming in to your 

pockets I don’t know but I do know, you know, that those of us that 

lived here in North Dakota it isn’t as great amount as if this meeting were being held out in the Twin Cities where most of you 

would have worked for another company and would be receiving a 

30

retirement, but here in our rural state we really do depend a lot 

on Social Security. 

And as I said, again thank you for bringing up and giving us this 

occasion to talk about it and discuss it because it is very important 

to us. 

Senator CONRAD. Thank you very much, Venus. An excellent testimony. I think it kind of brings us all back to the reality of real 

life and what real people’s economic and financial lives are like. 

Stuart Savelkoul, why don’t you proceed. 

STATEMENT OF STUART SAVELKOUL, HOUSING 

COORDINATOR AT DICKINSON STATE UNIVERSITY 

Mr. SAVELKOUL. My name is Stuart Savelkoul. I grew up in Beulah, North Dakota, and graduated from Beulah High School. In 

2004, last May, I graduated from Dickinson State University with 

a bachelor of arts degree in history and political science. Currently, 

I’m the Housing Coordinator at DSU and I’m in the process of applying for law school. 

Senator Conrad, it’s an honor to be here. It’s certainly an honor 

to be up here at this table with such distinguished witnesses. I’m 

not sure I fit in the puzzle but I’m not here because, you know, I 

was the student body president at DSU. I’m not here because you 

know I’m a college graduate looking to go to law school. 

I’m here solely because I’m 22 years old, and if you recall the 

charts that Senator Conrad showed earlier, those years, 2042 and 

beyond, those are talking about me and my friends and, you know, 

siblings. That’s us. 

And what’s more, I’m a 22-year-old who’s planning on retiring 

and staying in North Dakota for the rest of his life, which, as you 

know, I understand with the recent out-migration problem makes 

me one of six. But like many of my peers, I’ve heard so much about 

the funding challenges facing Social Security that I wonder whether I’ll ever see a benefit check from the system that I’m going to 

pay into for my entire working career. 

I’m particularly worried that, in the future, Social Security will 

not be there for the people who need it most. Clearly, as Senator 

Conrad and Mr. Bixby pointed out, doing nothing is not an option. 

However, I also have serious concerns about the riskiness of some 

of the changes that have been proposed. 

In my testimony, I plan to outline why I think Social Security 

is facing a funding challenge, why I do not support privatization as 

a solution to this funding challenge, and what reforms I think Congress should consider because I have so much experience and I’m 

in a great position to advise Congress on what to do. 

Under the current system of Social Security, there are a number 

of obstacles facing future retirees. 

Unless changes are made, when people who are 25 years old now 

reach the age of 65, benefits for all retirees to be cut by 27 percent 

and could continue to be reduced over every year thereafter. According to the Social Security Trustees’ Report, the average life expectancy is going to be higher then, between 85 and 89 years old, 

depending on socio-economic class levels. 

So our scheduled benefits could be reduced by 33 percent from 

today’s scheduled levels. For example, the average North Dakotan 

31

who is drawing an $859 a month benefit check, it could mean a cut 

of 33 percent down to $567 a month, an almost $300 reduction in 

benefits. Looking at the rising cost of living, could mean the difference between someone’s life and death. 

If an individual is counting on Social Security benefits as a retirement plan, which a vast majority of people are as Venus so eloquently pointed out earlier, this will severally damage their cost of 

living and create a potential exodus into poverty status for a large 

percentage of the population. 

Social security is supposed to be one leg of a sort of three-legged 

stool that also includes a private pension plan and other savings 

for people my age. For many retirees, the drastic reduction in one 

of those legs of the stool could have a catastrophic effect on the 

other portions as well. 

For example, if the stock market takes a turn for the worse, than 

an individual could lose some or all of their invested moneys for retirement. An individual might be forced to drain their retirement 

savings much earlier than anticipated or perhaps a family emergency arises, possibly a serious medical issue, which would cause 

a person to drain their other resources with only Social Security to 

rely on for a period of time. 

If Social Security benefits are reduced drastically, many families 

could face financial ruin. Clearly, we have to do something to make 

sure the safety net of Social Security is there for future workers. 

You know, another problem with the current system is how Social Security is paid out. As of 2004, the Social Security fund was 

resting at approximately $1.7 trillion, accumulating over $150 billion annually. This essentially creates a pay as you go system, 

which worked without taxing the system extraneously. 

However, the worker to beneficiary ratio, as most of us are 

aware, has fallen from 16 to 1 in 1950, to 3 to 1 at the end of 2004, 

and it’s not going to take very long before that ratio drops from 2 

to 1, leaving a financial vacuum. 

This dropping ratio, coupled with the impending baby boomer retirement scheduled to begin in 2011, is going to leave many working-class citizens paying higher taxes or taking cuts in their benefits. 

In the 2000 U.S. census, only Alaska, Georgia, and Utah had 

populations where less than 10 percent of the population was 65 

and older. This rate will only rise as life expectancies grow and 

family size increases. 

So now that we’ve established that the status quo is unacceptable, I would like to examine a couple of the more publicized solutions to fixing the Social Security problem. A recent proposal from 

President Bush calls for allowing workers to invest a portion of 

their Social Security dollars in the market; however, this proposal 

is not without risk. 

In a March 2005 report, the General Accounting Office observed 

that retirees have four main methods of financing their retirement 

years. These four categories were Social Security, pension funds, 

personal savings, and residual income from continued employment. 

Essentially they’re banking on everybody working until they die. 

Part of the beauty of this system is that each of these four categories operates independently from the others. Market impacts 

32

might impact a person’s pension fund, but don’t affect our Social 

Security dollars or personal savings. 

In short, the Social Security system provides just that, security. 

Calls to privatize Social Security, or portions of Social Security, 

remove this vital protection. It removes the wall of safety and 

leaves a greater percentage of a person’s retirement funds at the 

mercy of the stock market. A downturn in the nation’s economy for 

whatever reason, terrorism, natural disaster, economic stagnation 

or some other unforeseen force, would impact a greater percentage 

of every retiree’s retirement funds. 

We would like to believe that the economy will always grow and 

improve and that the stock market will only go up, but any financial planner would be the first to tell you that that’s not always the 

case. Under privatization, the security that many have come to expect from Social Security is reduced, rather than increased, because 

a greater percentage of those funds are now subject to the fickle 

whims of a macroeconomic system that the vast majority in this 

nation, myself included, cannot fully understand. 

Now you’re in for some, you know, youthful ignorance so keep up 

if you can. 

Perhaps the easiest, fairest, and most sensible solution to the Social Security problem is to do nothing more than lift the cap on 

wages that are taxed for Social Security purposes. You see that’s 

what’s crazy. A person who makes $90,000 a year and a person 

who makes $2 million per year both pay the same into Social Security. Any income you make after $90,000 isn’t subject to the 12.4 

percent payroll tax that funds Social Security benefits. 

Last month there was an article at The American Prospect Online and this fellow named Lawrence Mishel of the Economic Policy 

Institute argues that the elimination of the cap alone would virtually eliminate the projected Social Security shortfall over the 

next 75 years. What’s more is that this plan is incredibly popular. 

A recent poll in The Washington Post said that 81 percent of the 

respondents support eliminating the cap. Well, that’s probably because 93 percent of the Nation isn’t making $90,000 a year. 

Audience member. Right. 

Mr. SAVELKOUL. To put that in perspective, other possible solutions, including raising the retirement age, cutting benefits, or increasing the percentage that workers are actually paying into Social Security, couldn’t even muster a majority of support amongst 

those surveyed. 

You know, it’s been more than 20 years since major adjustments 

have been made to Social Security to compensate for wage and population growth, and since that time a disproportionate gap has 

evolved between the wealthiest wage earners and that of typical, 

working-class, Americans. 

As Mishel said, the top 5 percent of households earned 25.4 percent of all the wages in 2000. That’s up from 17.6 percent in 1980. 

That’s impressive, but even more impressive is that the upward redistribution of household wages accrued almost entirely to the top 

1 percent, whose share of wages roughly doubled, rising from 6.4 

percent in 1980 to 12.6 percent in 2000. 

The increased earnings for the typical worker have been relatively flat. It only seems fair to make this adjustment to correct 

33

the potential deficiencies of the Social Security system since middle-income families are bearing the brunt of all these cuts. As if 

that were not enough, one must remember that the wealthiest are 

not taxed at all for Social Security on the majority of their investment earnings. 

The wealthiest 1 percent receives most of their income from investments and yet they can still claim the maximum Social Security benefits when they retire. 

Now, as I said, this whole debate centers on those dates that 

Senator Conrad posted earlier and that everyone of these panelists 

have mentioned before me, but the difference between the previous 

witnesses and myself is that that’s when I’m going to be entering 

into retirement and that’s when everybody else my age is going to 

be entering into retirement. 

Now, there’s those out there that say somebody is going to have 

to bite the bullet and why not make it us? Well, I’m not willing to 

give up that easily. You know, if simple changes and small changes 

can be made to fix the problem, then maybe we should take a look 

at examining those before asking any generation, mine, yours, or 

any of those after us, to bite the potential bullet. Thank you. 

Senator CONRAD. Thank you very much. Good testimony by all 

of this panel. Let me, if I can, now turn to questions for our panelists. 

Bob, your organization recently ran a full-page ad in The New 

York Times saying that more debt is not the answer, and I saw 

that the ad was signed by Warren Rudman, former Republican 

Senator from New Hampshire, somebody who is very well regarded 

on both sides of the aisle; Senator Bob Kerrey, Democratic Senator 

from Nebraska; the former Secretary of the Treasury, Bob Rubin; 

members of your board. 

What is the thinking of your organization as to why more debt 

is not the answer? 

Mr. BIXBY. A sure answer is that we have enough debt already 

and that we shouldn’t pile it on, but we highlighted in that statement, which is attached to my testimony. three reasons and there 

are probably five, but because for time purposes we only put three 

in the statement but, first, it wouldn’t add to national savings. 

If you’re doing borrowing, the government is detracting from national savings, and we feel very strongly whatever you do on Social 

Security reform one of the benefits should be to improve national 

savings because we need it to help grow the economy. 

Now and second, it would make the already precarious fiscal situation even worse as your charts pointed out. We have deficits 

back as far as the eye can see, and so if the solution is just to borrow more, obviously the deficits would get that much bigger. 

And, third, we thought that that would send a very bad signal 

to the financial markets that are already concerned about the 

growing deficit and the amount of borrowing that we do from 

abroad, and that if we adopt a solution that says we’re going to 

borrow substantially for, you know, several decades, that would 

send a very bad signal that the government had no present intention of getting its fiscal house in order, and those were really the 

three big reasons that we oppose that approach and went to the 

34

unusual extent of taking out a full-page statement in The New 

York Times to say so. 

Senator CONRAD. OK. Janis, on behalf of AARP, you testified 

that private accounts are not the answer, at least private accounts 

financed out of Social Security funds. Has AARP taken a position 

on private accounts outside of Social Security? 

Ms. CHENEY. AARP, Senator, has already supported people taking a balanced look at retirement and including a number of activities in their retirement planning, Social Security being the base 

and the guaranteed portion of that, other elements being pensions 

and savings, earnings, continued earnings, from work, and health 

insurance. 

We see that as an ever more critical element of security in retirement and so absolutely the association is supportive of mechanisms 

or vehicles that would allow us to further enhance or support private savings options for individuals outside of the guarantee of Social Security. 

Senator CONRAD. You know, clearly we have a problem. The 

problem we have is really a demographic problem. Just over three 

working people are now supporting each retiree. We know that is 

going to go down to two to one. So we have a problem. On top of 

that, we have a problem because in 2020 more money is going to 

be going out than is coming in through Social Security revenue. 

That presents a budget problem. 

I am using CBO numbers here because in Congress we typically 

use Congressional Budget Office figures. By 2052, they say Social 

Security can only meet 78 percent of its benefits. So young people 

are saying, ‘‘Gee, I don’t think Social Security is going to be there 

for me because there is this shortfall, there is this gap.’’

What would AARP say to those young people is the solution? 

Ms. CHENEY. I think that this activity today is a significant part 

of the solution. There are, as I think we’ve all acknowledged and 

as you have mentioned as well, a variety of options that we can 

look at to strengthen and secure the Social Security program for 

many, many years into the future. What it will take is a balanced 

and reasonable national dialog about those options and some acknowledgement, also, that there might be a number of different 

groups that have to give a little in order to sustain the program 

in the long-term. 

Senator CONRAD. I would like to ask the audience here, a show 

of hands, on some of these reform options that are going around 

about Social Security. After we have had a chance to ask the panel 

some more questions, I will open it up for suggestions, questions 

from the audience, statements from the audience. 

I would just like to see how many here think Social Security is 

in crisis? How many would describe it that way? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many would say, no, it’s not in crisis? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many would say that there is a longterm funding challenge in Social Security? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many here think that borrowing to 

address the President’s proposal of establishing private accounts is 

35

something that you would support? How many would say borrowing money to fund those accounts is something you could support? 

[No audience members raised their hands.] 

Senator CONRAD. How many would oppose borrowing to do it? 

[Some audience members raised their hands.] 

Senator CONRAD. You know, there are a whole series of options 

that the Social Security actuaries have come up with. Let me just 

run through a couple of them and get your reactions. 

One idea is reducing the COLA, the cost of living adjustment, 

that’s applied every year to Social Security benefits. So this year 

I think it is being adjusted by what? Three percent? 

Ms. KUEHL. A little under. 

Senator CONRAD. A little bit under 3 percent. If that COLA adjustment every year, instead of being 3 percent, was two and a half 

percent, that would solve, according to the Social Security actuaries, 40 percent of the problem, 40 percent of the shortfall. How 

many would support a proposal to reduce the COLA by one-half of 

1 percent a year? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many would oppose that? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. Reducing the COLA by 1 percent a year, 

would solve 80 percent of the problem. How many would support 

reducing the COLA by 1 percent a year now? 

[Some audience members raised their hands.] 

Senator CONRAD. How many would oppose that? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. Reducing benefits across the board by 3 

percent for those newly eligible for benefits in 2005 and later would 

solve about 20 percent of the problem. Who would favor reducing 

benefits? How many would support reducing benefits by 3 percent 

across the board for newly eligible? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many would oppose that? 

[Some audience members raised their hands.] 

Senator CONRAD. Increasing the retirement age, eliminating the 

hiatus in the normal retirement age. As you know, the retirement 

age is being increased to 67 but there’s a period in which that’s not 

done. Eliminating that and then indexing the normal retirement 

age by 1 month for every 2 years would solve about 30 percent of 

the problem. How many would favor extending the retirement age? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. Now, how many would oppose that. 

[Some audience members raised their hands.] 

Senator CONRAD. Raising payroll taxes for employees and employers by a combined 2 percent. Let us say 1 percent for each. 

Right now each person, the employer and the employee, each pay 

6.2 percent. If each of them paid 7.2 percent, that would solve 100 

percent of the problem. How many would favor that? 

[Some audience members raised their hands.] 

Senator CONRAD. How many would oppose that? 

[Some audience members raised their hands.] 

36

Senator CONRAD. OK. Making all earnings subject to the payroll 

tax. As you know, currently there’s a $90,000 cap. So you only pay 

Social Security on the first $90,000 of earnings. If you eliminated 

the cap, that would solve about 120 percent of the problem. In fact, 

you would not only solve the problem, you would raise more money. 

How many would support removing the cap? 

[Some audience members raised their hands.] 

Senator CONRAD. How many would be opposed to that? 

[Some audience members raised their hands.] 

Senator CONRAD. Of course, that would go all the way up, right? 

Audience member. Sure. 

Senator CONRAD. If you removed the cap, all wages would be 

taxed. 

Audience member. No cap. 

Senator CONRAD. Yes, that’s a good way to say it, no cap. If instead you raised the cap to $200,000, so you would still have a cap 

but it would be at $200,000, that would solve some of the problem. 

How many would favor that? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many would oppose that? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. Investing 40 percent of the trust funds 

themselves in equities would solve about half of the problem. How 

many would support investing 40 percent of the Social Security 

Trust Fund in equities, that is stocks, rather than in government 

bonds? How many would support that? 

[Some audience members raised their hands.] 

Senator CONRAD. OK. How many like the idea of the President’s 

private accounts? 

[Some audience members raised their hands.] 

Senator CONRAD. And how many would oppose that? 

[Some audience members raised their hands.] 

Senator CONRAD. How many like the idea of the President’s private accounts if they are funded by borrowing? How many would 

still like it if it’s funded by borrowing? 

[No hands were raised.] 

Senator CONRAD. OK. Again let me say this to you. I’ve always 

liked the idea of additional incentives for savings and investment. 

Why? Because we need investment in this country in order to grow, 

don’t we? You have to invest in order to grow. In order to invest, 

you have to save because you need money to invest, so you have 

to save. I like the idea of more incentives for savings and investments for everybody. 

I asked my staff go out and find out for me how much money we 

spend a year on incentives for savings. You know what they found 

out? We spend about $125 billion a year on incentives for savings. 

I said OK. Now, go find out for me how much money are we actually saving a year. How much money are individuals saving? 

You know what they found out? About $80 billion. We are spending more money on tax incentives for saving than we’re actually 

saving. How can that be? Well, the reason it happens is because 

people shift their investments and savings from those that are not 

tax favored to those that are. So we’re not, unfortunately, getting 

37

an increase in savings, but we’re spending a lot of money to shift 

around where people are saving and investing their money. 

So part of this puzzle, I have concluded, is to find a more efficient way of encouraging people to save and invest. I like the idea 

very much of encouraging people to save and invest to prepare for 

the future and that will also strengthen our economy because we 

need investment to grow. We need savings to invest. The more we 

save and invest, especially if it is positive investment, the better 

we will do. 

And I don’t know who mentioned it. I think Bob mentioned it 

perhaps. Correct me if I am wrong. The idea of incentives for individual accounts outside of Social Security, how many would like 

that idea? 

[Some audience members raised their hands.] 

Senator CONRAD. And how many would oppose that idea? 

[No hands were raised.] 

Senator CONRAD. Well, that’s one of the first thing that we got 

unanimous support for. 

OK. I want to go back, if I could, to the panel and then I’m going 

to open it up for people in the audience, and if you want to make 

a statement feel free to come up to the head of the room so that 

our stenographer can hear and we would ask you to identify yourselves and then make your statement or ask your question. Before 

that, I’m going to have a show of hands on a couple of other things 

that I’ve thought of too. 

I wanted to go back, Venus, to your testimony. You are in the 

same spot as many people are in North Dakota, especially because 

for the years that you were working very few companies had separate retirement plans, did they? 

Ms. BLAKE. Right. 

Senator CONRAD. I mean really only the biggest companies did. 

Maybe you were fortunate enough to work for the Federal Government that did or maybe you were fortunate to work for a bank or 

as a teacher. 

Ms. BLAKE. A railroad. 

Senator CONRAD. A railroad. The railroad had a good retirement 

plan. Some of the insurance companies in North Dakota had good 

retirement systems. But an awful lot of people worked for small 

businesses and those businesses typically did not have a retirement 

plan separate and apart from Social Security, did they? 

Ms. BLAKE. That’s correct. 

Senator CONRAD. Let me ask you this. You know, Social Security 

certainly has challenges, but there are some strengths too. One of 

the big strengths is it is a defined benefit. That is, you’re assured 

of getting the amount of money promised under Social Security. It 

doesn’t vary with how well you invest. 

I don’t know if you’ve seen today’s USA Today. They have a big 

story about how many Americans are not very good at investing 

money. One woman who has a background in finance said she has 

not been a successful investor. Certainly many of us have lost 

money in the last several years. 

I know I certainly did and I have a master’s in business administration, I am a member of the U.S. Senate, and I am on the finance 

committee in the U.S. Senate. So if anybody has a flood of informaVerDate 0ct 09 2002 07:58 Mar 28, 2006 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6601 C:\DOCS\22428.TXT TISH PsN: LAF
38

tion upon which to make good investment decisions, I should certainly be one, and I think with an awful lot of Americans I lost a 

lot of money. 

Would you want to trade a defined benefit, that is a certainty of 

a check and a certain amount monthly from Social Security, for the 

opportunity to potentially make more by investing that money separately and on your own? 

Ms. BLAKE. I personally would, but as I said there are other people that are much more interested in other—they have other interests, you know. 

Senator CONRAD. So——

Ms. BLAKE. So I think maybe a part of the population would and 

a part would do better than others would do investing it. 

Senator CONRAD. Yes. 

Ms. BLAKE. And I guess the thing of it is don’t sell when it’s 

down. 

Senator CONRAD. That’s very important, don’t sell when it is 

down. Well, you are exactly right. I think we all know some people 

would do better, some people would not do as well, and it raises 

the question what is the purpose of Social Security? Is Social Security to be a place where we invest in stocks on the hope of greater 

return and, of course, when you have the hope of greater return 

you also have greater risk. Is that the role of Social Security or is 

the role of Social Security to provide kind of that beginning guaranteed amount to try to keep people from falling into poverty? 

Ms. BLAKE. I think that’s it right there. 

Senator CONRAD. You think that’s what it should be? 

Ms. BLAKE. Yes, I really do. Uh-huh. 

Senator CONRAD. Let me just see a show of hands on that if I 

could from the crowd. How many would think the right role of Social Security is to be that part of your retirement that you can be 

assured you’re going to get and is not at risk and it is not an investment risk? How many think that is the role of Social Security? 

[Some audience members raised their hands.] 

Senator CONRAD. How many think the role of Social Security 

should be to provide another investment vehicle with greater risk 

but the hope the possibility of greater return? 

[Nobody raised their hands.] 

Senator CONRAD. OK. Sarah, and I have not introduced Sarah 

Kuehl. Excuse me for that. Sarah is my Social Security expert, and 

she was once on the staff of Senator Kerrey, and Senator Kerrey 

was on the finance committee and very active on these issues. 

Sarah is somebody very, very respected by the way by both sides 

I think. My Republican colleagues tell me all the time she is extremely smart and very knowledgeable and I know that is the case 

as well. 

I would like to put up the chart about how the President’s individual accounts work, if we could put that up. I would just like to 

ask the witnesses if they knew from the descriptions they have 

heard or the descriptions they have read about did each of you 

know that you owed back money to the Social Security Trust Fund 

under the President’s plan? And I start with you Janis. 

39

Ms. CHENEY. I was aware that there was some sort of offset. I 

had not heard it explained as very clearly and specifically as you 

explained it. I appreciate that very much. 

Senator CONRAD. Bob, were you aware of this provision? 

Mr. BIXBY. I was aware of it because I follow this stuff obsessively, but I don’t think it’s widely understood how this works and 

what little personal control there would be over the personal accounts. So I think you have to dig very deeply to get that sort of 

understanding and it’s sort of at odds with how the accounts have 

been portrayed generally. 

Senator CONRAD. I’ll tell you I’ve spent many hours with the 

President’s representatives and, you know, the Secretary of Treasury, somebody I admire. I have had a long respect for his career. 

I have talked to Mr. Hubbard, who is the President’s chief advisor 

on this matter, and I have spent, both on the plane coming out 

here and in my office, a number of hours talking to him, and I have 

gone over with him in great detail how this works and other representatives of the President as well, and I must say it took me a 

long time to understand how this really works. 

Venus, had you had any understanding that you owe some of this 

money back under the President’s plan? 

Ms. BLAKE. Not really. I guess I had—from what I read, a lot of 

times I would get to the end of an article and it appeared that the 

writer was a little confused, but as I said I mean after this presentation, I have certainly reversed myself that I do not approve of the 

account so by being completely informed, it has certainly changed 

my mind in my thinking. 

Senator CONRAD. OK. Stuart, were you aware that under this 

you would have an opportunity just in this example if you put 

aside $1,000 a year for 40 years, you earn six and a half percent 

each year, you would have 92,000 in your account, but it is not 

yours free and clear in the sense that they assume that money was 

loaned to you by the Social Security Trust Fund and they expect 

to be paid back with interest and you do not pay it back out of your 

private account. 

That is the little wrinkle here. You do not pay it back out of your 

private account. You pay it back by taking a further reduction in 

your traditional Social Security benefit. Were you aware that that 

works that way? 

Mr. SAVELKOUL. Not until, you know, a few days ago and, you 

know, believe it or not I don’t spend, you know, nearly as much 

time on Social Security as some I guess but when you start doing 

your research you find those things out. I think honestly the way 

the President is attempting to sell his plan it comes off as though 

you’re just transferring. 

Senator CONRAD. Yes. 

Mr. SAVELKOUL. That instead of paying into the Social Security 

Fund, you’re paying into your separate account and that I mean 

that’s the way you sell it, right? 

Senator CONRAD. Yes. That would be pretty appealing to young 

people, especially I would think if they didn’t know that that 

money was in effect loaned to them. 

Mr. SAVELKOUL. Because especially when you consider the fact 

that so many people my age are so sure that they are not going 

40

to see Social Security that the idea of being able to pay into an account with their name on it——

Senator CONRAD. Yes. 

Mr. SAVELKOUL [continuing]. Is exactly like you said, very appealing. The reality of the situation is, no, you are still paying into 

the same fund and that you’re essentially going to be loaned money 

to you. And if that’s the case, you know, why does the government 

need to be involved at all? Why can’t you take out a loan, invest 

it in the stock market and try to get it back at a higher rate than, 

you know, whatever your best interest rate is? 

Senator CONRAD. There is one other thing I wanted to ask you, 

Stuart. How did you do your research for this? 

Mr. SAVELKOUL. That’s funny. I got called on Friday and it was 

we need somebody from North Dakota to come do this and I said, 

‘‘All right. I’m there.’’ So then I thought—so then I called up my 

friends and one of them is sitting out there—one of my friends 

sleeps up against the left wall on the political spectrum. I mean 

he’s not comfy if he has to leave it for 2 seconds. 

Another one of my friends is super Libertarian. He’s conservative 

all the way and then I have another guy whose views are a little 

more centralized and it was essentially Stuart school. Teach me. 

Well, where do I fall and so they——

Senator CONRAD. And where did they do their research? I’m just 

kind of intrigued. Did they do it on the Internet? 

Mr. SAVELKOUL. Oh, yes, the vast majority I mean. 

Senator CONRAD. I was just interested because you had a lot of 

information. 

Mr. SAVELKOUL. The same statistics. 

Senator CONRAD. A lot of information and it has been a long time 

since I was in school. I wonder if you do it on the Internet? 

Mr. SAVELKOUL. Oh, yes, and I mean a lot of the charts you used 

and a lot of the sources you cite are all right there on the Internet 

so it takes all of 5 minutes to get the information. 

Senator CONRAD. Boy, has the world changed, hasn’t it? 

Audience member. Yes. 

Mr. SAVELKOUL. What’s hard is processing the information. You 

know, what’s hard is taking a graph like that and understanding 

what it means. 

Senator CONRAD. Right. 

Mr. SAVELKOUL. That’s where the tricky part comes in. 

Senator CONRAD. OK. Are there other——

Mr. BIXBY. I just want to make one observation about that and 

building off of what Stuart said what it means. What that chart is 

showing in a different way is why the particular proposal doesn’t 

address the problem that Social Security is facing, because what it 

does is it takes some money in and takes some money out. It rearranges the financing, but it’s a wash. I mean you’re still leaving the 

same hole that we’ve got now. 

The offset prevents the diversion of accounts from digging a bigger hole for the long-term, but it doesn’t address the main problems 

that we confront with Social Security. 

Senator CONRAD. I must say it took me a long time to understand how this thing works. It is so totally different. Well, frankly, 

in listening to the President, it is so totally different than the way 

41

he describes it. He never gets to this point, ever. He never describes this offset. He never describes that this money has been 

loaned to you and you got to pay it back with interest and I was 

here in Fargo with him. 

I have listened to his State of the Union. I have listened to many 

of his speeches around the country. Not a single time have I heard 

him describe how this all works, and it was only in talking to his 

people that I came to understand how it works, and again I go back 

to the notion there are things that the President said that I agree 

with. 

I think we do have a long-term funding challenge. I don’t want 

to raise payroll taxes. He said he doesn’t want to raise payroll 

taxes. I think payroll taxes are already too high and I think they 

are discouraging American companies from hiring American workers. I think we have actually built the payroll taxes up so high in 

this country that they are discouraging the hiring of American 

workers and I not only think that—I know it. 

And anybody that’s gone to any vacation place in the country, 

any place that has a lot of tourism, you will find an awful lot of 

foreign young people working, and I started asking the question 

why are there all these foreign young people working? Why aren’t 

they North Dakotans? Why aren’t they young Americans working 

at these tourist places, and you know what I found out? They don’t 

have to take out Social Security on these foreign young workers 

and so there’s a big financial incentive to hire foreign young people 

to work in these service jobs. 

You have to wonder when you add up all the payroll taxes we 

have in this country. Social Security amounts 12.4 percent employer and employee share. Then you stack Medicare on top of it. 

You are up—Bob, what——

Mr. BIXBY. 5.3. 

Senator CONRAD. 5.3. 

Mr. BIXBY. 15.3. 

Senator CONRAD. 15.3 for all of it. I mean that is a pretty big 

disincentive to hire American workers if you got to be paying payroll taxes on them. So I agree with the President. I don’t think that 

adding payroll taxes is the answers. 

I have always kind of liked the idea of these individual accounts, 

first off, if you don’t borrow the money to finance it. I think that 

is a terrible idea, borrowing the money to finance them, but I do 

like the idea of establishing more incentives for savings and investment. 

My own sense is it is probably best done outside of Social Security and we have got to go back to the drawing boards. The fact 

that we are spending more on incentives than we are getting on 

savings tells us that the design of our various retirement plans is 

not efficient, right? Isn’t that what you would conclude? It is just 

not very efficient if we are spending more money than we are getting in savings. 

So we have all these different plans. We got 401(k)’s. We have 

Roth IRAs. We have regular IRAs. Frankly, I think we have managed to confuse people. I think we have managed to confuse people 

and simplicity is very important in getting people attracted to the 

various opportunities. 

42

I am going to open it up to people in the audience. If you would 

step up and identify yourself. That is very important because this 

is a formal Senate hearing. I know we are in an NDSU hall, but 

make believe for a moment you are in the U.S. Senate. If you 

would give your name and where you live so the stenographer can 

have that and then tell us what you think. 

Mr. AABYE. My name is Carl Aabye. I live in Fargo. I’ve lived in 

Fargo most of my life. I barely made it through high school so 

maybe you fellows can help me out with this or I guess your lady 

right here can maybe. 

Senator CONRAD. Yes. She is way smarter than I am. 

Mr. AABYE. Maybe you can comment on this. As our national 

debt in a few years will become, say, ten trillion, can you see any 

possibility of the debt being monetized? If the money becomes only 

half as much, then the Government only owes five trillion. You 

know what I’m trying to say? 

Senator CONRAD. I sure do. 

Mr. AABYE. Do you see that coming down the road? I think it is 

already happening right now I believe. 

Senator CONRAD. Did you say you didn’t graduate from high 

school? 

Mr. AABYE. Barely. 

Senator CONRAD. You got a first-class college education somewhere because that is the great risk, isn’t it? That is the great risk, 

that we run up this massive debt, and that one solution to it is to 

make the currency much less valuable and it is sort of already happening, isn’t it. 

The dollar has gone down 33 percent against the euro in the last 

two and a half years so that is how governments have done it in 

the past, isn’t it? They ran up a big debt and then they just inflate 

their way out of it by, as you so aptly described, monetizing the 

debt, making their currency worth less. 

So I am amazed when people say deficits don’t matter. Of course 

deficits matter. You know, you think about Germany after World 

War I. What happened there? They had massive debts, didn’t they, 

after World War I, and they did exactly what the gentleman describes and the currency became virtually worthless. 

Yes, sir. 

Mr. FOX. I have a related question. 

Senator CONRAD. If you would——

Mr. FOX. Greg Fox, Fargo, North Dakota. I have a related question. I was watching C–SPAN today when I think he was testifying 

before Congress when Chairman Greenspan was describing how 

having surpluses or not having a deficit could be a problem. He 

said the economy needs that to operate, and very soon after that 

you started hearing this deficits don’t matter stuff, and I mean now 

we’re seeing the problems. 

I’ve heard your great talk four times, Senator, but I know in 

Minot I heard you months and months ago and you were showing 

all these red numbers and people still had that deficits don’t matter and they had nothing to relate it to. 

My question is this. No. 1, what did Chairman Greenspan mean 

by that and, No. 2, if we have to run deficits, in other words to 

maintain the economy, banking, whatever, can somebody tell us 

43

what that number is as a percentages of GNP or is there any—you 

see, we just throw these big numbers. Some of these people in the 

audience are still thinking deficits don’t matter. Chairman Greenspan said so. I don’t know. 

Senator CONRAD. Yes. No, let us go back. Let us go back to the 

point. This is in 2001. Chairman Greenspan said he was concerned 

about the surpluses because he was concerned that we would pay 

down too much debt; that we would eliminate all the debt outstanding and that that would have some negative consequences. He 

came and met with me before he made that public statement, and 

I begged him not to make it. 

Mr. FOX. Disastrous. 

Senator CONRAD. I said, Mr. Chairman, if you say that, you will 

unleash the deficit dogs in this town and that’s all captured in the 

book about the former Secretary of the Treasury, Paul O’Neill, this 

conversation that I had with Chairman Greenspan. 

I said for goodness’ sake let us wait and see and let us not bet 

on a 10-year projection. Let us see if we actually are paying off too 

much debt. Let us actually make certain that there is a risk and 

there is a danger of paying off too much debt. 

Now, he has changed quite dramatically. He went to Europe and 

gave a speech in which he said we are taking on too much debt as 

a country and that is unsustainable. 

The head of the General Accounting Office, David Walker, has 

just released a report and he says it is absolutely unsustainable. 

In fact, when Chairman Greenspan gave that speech, Robert Novak 

wrote a column and said that speech of Greenspan could have been 

written by Senator Conrad because Senator Conrad is obsessed 

with debt. 

I am not obsessed. I am Scandinavian. I am not obsessed with 

much of anything, but I am concerned about debt and I just say 

this to you. Perhaps one reason I have always been concerned 

about too much debt and what do I mean by too much debt? I mean 

when the debt is growing much faster than the size of the economy. 

That means in relationship to the economy your debt is growing, 

right? Because, obviously, we can handle a certain level of deficit. 

We can handle a certain level of debt just like a family can, just 

like a company can. The danger is when your level of debt is growing much more rapidly than the size of your economy and that is 

what is happening to us now. 

And the reason it matters is because you got to get the money 

from someplace. Where are we getting it from? Increasingly we are 

getting it from foreign investments and foreign central banks. The 

debt, the foreign debt, holdings of the U.S. Treasury has gone up 

almost 100 percent in the first 3 years of this administration. Now, 

that is an unsustainable course clearly. 

Foreign central banks are warning us it is unsustainable. It is 

not just them warning us. We have got one of the foremost investors in America that’s warning us it is unsustainable, Warren 

Buffett. Hard to find a guy that’s been more successful. What is he 

saying? He is saying, America, you are taking on too much debt, 

too much trade deficit and, in fact, what is he doing? He is betting 

against the dollar. 

44

He just issued his report on March 5th, you know, his very famous annual report, and he says in there, America, wake up. Do 

not keep doing this. You are going to have very adverse consequences if you keep spending more than you can afford as a 

country. 

So that’s my own strong belief. 

Mr. FOX. Can you give me a number? I guess I’m thinking in my 

mind is there a number? I’m looking at Bob over there too. Is there 

a number of percent of GNP so we know how much is too much? 

I’ve never heard. 

Senator CONRAD. You know, I have asked this question repeatedly of the top economists in the country and here is what they say 

to me. Senator, nobody can tell you and here is why they cannot 

tell you. We know that our debt as a share of our gross domestic 

product was over 120 percent after World War II. We are close to 

that now. Our debt as a share of GDP went down into the 25s. You 

know, we were working down our debt. Now it has gone back up 

the other way. The difference is our position in the world has also 

changed. 

After World War II, we were dominant, weren’t we? There was 

nothing close to us and at that time we were paying down debt. 

Paying down debt. What they say to me is nobody can tell you. It 

is a calculus of confidence because as you are running up this debt, 

as you are borrowing more and more money from your own people 

through issuing treasury bonds and you are borrowing from foreign 

investors and foreign central banks, the danger is they decide you 

have borrowed too much and they cut back what they are loaning 

to you and then the only way to float this boat is to raise your interest rates to attract more money. Of course, what does that do? 

That slows down the economy because an interest rate increase 

affects all debt, all government debt, all Federal, all state, all local, 

all corporate debt, all individual debt, and that is a much bigger 

anchor on the economy than anything else. 

Yes, sir. 

Mr. JONES. My name is Jeff Jones and I’m from the wrong side 

of the tracks in Minnesota. 

Senator CONRAD. We even allow Minnesotans in here. Let me 

just interrupt for one moment if I could. 

Mr. JONES. Sure. 

Senator CONRAD. Mr. Bixby has a plane at 1:20. 

Mr. JONES. Oh, sure. 

Senator CONRAD. And for him to make that plane, we need to excuse him and we will do that but our thanks for coming, also our 

thanks for being a persistent——

Mr. BIXBY. Pain in the neck? 

Senator CONRAD. No. I think you are more like the canary in the 

mine that is warning the rest of us when we are going off beam, 

and you take a lot of guff and I know you do from people in my 

party, from people in the other party. I have always felt that you 

do a great public service and I want to thank you for coming. 

Mr. BIXBY. Thank you, Senator. Thank you for inviting me. 

Mr. JONES. Anyhow, you’re talking about privatizing—or private 

retirement. I have a lot of friends that live up on the Iron Range 

and they’ve bankrupted their pension. Thirty-five years they 

45

worked for the mines, 40 years for the mines, and they were able 

to bankrupt out of those pension plans so Social Security is the 

only thing they have and I’m not totally familiar with it, but 

there’s a trust account that covers bankrupt pension plans. 

Senator CONRAD. Yes. There’s a Pension Benefit Guarantee Corporation. 

Mr. JONES. And as I understood, that was in the black and it’s 

been raided so much now it’s way in the red——

Senator CONRAD. It’s true. 

Mr. JONES [continuing]. Because they had to take over that. 

Senator CONRAD. They have had to take over these pension plans 

that have been bankrupted, right? 

Mr. JONES. Right. 

Senator CONRAD. And so they get turned over to the Pension 

Benefit Guarantee Corporation. 

Mr. JONES. All I want to finally say was that in my opinion, too, 

Social Security was, you know, seen as a social safety net and it 

wasn’t perceived as an investment scheme or an insurance policy. 

It hasn’t been—and not to be factious but instead of Mr. Roosevelt 

conceiving it, it was Charles Schwab. It was created to cover people 

like retired and their other retirement failed or had no retirement 

or for no fault of their own were injured in an accident or developed multiple sclerosis or some unforeseen problem was that safety 

net was there, and it’s very important we keep it and I thought all 

of your people on there did an excellent job of testifying why we 

need it. 

Senator CONRAD. Thank you very much. Let me just say I do remember very well having a man come to me who went to work for 

Enron right before it failed, and just weeks before Enron failed he 

had transferred all of his retirement funds to Enron’s retirement 

funds, and he had a half million dollars built up over a lifetime. 

He was in his late 50’s, and when Enron went down, all of that 

money that he had just put in was lost to him. 

Now, you know, here is a man as I recall was 58 years old. I 

might not be quite right on that, but I think, as I recall, he was 

58 years old. I will tell you that man was so distraught about, you 

know, seeing all his lifetime and his family wiped out. 

Now, this has happened closer to home, hasn’t it? 

Mr. JONES. Oh, yes. 

Senator CONRAD. We have got people that worked in the mines 

and their companies went down, some of them. When they went 

down, they lost their pensions. Some of them went to PBGC. 

PBGC, as you have described, is under very severe pressure because of what is happening. We have Enron going down. We have 

mining companies down. We have airlines going down and so more 

and more pressure gets put on the Pension Benefit Guarantee Corporation to pick up those failed plans. 

Mr. JONES. The Chinese came in and bought the mines too. 

Senator CONRAD. And we are increasingly dependent on borrowing from Japan and China. Does that strengthen then America? 

I don’t think so. 

We have run out of time. We had indicated to the University that 

we would end this hearing at 12:30 and we will be good to our 

word. 

46

I want to thank the witnesses. Thank you for your excellent testimony and thank all of you for participating. The hearing is adjourned. 

[Whereupon, at 12:33 p.m., the committee was adjourned.]

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