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GENERATIONS WORKING TOGETHER:

FINANCIAL LITERACY AND

SOCIAL SECURITY REFORM

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 20, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–19

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

April 20, 2005 ................................................................................................... 1

Appendix: 

April 20, 2005 ................................................................................................... 71

WITNESSES 

WEDNESDAY, APRIL 20, 2005

Garrett, Sheryl, Certified Financial Planner and Founder, The Garrett Planning Network ........................................................................................................ 54

Kennelly, Hon. Barbara, President, National Committee to Preserve Social 

Security and Medicare ......................................................................................... 7

Penny, Hon. Tim, Former Representative from the State of Minnesota ............ 9

Riemer, Hans, Washington Director, Rock the Vote ............................................. 58

Salisbury, Dallas L., President and Chief Executive Officer, Employee Benefit 

Research Institute, Chairman and Chief Executive Officer, American Savings Education Council ........................................................................................ 56

Simpson, Hon. Alan, Former Senator from the State of Wyoming ..................... 5

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 72

Gillmor, Hon. Paul E. ....................................................................................... 74

Hinojosa, Hon. Rube ́n ....................................................................................... 75

Hooley, Hon. Darlene ....................................................................................... 78

Kanjorski, Hon. Paul E. ................................................................................... 79

Pryce, Hon. Deborah ........................................................................................ 80

Garrett, Sheryl .................................................................................................. 82

Kennelly, Hon. Barbara ................................................................................... 89

Penny, Hon. Tim ............................................................................................... 92

Riemer, Hans .................................................................................................... 96

Salisbury, Dallas L. .......................................................................................... 99

Simpson, Hon. Alan .......................................................................................... 113

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Americans for Consumer Education and Competition, prepared statement ...... 116

Credit Union National Association, Inc. ................................................................ 118

Students for Saving Social Security, prepared statement .................................... 123

United States Department of the Treasury, prepared statement ....................... 126

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GENERATIONS WORKING TOGETHER: 

FINANCIAL LITERACY AND 

SOCIAL SECURITY REFORM 

Wednesday, April 20, 2005

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 10:05 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael G. Oxley 

[chairman of the committee] Presiding. 

Present: Representatives Oxley, Baker, Bachus, Castle, Lucas, 

Gillmor, Ryun, LaTourette, Jones, Biggert, Miller of California, 

Tiberi, Kennedy, Feeney, Hensarling, Garrett of New Jersey, 

Brown-Waite, Barrett of South Carolina, Harris, Renzi, Gerlach, 

Pearce, Neugebauer, Price of Georgia, Fitzpatrick, Davis of Kentucky, McHenry, Frank, Kanjorski, Maloney, Sherman, Lee, Moore 

of Kansas, Capuano, Clay, McCarthy, Matheson, Miller of North 

Carolnia, Scott, Green, Cleaver, Bean, Wasserman Schultz, and 

Moore of Wisconsin. 

The CHAIRMAN. The committee will come to order. 

Pursuant to the notice previously given, the Chair announces he 

will limit recognition for opening statements to the Chair and 

Ranking Member of the full committee. Prepared statements of all 

the Members will be included in the record. 

The Chair will now recognize himself for an opening statement. 

Our hearing today begins our committee’s discussion on Social 

Security reform, initially focusing on the intersection with financial 

literacy. I want to welcome all of our witnesses today. We have before us a panel of distinguished former Members, and we look forward to their insights as we begin the committee’s initiative in this 

area. 

Senator Simpson, Representative Penny and Representative Kennelly, welcome to the Financial Services Committee. It is good to 

see all of you again. 

And later, on Panel II, we will hear from financial literacy professionals who will share with us their perspectives on this topic. 

If we want Social Security to successfully provide for future generations, the program must be reformed. The program would continue just as it is now for current seniors and Social Security recipients, but their children and grandchildren surely will benefit if 

we move forward with a permanent fix. If changes are not made 

in the future, Social Security will not be there in its current form 

for today’s young people. I am looking forward to working with the 

2

members of this committee on a bipartisan basis as we move ahead 

in this great and important debate. 

Social Security was created in a different America. In 1950, there 

were 16 workers for every retiree. Today, there are just over three 

workers for every retiree; and when the baby boom generation retires, there will be only two workers for every retiree. It is time to 

face these facts, and President Bush has been courageous in doing 

just that. 

Without reform, Social Security will become social insecurity in 

the future. Waiting is not an option, and Band-Aid reforms will not 

solve the structural problems. The longer we put off structural reform of Social Security, the more expensive it will be to fix. That 

is why we must act now. Waiting will cost us an additional $600 

billion per year. 

As the Nation discusses Social Security reform, individual Americans are also thinking about their retirement security. I think we 

can all agree that we should continue to emphasize financial literacy. To succeed financially, to make the most of their money, our 

citizens must be prepared to manage their finances and attend to 

their savings and investment decisions. People need information on 

saving and investing. They need to know about the benefits of compound interests, dollar cost averaging, and diversifying their investments. 

Americans are successfully accomplishing financial goals, raising 

children—which everybody knows is an expensive proposition—financing college educations, purchasing homes and eventually paying off mortgages, as well as financing retirement, but we need to 

bring along those who have not made as much progress and encourage everyone to maximize their money’s potential. 

This committee has been working hard to promote financial literacy since 2001. We worked with the Department of the Treasury 

in the creation of the Office of Financial Education, which promotes 

access to financial education tools that encourage personal financial 

management, planning and savings. We also worked together on 

title 5 of the Fact Act, establishing a Financial Literacy and Education Commission with the purpose of improving financial literacy 

and promoting financial knowledge for all Americans. 

We need to continue to build a financial literacy foundation and 

incorporate financial literacy into the lives of our citizens. This 

committee needs to work in bipartisan fashion to help people take 

control of their financial future and to help the Nation take control 

of its future. 

One of the most important principles of financial literacy is to review the situation, make what are sometimes hard choices because 

you know that is the best thing for the future. That is also what 

we need to do as a Nation. 

Personal accounts are an important part of the answer. It is not 

fair that people pay into the system their whole lives but yet have 

nothing to call their own. Instead of banking on government promises and IOUs, Americans should have the option of voluntarily 

counting on their own investment returns in addition to their traditional Social Security system. If they choose to participate, younger 

workers will own the money in their accounts. They will be able 

to watch it grow, and Congress can’t spend it. People will be able 

3

to build their own personal nest egg within the Social Security program, and that will give people a better chance to enjoy a more secure retirement. 

Americans have always wanted to live their own lives and direct 

their own affairs. When given the choice between renting a home 

and owning, the American dream is to call something our own. I 

think the same desire is there for owning retirement security, and 

I look forward to the debate. 

I now yield the floor to the gentleman from Massachusetts, our 

Ranking Member, Mr. Frank. 

Mr. FRANK. Thank you, Mr. Chairman. 

It is nice to see this panel of, as you said, distinguished former 

Members, which is better, I guess, than being a former distinguished Member, some of which we have from time to time accumulated. 

I agree that there is a crisis, but I think it is one that the President has brought on by his really quite disappointing reluctance to 

allow Social Security to spend the money that was paid into Social 

Security. 

As I look at this, I have really been shocked to see the President 

first denigrating the value of pledges made by the United States 

to pay back money it has borrowed. I don’t think that is a good idea 

in general but particularly with regard to Social Security. 

It is true if you look many decades out, we will reach a point 

where Social Security will have a shortfall. But let’s be very clear, 

if Social Security is credited with every dollar that was paid in 

under the rubric of Social Security and the interest that was legally supposed to accrue to that, it has enough money to get to 

about 2040 or 2042. Until 2018, it will continue to take in, in fact, 

more money than it pays out. 

The problem is that the President of the United States—and apparently his allies—don’t want Social Security to be able to spend 

the money that was paid in for Social Security. That is the sole crisis that we have in the near term. 

Here is what the President has said, ‘‘We don’t have a trust in 

Social Security′′—I think he means a trust fund. ‘‘what happens is 

we take your money, we pay money out for the promises for those 

people who have retired, and if we have got anything left over, we 

spend it on things other than Social Security.’’

Well, Mr. President, it wasn’t left over. It was supposed to be set 

aside for Social Security. And if you would simply honor these 

promises and stop treating people’s Social Security money as leftovers, then we wouldn’t have this near-term crisis. That doesn’t 

mean we shouldn’t look at it longer term. But, again, we should be 

very clear, if the Social Security system is credited with every 

penny that was paid in for Social Security, it is not a shortfall in 

the near term. 

And then the President said, ‘‘There is no trust fund in West Virginia, just IOUs that I saw firsthand that future generations will 

pay.’’

Well, that is true. When you borrow money from people, you pay 

it back. That has generally been regarded to be a terrible thing. 

This is money that was paid in. These were not loans that were 

made promiscuously. This was money that was paid into the Social 

4

Security system that the President said he considered to be leftovers and spent. 

And he said future generations will pay either in higher taxes or 

reduced benefits or cuts to other critical government programs. 

But, again, I want to stress we are talking here about money that 

was paid in as Social Security money. So let’s separate out the 

problem. 

People have said, what is your proposal? I will tell you mine. Put 

the money back. Stop treating money that was paid into under the 

solemn promise that it would go for Social Security as if it was 

somehow something left over. Put it back and let them have it. 

Then as we pay that out over the coming decades, yes, some adjustments will have to be made, but let’s not artificially manufacture 

a crisis because we are reluctant, resistant to allowing the Social 

Security system to be credited with the money that was paid in. 

I now yield the remaining time to the Ranking Member of the 

Capital Market Subcommittee. 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

Mr. Chairman, thank you for convening the hearings. I represent 

one of the oldest congressional districts in the country, so I am awfully familiar with how important Social Security is. 

I think that when we look at Social Security we have to recognize 

that, without that program today, instead of a poverty rate among 

elderly of only 10 percent it will be nearly 50 percent. Unlike other 

benefits, pension benefits, we depend on the sponsoring employer 

to survive. Unlike private savings, we don’t know what will happen 

with the rise and fall of the stock market or economic forces, but 

Social Security is the one guaranteed minimum benefit for elderly 

Americans. 

President Roosevelt talked about it as a third leg of the stool. I 

agree. I hope that the conversations that the President has exacted 

will cause people to re-examine their retirement planning in the future. 

We have, it seems to me, two challenges. The most important 

challenge, as I see it, is not raising the caps, adding additional 

money or doing anything else but, consistent with my colleague, 

Mr. Frank, is we have got to figure out a method to put—create 

an entity in which Social Security funds can be invested and not 

diverted, as in our current practice, to fund general government operations. We are lying to the American people and taking money 

out of Social Security and we are applying it to general government 

operations. 

Then the second problem is a long-term solvency problem of Social Security, and we can only attend to that if we develop the entity which will protect the funds that will be raised in the near term 

to meet the shortfall of the boom generation. 

I oppose the private accounts. I think it is a red herring. It would 

drive the national debt up over 20 years more than $5 trillion. Actually, I think the President would be quite a magician if he could 

convince the Chinese and the Japanese to fund the retirement program of United States to the tune of $5 trillion. Maybe we ought 

to take him up on it, because, as the old adage goes, if you owe 

a little bit to the bank, the bank owns you; if you owe an awful 

lot to the Chinese, the Chinese will own you—or you will own the 

5

Chinese. And maybe if we can scam them into giving us that $5 

trillion it wouldn’t be bad because they could be less belligerent in 

the future. 

Anyway, I think the entity we construct has to be something that 

the Congress has not examined—the President has not examined. 

It is the element that is absolutely necessary before we start our 

correction of Social Security and our plan for solvency, and we have 

to do it in such a way that it doesn’t have a detrimental consequence to our national capital markets. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman’s time has expired, and we now 

turn to our distinguished panel of former Members. 

We will begin with the gentleman from Wyoming, Senator Simpson. It is good to have you here today, and we welcome your participation. 

STATEMENT OF HON. ALAN SIMPSON, FORMER 

REPRESENTATIVE FROM THE STATE OF WYOMING 

Mr. SIMPSON. Thank you, Mr. Chairman and Ranking Member 

Barney Frank and colleagues Tim and Barbara. 

While I recall working with both of you during my Senate years, 

I miss the people, but I don’t miss the work. I could tell it was time 

to move on in ‘96. A guy got up at a town meeting and he cried, 

two terms for you guys, one in Congress and one in prison. Well, 

that will take a lot out of a town meeting, I will tell you that. So 

I moved on. But I have been grappling with this issue, and you 

were nice to give us the opportunity to speak. 

When I retired from the Senate, I spent a lot of time on Social 

Security. I chaired the subcommittee in the Senate. When I left, 

there was a huge problem unresolved, and now that I am here 

today the huge problem is still unresolved. Everybody talks a good 

game, but nobody puts anything on the table so they won’t get 

ripped apart. 

Well, Senator Moynihan had the guts to step up in ‘83, a great 

and dear friend of mine. He had the guts to do something, and it 

is time to do that. 

It is a tremendous problem. The problem remains. 

I served on the bipartisan commission that was chaired by Bob 

Kerrey and Jack Danforth. It truly was bipartisan. We put together 

a chart that was aptly entitled, Current Trends are Not Sustainable. It showed how, left to its own devices, the Federal entitlement 

programs—the word entitlement is killing us because it means all 

you have to do is get to a certain age and, regardless of your net 

worth or your income, you are entitled to bucks from the Federal 

government. It makes no sense. I always said we should begin to 

affluence-test the benefits, which of course caused seizures among 

certain groups in the city—choking, collapsing, gasping. 

So here we are. It doesn’t matter who is in power. We have gone 

from a Democrat president, to Republican, Democratic control, to 

Republican control. If you use the same chart today, the same 

numbers would change, the dates would change, but the basic picture would remain the same. 

Serving on that commission was an interesting experience, I 

learned a lot. One thing I learned—really learned, that if you are 

6

going to wait for the interest groups that lobby on these programs 

and work their members into an absolute froth to honestly and 

without demagoguery step forward with constructive solutions, you 

are going to have a very long wait. We had them all in before the 

Entitlement Commission, not just the AARP or Barbara’s group for 

seniors. We had them all in, silver-haired legislators, gray panthers, pink panthers, all of them. 

I even held a hearing on the AARP. They were not pleased at all. 

It was a wonderful thing, though. I enjoyed it thoroughly. Because 

the AARP is 38 million Americans bound together by a common 

love of airline discounts and RV discounts and selling mutual fund 

stuff. They are a huge business, huge business. 

And somebody said, but look at the help they gave on prescription drugs; and I said, why not, they are the biggest pharmacy of 

America. So they don’t do anything that would injure one of their 

businesses. Barbara is a little better about all of this. But whatever 

you are hearing from them, just try to ignore it. Thirty-eight million members, 10 bucks dues. 

And go find out what is in the Andrus Foundation. You can’t 

crack that huge shell. There is a huge foundation—they just slop 

money over there—in there called the Andrus Foundation. If you 

want to get into something, I recommend you try that. 

Anyway, enough of that. 

In the Committee for Preservation of Social Security and Medicare, under Barbara’s predecessor, the issue was the notch baby—

thank heaven when she came, or toward the end, they gave that 

up. I said, the next hearing I go to or town hearing they talk about 

a notch baby I am going to put a notch in the head of the person 

that is asking. It was the phoniest thing that ever came up. You 

had to stabilize the situation, and they picked a date of 1926 or 

1922. 

Well, I see time is only 5 minutes here. You have got——

Here is what Moynihan said, and this goes to my friend Barney. 

We worked together on a lot of stuff, immigration, and no one I regard higher. We enjoyed it. 

The Social Security—this is Moynihan speaking—there is nothing there. It is all a series of IOUs. And the reason it is there that 

way is because Franklin Delano Roosevelt, in the original plan, 

said—and it is in the statute—the surpluses of Social Security 

shall be used by the Federal government backed by the full faith 

and credit of the United States. 

Every time somebody this age puts something in today it goes 

out tomorrow, to me, and I get 2,000 bucks a month. And guess 

what? Everybody my age, in their most productive years, never put 

in over 874 bucks a year. Ladies and gentlemen, nobody my age, 

in my most productive years, practicing law in Cody, Wyoming, ‘60, 

‘70, early ’80s, ever put in more than 874 bucks a year. 

Does anybody ever listen to this stuff? If you retired in the late 

‘80s, you got all of yours back in the first 3 years. It is almost 

dream world. There were 16 people paying in when I was a freshman at the university—and 3.82 was my blood alcohol level at that 

time rather than a grade average. But now there are three people 

paying in, three, and one taking out; in just a few years, two payVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
7

ing in. Who is going to sit still to pay me 25 grand a year while 

they are putting in 12.5 each? Makes no sense, absolutely no sense. 

So then Bob Kerrey and I got into personal investment accounts. 

We put in a bill—the Democrat from Nebraska. We said, let’s 

take—instead of putting 6.2 in, put 5.2 in and take 1 percent and 

put it into a personal investment plan. That was a good bipartisan 

approach. We didn’t get it done, but we sure got people to consider 

it. 

But consider this—and then I will answer any questions—personal, private, whatever, the highest-wage earners, the very top of 

the income scale are being promised benefits under the current system in 2050 that are 40 percent higher than the highest wage 

earners receive today, and that is after adjusting for inflation. Absolutely absurd. 

And I can only tell you this—and if I hear it again, and I know 

I will, I will hear it right here today—no one over 55 is going to 

lose a nickel under any plan I have ever heard because they don’t 

dare do it—their homes will be bombed. So 55 or over, you are off 

the hook. Now let’s do something for those 55 and under. And if 

you don’t start now it won’t get done. 

Thank you very much. 

The CHAIRMAN. Thank you, Senator and thank you for your service to the country. 

[The prepared statement of Hon. Alan Simpson can be found on 

page 113 in the appendix.] 

The CHAIRMAN. Barbara Kennelly, of course a distinguished 

member of the Ways and Means Committee, and we appreciate 

your being with us today. 

STATEMENT OF HON. BARBARA KENNELLY, PRESIDENT, NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY AND 

MEDICARE 

Ms. KENNELLY. Thank you, Chairman Oxley and thank you, Barney Frank, Congressman, and thank you other members. I am just 

delighted to be here to discuss financial literacy. 

I am the President of the National Committee to Preserve Social 

Security and Medicare. We have 4 million members and supporters, and we really believe that Social Security is a good system, 

and we don’t want to dismantle it. 

We understand that 47 million Americans, 1.4 families in the 

United States of America, get Social Security; 12 million Americans 

are kept out of poverty because of Social Security. Social Security 

is a sound basic income, and it is adjusted for inflation, and it lasts 

as long as you live. 

Older Americans understand this. As I said, I am president of a 

4.3 million organization, and I deal with seniors all the time. And 

they understand that life is such that you know you have to take 

care of your families, you have to buy your home, you have to educate your children. And, you know, life is the way it is, and sometimes things don’t work out so well. So approving financial security 

is so important, and I thank you, Chairman Oxley, for having this 

meeting. 

The hazards and vicissitudes of life are unknown. Now I know 

that we have overemphasized Enron, and Enron happened. And 

8

people from Enron, when they lost everything, they either said, oh, 

my God, all I have is Social Security, or I have Social Security. 

I just want to tell you about one member of my association. Her 

name is Mary Vogel. Mary Vogel is 76 years old. She worked all 

her life. She worked 35 years in the airlines industry. She thought 

she had done everything well. She thought she had been prudent 

about life. But you know what? After she retired, her whole situation changed. Her industry went bankrupt. She lost her life insurance, her health insurance went up, and so, as a result, guess 

what? All she had was Social Security. 

So I sit here today and I have to say to you—and I know the senator well. I know him well. He and I have argued over the years, 

but, unfortunately, I have to say to you that privatizing Social Security would not increase retirement risk. It would only cut Social 

Security benefits, increase Federal borrowing, and further weaken 

Social Security status. No matter what you believe about the financial status of the current system, you need to bear in mind that the 

private accounts make the situation worse. The President himself 

has said that private accounts don’t improve solvency one thin 

dime. 

What many people don’t realize is that by diverting payroll taxes 

out of Social Security the accounts actually accelerate insolvency. 

This means that everything will be bigger. The cuts will be bigger, 

the borrowing will be bigger, and we will have a bigger problem in 

these United States. The costs will fall on every American taxpayer 

for generations to come. 

Some call this borrowing transition costs. Transition costs sounds 

like something small. Transition costs are something big. My 3-

year-old granddaughters, they will be paying this into their midlife. 

Here is what this whole financial risk literacy comes into play. 

By design, privatization with retirement income based on market 

risk, income dependent on your financial intelligence and your personal luck. Remember Mary Vogel. Remember what happened to 

her. 

I look at you—and I sat up there. I sat up there like you sat 

there. And you know, I can remember I had a young woman, a very 

bright young woman, as all of you have on your staff. This young 

woman said to me, when 401(k)s were coming in, she said, you 

know what? Those 401(k)s are going to totally replace defined benefit plans, and she was so right. 

And I say to you, Chairman Oxley, have intelligence and have 

education about financial retirement. Have it. Tell people that they 

have to pay into their financial 401(k)s. You know, most people 

don’t. A lot of people, we all say, oh, everybody has one, but guess 

what? They don’t pay the whole amount they should pay. 

And I ask you, Chairman, make sure you have this education, 

but I tell you, you should not replace this by Social Security. We 

need Social Security in this country. It is a very moderate program, 

very moderate program compared to other countries. But what we 

have is, since 1960—since 1960, we have gone from 35 percent of 

poverty to 10 percent poverty. This is not a generational war. What 

this means is older people are protected. Now we have to protect 

middle-income people. And I ask you and I tell you, what you are 

9

doing today is the absolute right thing, but please don’t dismantle 

Social Security in the name of education. 

The CHAIRMAN. Thank you, Barbara; and, again, thank you for 

your service to the country. 

[The prepared statement of Hon. Barbara Kennelly can be found 

on page 89 in the appendix.] 

The CHAIRMAN. Our next witness is Tim Penny, former—a distinguished member of the Budget Committee from Minnesota. It is 

good to have you back on the Hill, and you may proceed. 

STATEMENT OF HON. TIM PENNY, FORMER REPRESENTATIVE 

FROM THE STATE OF MINNESOTA 

Mr. PENNY. Thank you, Mr. Chairman and members of the committee. 

I want to start by sharing a quote from former New York senator, Daniel Patrick Moynihan, who co-chaired the President’s Bipartisan Social Security Commission on which I also served. Senator Moynihan said, ‘‘You are entitled to your own opinion, but you 

are not entitled to your own facts.’’ That was his admonition to us 

at the very start of our commission’s work. So we proceeded to 

focus on the facts, and that then led us to reach consensus on a 

variety of recommendations. 

The facts about Social Security are not hard to find. All you have 

to do is look to a variety of respected and reputable government 

agencies to find that they are in essential agreement on the basic 

facts. Whether it is the Government Accountability Office or the 

Congressional Budget Office or the Social Security Trustees, every 

report they issue—and we had a recent report from the Trustees 

just 2 weeks ago that reaffirmed these same conclusions, and they 

are these: By the year 2017 or 2018, annual payroll tax revenues 

will not fully cover the benefits, so that is when we begin a cash 

flow concern within the system. If no new revenue is injected into 

the system, recipients could see benefit cuts over time that might 

total as much as one-third of the money that they would otherwise 

expect from the system. That is because of this cash flow crunch. 

And even if you count the trust fund, we do reach a point around 

the year 2040 or 2042 where the revenues will be insufficient, and 

benefits could be—a third of those benefits, roughly 25 to 30 percent, could be at risk. 

If we resort simply to payroll tax hikes beginning in 2017, to 

begin putting more money into the system, payroll taxes would 

need to rise by somewhere in the neighborhood of 50 percent. Now 

they are currently 12 and a half percent. They would have to rise 

to something closer to 18, 19 percent over that period of time. 

So, clearly, taking action sooner rather than later is important 

if we want to shore up Social Security for the long term and give 

younger workers a better system than the one projected by all of 

these reputable agencies. 

And essential to Social Security’s future challenges is this simple 

fact: By the year 2030, when the baby boom generation is fully retired, there will only be two workers for every retiree. Faced with 

these circumstances, other industrialized nations have begun to reform their retirement policies and to inject some degree of 

10

prefunding or personal accounts into their systems; and the U.S. 

Would do well to follow that example. 

In fact, polling data shows that, for younger Americans, support 

for personal investment accounts as part of Social Security is overwhelming. Young Americans are fearful that the current system is 

promising more than it can deliver. They understand that Social 

Security in its present form cannot offer them the same security 

that it is providing for their parents and their grandparents, and 

they are rightly concerned that they will be essentially forced to 

pay more into the system while getting less back. 

Can we honor our commitment to those currently retired or soon 

to retire, while moving toward a system that helps younger workers establish personal accounts? Of course we can, and every credible plan advanced that would reform Social Security along these 

lines shows how that can be done. 

I served on the President’s commission. We issued a report that 

included three alternatives, and I commend that report to your review. 

Certainly reforming Social Security will not be a free lunch. Inevitably, some benefits will need to be curtailed over time in order 

to make Social Security more affordable in the long term. But all 

of these same government agencies identify this basic fact: Significant benefit cuts and/or tax increases will need to occur simply to 

shore up the current system. All the more reason, in my view, to 

establish personal accounts designed along the lines of the Federal 

Thrift Savings Plan for Federal workers so that younger workers 

have the opportunity to create some wealth for themselves. 

In a recent analysis, the Congressional Budget Office came as 

close as any government entity to endorsing personal accounts as 

the best way to increase savings and build assets for the future. 

In a report titled, Acquiring Financial Assets to Fund Future Entitlements, which was released on June 16, 2003, the CBO examined 

the options available to fund Social Security in the future. 

The current Social Security Trust Fund, which holds government 

bonds purchased with Social Security payroll surpluses, was one 

such attempt to prefund retirement, but most analysts now hold 

this as an example of what not to do. The government used these 

payroll surpluses to avoid making tough choices in addressing deficits in the rest of the budget. And in just 12 short years, when the 

government must begin redeeming this trust fund, it will either 

have to raise taxes or cut other spending. So while the trust fund 

looks like savings, it really is a paper asset that has no alleviating 

effect on Social Security’s future funding challenges. 

Others have said that we should lockbox Social Security for the 

future or invest those dollars into private stocks and bonds on behalf of the Social Security system. The CBO looked at these options 

as well and concluded what some policymakers have suggested, 

that in a time of budget surplus the government could credit the 

Social Security funds with more government bonds; when money 

was eventually needed to pay benefits, the government could sell 

those bonds. While the strategy may appear to be reasonable, the 

eventual sale of these bonds would have the same effect as the government borrowing at that time. 

11

So the experience of the past several years shows that a lockbox 

cannot work because there are always other intervening events—

terrorism, war, recession—that can cause political leaders to 

change their minds about protecting the lockbox. 

What about the government investing Social Security funds itself 

in the stock market? CBO noted that even if the government could 

run surpluses and devise an effective means to save them, the 

issue of having the government own private business would remain. 

Additionally, Alan Greenspan, anytime he is asked to comment 

on this issue, cautions us about the government ownership of 

American business and the potential harm that it could do. Simply 

put, it is hard for the government under any circumstance to prevent the spending of Social Security as long as it is in the hands 

of the government. Future Congresses aren’t bound by the policies 

of preceding Congresses, and the commitment to save these dollars 

in any form would be threatened. 

So if these approaches can’t work, it really does argue in favor, 

in my view, of personal accounts as part of the solution. CBO reported this in that same study: assets set aside to fund future obligations are most likely to be insulated by a system in which ownership and control rests with individuals. In these circumstances, 

each participant has a property right and a legal recourse to guard 

against the diversion of those resources for other purposes. 

So, again, there are those here who may not agree that personal 

accounts are necessarily part of the solution, but I would suggest 

that, when it comes to savings, which is crucial to Social Security’s 

future as well as to the savings rate of the Nation as a whole, the 

nonpartisan Congressional Budget Office has found that personal 

accounts are the best alternative available to achieve those saving 

rates. 

Last, I want to speak to this whole question of semantics in this 

debate. There is a lot of use of the word ‘‘privatization’’ in this debate, and it is conjured up as a way of suggesting that somehow 

if we move in the direction of reform that includes personal accounts we are going to dismantle the existing Social Security system. Nothing could be further from the truth. 

Frankly, most recommendations for personal accounts as part of 

Social Security are fashioned after the existing Federal employees 

Thrift Savings Plan. All of you here are enrolled in that plan, as 

are 2 or 3 million Federal workers today. It is a government plan. 

It is a pension plan that is invested on behalf of the Federal workers in broad-based investments, mutual fund investments. Workers 

have the option to invest in any one of five accounts, and these accounts over the time that they have been in place have produced 

sizeable and notable benefits for these Federal workers. 

So we are not talking about something that is going to cut people 

loose and send them out into the private sector to fend for themselves. We are talking about a supplement to a basic Social Security safety net that would be invested in the worker’s name in an 

account that they would own and control. 

But the P word, privatization word, is a scary word, and it is 

thrown around alot in this debate. But I don’t think that it holds 

up when put to scrutiny, because it is not at all what we are proVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
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posing. We are trying to propose, for the future of Social Security, 

a more secure system than we could have if we simply tried to prop 

up the status quo. The cost implications of protecting the status 

quo are far greater over the period of time than the cost implications of reforming this system while making room for personal accounts as part of the solution. 

Getting back to our commission co-chairman, Daniel Patrick 

Moynihan, he referred in our work to the personal accounts as 

being the logical completion of Franklin Roosevelt’s original conception for Social Security, and I think the historical record demonstrates that to be the case. In President Roosevelt’s 1935 message to Congress, he outlined a vision for ultimately extending the 

program to include voluntary contributory annuities by which individual initiative could increase the amount received in old age. I 

think it is a measure of bipartisan success that we now have a Republican president who is striving to make that FDR vision a reality. 

The CHAIRMAN. Could you sum up——

Mr. PENNY. And that is my summation. 

With that, I would simply close my remarks by urging folks to 

stay clear of inflammatory language on this issue. Because whatever side of the debate you may find yourself on today, there is no 

denying that we are moving toward a huge challenge in this program, and every day of delay adds to the cost, the unfunded obligations in the future; and so we really don’t have time to waste. 

[The prepared statement of Hon. Tim Penny can be found on 

page 92 in the appendix.] 

The CHAIRMAN. I thank all of you for your excellent presentations. 

Let me begin by saying that when I bring up this issue at home, 

I get two general responses. First of all, the Thrift Savings Plan, 

when you explain it to them and say it is available to all Federal 

workers, including Members of Congress, the response is, well, that 

kind of thing ought to be available for the average guy out there. 

And obviously the Thrift Savings Plan has been incredibly successful by any account, multibillions of dollars with a solid foundation; 

again, the concept of saving for the long term. 

And the second issue that the people are interested in, the response is, well, if it is voluntary, then what is the problem? That 

is, nobody is forcing anybody to go into these individual accounts. 

And although I feel that once people realize the kind of long-term 

benefit they can get from disciplined investments, where the government can’t touch it and the individual can’t touch it and it 

grows for 40 or 45 years during the working life and with what we 

are told the most conservative return would be 5 percent based on 

index funds and a mix of investments, relatively safe investments 

compared to what you are going to get with Social Security, which 

would be less than 2 percent, a lot of people kind of cut through 

the fog and are much more inclined to at least recognize that there 

is a problem. 

What about the Thrift Savings Plan? Is that a fair comparison 

to make? And is it not something that we ought to make available 

to our own constituents? 

Let me start with Representative Kennelly. 

13

Ms. KENNELLY. Well, in all respect to the gentlemen to my left 

and to my right, they have both been on commissions. I was on the 

Ways and Means Committee in 1983; and, as you recall, in 1983 

we didn’t know if the checks could go out for the next month and 

a half, and we made some very, very serious decisions. I don’t know 

how I was ever reelected again. We raised the age. We taxed Social 

Security. We did all sorts of things. But you know what? For 20 

years, 30 years, we made this system as good as it is today, and 

we can do the same thing. You don’t have to dismantle the system. 

You just have to take a number of adjustments, and they will be 

very difficult for all of you. 

The CHAIRMAN. What will those be? Are you suggesting we raise 

the payroll tax again? 

Ms. KENNELLY. No, I don’t have to do that anymore. You have 

to. I did it in 1983. I raised the taxes. I raised the age. I taxed Social Security. I don’t have to do it anymore. You have to do it. 

But you know what you can do, Mr. Chairman? You can do it 

under the traditional program. What we are seeing now is the 

President saying do a whole new structure, dismantle Social Security, have a whole new structure. 

Now, as far as the Thrift Savings Plan goes, I belong to the 

Thrift Savings Plan, as all of you belong to the Thrift Savings Plan. 

And it is a good plan, but it is a smaller plan. You are talking 

about 144 million people growing into that plan; and you have to 

understand that when you are looking at a plan like that you have 

got a whole series of adjustments to make. 

But most importantly, Mr. Chairman, let me tell you, with the 

Thrift Savings Plan, I don’t give up one penny of my Social Security, not one penny. And what I understand the President suggesting is a Thrift Savings Plan. You don’t have Social Security. It 

is totally different. 

The CHAIRMAN. Well, in fairness, let me just say how I perceive 

what we are trying to get at. That is, essentially, a three-legged 

stool of retirement for the average worker, that is, Social Security—traditional Social Security, albeit not at the promised levels 

that we cannot sustain but at a reasonable level. Second would be 

the return on a lifetime of work and investment with an individual 

account, maximum of a thousand dollars a year, by the way, in relatively safe accounts that would be based on a life-cycle type of account where you could take more risks early on and then later 

have more conservative investments. And, thirdly, it would be 

whether you are under a defined benefit plan or defined contribution plan where you worked. It seems to me a pretty modern way 

to go. 

What concerns me, frankly—and I would like to have the other 

panelists weigh in on this—it seems to me we are at a crossroads 

here whether we are going to go with the European model, which 

has basically paralyzed economies in Germany and France and 

other European countries because of the incredible obligations they 

have unfunded for people’s retirement over there, and it is starting 

to have a major effect on their productivity. 

The unemployment rate in Germany is the highest in history; 

same thing in France. We complain about 5.2 percent unemployment in this country, and some of these leading countries in EuVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
14

rope, who are supposed to be driving ends of the European Union, 

can’t get out of their own way because of these unfunded liabilities. 

Ms. KENNELLY. Chairman Oxley——

The CHAIRMAN. You go ahead and respond, and then I would love 

to have——

Ms. KENNELLY. Chairman Oxley, right now for the next, what, 

13 years we have a surplus in the Social Security savings program. 

We have a surplus. As I understand it, what the President is saying is that every dollar that you put into your private accounts will 

come out in guaranteed benefit. Where does that leave the guaranteed benefit? 

The CHAIRMAN. Well, as a supplement, as President Roosevelt 

said when he signed the Social Security Act, that there would be 

a time when we need to have an individual account to supplement 

Social Security, which was initially set up as a safety net and a 

supplement to one’s retirement. And that, really, if you look back 

at Roosevelt, he was in many ways a visionary, and he saw that 

coming, and it seems to me now is the time. 

Ms. KENNELLY. Chairman, let’s leave the safety net, okay. 

The CHAIRMAN. We are leaving the safety net. That is the whole 

issue. 

Ms. KENNELLY. I don’t think so. 

The CHAIRMAN. Gentleman from Wyoming. 

Mr. SIMPSON. Well, in my day, the soaps were a lot different 

than they are today. Today, they consist of—well, it is a rich tapestry——

Mr. FRANK. Yeah, they were on radio and not television at that 

time. 

Mr. SIMPSON. That is right. And we were taught to—we listened 

to Jack Armstrong, the all-American boy, and if you had any inordinate desires, you took a cold shower. I would have ran all the 

water out of the system in Cody, Wyoming. 

But let me tell you, the thing about this story with Barbara, ‘‘The 

Perils of Mary Vogel’’, that could be a soap, the Perils of Mary 

Vogel. She took a hit from the airline industry, which is very sad. 

People took a hit from Enron. Mary Vogel is 76 years old; and not 

one single plan by Democrat, Republican, Conservative, Liberal, 

Libertarian or Commie has suggested hitting anybody over 55. 

This is the kind of—I have to be so careful—my wife said that, 

like Harry Truman, it took a long time for me to get him to say 

manure. But let me tell you, this is demagoguery. The reason it 

worked in 1983 is because they all shook hands and went over the 

cliff together. That is why she got reelected. That is why everybody 

that was in the game got reelected. Because the American people 

really appreciated that. They knew they had to do something. Now 

they have got it figured out. You have to do something. But the 

demagoguery is unbelievable. 

You know, in privatization it is not stealing—there is nothing to 

steal. I had to go through that in the Senate. I said, don’t show me 

the chart again about stealing from Social Security. There is nothing there. It is a series of IOUs. And the IOUs come due in 2015 

and ’17, ’18—figure it out—where they have got to go cash them 

in to pay the beneficiary. 

15

This is not dreamworld stuff. I am not making this up. There is 

nothing—there is no plan in there for Al Simpson. There is no fund 

that says this is what Al Simpson put in, and this is his account. 

It is not there. They have a number for me. Everything that comes 

in today goes out next month. And we can’t do a thing. 

Let me tell you, if you really want to do something, Democrat or 

Republican alike, start looking at part B premiums on Medicare——

The CHAIRMAN. That is not under our committee’s jurisdiction. 

Mr. SIMPSON. Take a look. Because the richest people in America 

are paying only 25 percent of the premium, and the people in the 

cafeteria are paying the other 75 percent. And we tried to do something, Democrats and Republicans, just to correct that. AARP, they 

flew out of the—harpies off the cliffs. I mean, give it up. 

The CHAIRMAN. Gentleman from Minnesota. 

Mr. PENNY. Thank you, Mr. Chairman. 

I came to Congress in 1983, and one of my first votes was on that 

Social Security Commission report. And we did view that vote with 

some trepidation because we had to do some ugly things. We had 

to raise taxes and cut benefits, not the kind of thing your average 

Member of Congress, especially a freshman Member of Congress, 

wants to be identified with. But we were in a crisis, and we had 

no good options because, sadly, at that time we waited until the 

crisis was upon us to do anything. 

We now have time to plan ahead, and that is my point. We have 

got 12 years before there is a cash flow crunch. Assuming that we 

redeem the trust fund or honor our obligations to the trust fund, 

we have got a little more time beyond that. But we shouldn’t wait, 

as we did back in 1983, until the last minute. 

Secondly, if I could back up and do one thing differently in that 

1983 package, it would be to take the surpluses we created with 

those higher payroll taxes and convert them to personal accounts. 

Because they have not been honestly saved, they have not been 

properly invested to the benefit of the individual, and we would be 

in much better shape today if we had done that with the excess 

money in the years since then. 

Thirdly, the Thrift Savings Plan, as you mentioned, Mr. Chairman, is a good model to look at. Because why did we do a Thrift 

Savings Plan? It is because we saw a defined benefit system for the 

Federal worker that was unsustainable over the long term. We are 

looking at the same problem with the Social Security system. No 

one is talking about removing a safety net for all Social Security 

recipients, especially the poorest of the poor, but we are talking 

about whether it makes sense beyond that safety net to continue 

a defined benefit program for the wealthier retirees as well, or 

whether we can convert at least some portion of Social Security 

into a defined contribution plan. We did that for the Federal workers. It is a model to follow. 

Can it work? Yes, there are only a few million Federal workers. 

This would be a sizeable program of 140 something million workers 

in our workforce. But this has worked for the Federal workers, 

from janitors to rocket scientists. They have all figured this program out, and they are generally happy with the program. That is 

because we have managed risk, we give them a governing board 

16

that determines which funds are made available, we give them five 

options, broad-based mutual funds that are managing the risks 

rather effectively, and we have kept administrative costs very low 

in this Thrift Savings Plan. So it is a model that we could look at 

if we decide to move in the direction of personal accounts as part 

of Social Security. 

The CHAIRMAN. Thank you. My time has long expired. 

The gentleman from Massachusetts. 

Mr. FRANK. Thank you, Mr. Chairman. 

One thing that strikes me—I know we keep hearing that everybody is entitled to his or own set of facts. Apparently, everybody 

is also entitled to his or her own Pat Moynihan. That is part of this 

debate. And he is safely—sadly, but safely dead. 

As I listen to the references to Pat Moynihan and to Franklin 

Roosevelt and Harry Truman, I am reminded of I think the most 

prominent form of sort of political necrophelia in America, which 

is that conservatives have a great fondness for dead Democrats, 

people who were very much opposed when they were alive and proposing things that were demeaned as terribly radical now find that, 

when they are safely iconic, they can be invoked. 

I would be interested myself, if we were going to look at Pat 

Moynihan, on what his views would have been about the tax cuts 

that we recently enacted, and I would be glad to listen to Pat Moynihan’s wisdom if it came in whole and if it wasn’t cherry-picked 

for these purposes. Because that gets to my point—the gentleman 

from Minnesota mentioned the 1983 Act, others mentioned the 

1983 Act, and we generated those surpluses. 

One of the questions that is really before us—and I appreciate 

his making it clear that we don’t have a problem on the cash flow 

side until 2018. I should say when we talk about demagoguery, one 

form of demagoguery, which has been defeated in part because of 

the facts, is this argument that we are in an immediate crisis. 

There was an initial effort to scare people by suggesting that the 

crisis was more imminent. 

Now I understand people who would like, on philosophical 

grounds, to change the way the Social Security system works. It is 

one thing to make that argument. It is another to claim, quite 

falsely, that there is a near-term crisis, as Mr. Penny has acknowledged. We are in a surplus cash situation until 2018, and we 

should start looking at this, but we are talking 13 years, a longer 

time horizon than we usually deal with for the government. 

But I do want to ask particularly my former colleagues, Mr. 

Simpson and Mr. Penny, there is talk about these IOUs—we often 

talk about government bonds. I guess we should talk about the government IOUs, instead. But the question is this. Do you think, as 

a matter of public policy, we should credit Social Security with all 

the money that was paid in and the interest accrued or should we 

not? 

I understand you have described factually, both of you, that there 

has been this tendency to treat it, as the President said, as leftovers and spend it. But as we deal with the philosophical issues 

here, as a matter of public policy do you believe that we should 

consider ourselves, as Members of Congress, bound to credit Social 

Security from now until 2042 with all of the money that was paid 

17

in and the interest that accrued? Is that part of the equation or 

not? Mr. Simpson. 

Mr. SIMPSON. Well, Congressman Frank, I never used the term 

leftovers——

Mr. FRANK. I know. President Bush did. But I didn’t ask you 

about leftovers. 

Mr. SIMPSON. I have been involved in this in a bipartisan way 

for a long time. I never went home and beat up people—except the 

AARP—and so all I know is that I was on the commission——

Mr. FRANK. I just asked you the question, should we put the 

money in——

Mr. SIMPSON. That would be absolutely absurd. They would rip 

the doors off Fort Knox to get that one done——

Mr. FRANK. So we should not credit to Social Security the money 

that was paid in——

Mr. SIMPSON. That was not in anybody’s law. It was not in Roosevelt’s law——

Mr. FRANK. I concede. It is not the law. We can break the promises if we want to. 

The question is, as a matter of public policy, should the Congress 

of the United States credit to Social Security as we calculate the 

resources that are available the money that was paid in under the 

rubric of Social Security taxes and the interest that we said would 

accrue? Should we or shouldn’t we, as a matter of public policy? 

Mr. SIMPSON. Give it to Tim. My brain won’t handle that. I think 

it is absurd. 

Mr. PENNY. Well, I think we need to be honest about where that 

money is going to come from. That is the point. I don’t have a problem with assuming that we are going to find that money somehow, 

but I think we need to be honest about where we are going to find 

it. 

Mr. FRANK. Should we, as a matter of public policy, do it or not? 

Mr. PENNY. Well, as a matter of public policy, I don’t see how we 

won’t continue to count that as part of Social Security’s future, 

whether you are for the President’s approach or for some other approach. 

Mr. FRANK. Well, in that sense, by what you say, we don’t really 

have that problem——

Mr. PENNY. Well, we do have a problem, because saying that we 

are going to honor it doesn’t make it easy to honor it. So——

Mr. FRANK. But you agree that we should. 

Mr. PENNY. Well, legally, we don’t have to. 

Ms. KENNELLY. Yes, we do. 

Mr. PENNY. Legally, we don’t have to, but morally we probably 

should. 

Mr. FRANK. I stipulate that legally we don’t have to. We are the 

government. We can do whatever we want, and nobody could sue 

us. But the question, Tim, should we, as a matter of public policy, 

do that? 

Mr. PENNY. This is debt owed internally, so legally you all, as 

Members of Congress, could change. 

Mr. FRANK. Should we? 

18

Mr. PENNY. I am not recommending that. I don’t believe that we 

should, and I don’t believe that we will, but I think we have to be 

honest——

Mr. FRANK. I will tell you what. I will be honest about the consequences if you will be honest about whether you think we should 

or shouldn’t. I understand the consequences, but I will go back to 

Pat Moynihan——

Mr. PENNY. Then as long as the two are linked—because if you 

deal with them separately, then we have this fantasy land in which 

we treat the trust fund as if it is somehow easy cash, and it is not 

easy cash——

Mr. FRANK. I keep my fantasies out of the office. 

Mr. PENNY. You have got to find a way to put the money back. 

Mr. FRANK. So the question is—and I understand that. And we 

will get honest. I think we are getting now into tax cuts and other 

forms of expenditures, and that is when we selectively quote Pat 

Moynihan. I don’t think he was an advocate of all the tax cutting 

that happened. But it is a very simple question. Do you think we 

should do that——

Mr. PENNY. Yes, I think we should. And hand in hand with that, 

I think we need to have an honest discussion about how we——

Mr. FRANK. I agree with that. 

Let me ask you one further question, to all three people here. 

One of the things that has been controversial—and it was mentioned—that in the 1983 Act for the first time taxation was applied 

to part of the Social Security benefits that people got if they were 

above a certain income. I think it should have been indexed, but 

it was an effort to try and deal with the upper income issue that 

Senator Simpson referred to. Then, in the 1993 Act, we further increased the percentage of Social Security benefits, I think, to 85 

percent that was subject to taxation, with some of that money 

being circulated into the Medicare fund to try to do a little—aim 

it literally at that problem. That has become controversial. 

And the Senate budget—and I can say that now, thanks to my 

colleague from Florida, Mr. Feeney, who did what I was unable to 

do and get the rules changed so we can now talk about the Senate 

in a sensible way, and I acknowledge his success there——

The Senate budget resolution calls for a repeal of some of the 

taxation that goes on Social Security benefits for upper income people. I would ask all three panelists, do you agree with the Senate 

in that? That, frankly, would seem to me to be a retreat from the 

kind of responsibility that we should show. Do you support the continuation of the level of taxation of Social Security benefits of some 

of the upper income recipients. 

Mr. SIMPSON. You keep coming back to me, don’t you? 

Mr. FRANK. Yes, well there are only three people. I haven’t got 

all the choice in the world. 

Mr. SIMPSON. Now, look, Barney, I am going to see you later! No. 

What they did, let’s get serious. They exposed—I do not remember 

exactly—but they exposed 85 percent of the benefit to a tax of 15 

percent. But you go out in the world, and it is, oh, they did an 85 

percent tax. I mean, everything is taken to a level of babble. And 

that is why it is not going to get solved. This is the worst——

19

Mr. FRANK. But that is why I ask you your opinion. Should we 

repeal that, or should we leave it alone? 

Mr. SIMPSON. Look, I am for affluence testing. I say, a guy making over 60 grand a year in retirement ought to be kicking in a hell 

of a lot more money. What do you think? I sound like a Democrat. 

Mr. FRANK. You are in the House now, not the Senate. We have 

a little bit more confinement in what we can talk about. 

Mr. SIMPSON. Of course, I am not going to sit here and babble 

about tax raises. Let’s start talking about Medicare, then give this 

up. This is peanuts. 

Mr. FRANK. Should we maintain the current level of taxation of 

a percentage of Social Security benefits? 

Mr. SIMPSON. Well, I—yes. What do you think of that? 

Mr. FRANK. I am relieved. 

Barbara. 

Ms. KENNELLY. Well, first of all, Barney, let me tell you, by law, 

we have the full faith and credit behind those bonds. I mean, I 

heard you——

Mr. PENNY. Technically. 

Ms. KENNELLY. No. No. By law of full faith and credit, you have 

to pay those bonds, and you people are going to have to change 

that law if you do not want to pay those bonds. 

Mr. PENNY. There we agree. We agree on that 

Mr. SIMPSON. I agree with that. 

Ms. KENNELLY. And can I take my hat off, as the national president of preserve Social Security and Medicare? I do not think we 

ever should have taxed Social Security. 

Mr. PENNY. I have no problem with it. You know, there needs to 

be some means testing here, and that is kind of a back door. It is 

a back door means test and, you know——

Mr. FRANK. I agree with you. 

Mr. PENNY. I supported both of those, the 83 and the 93. And I 

think it ought to stay in place 

Ms. KENNELLY. Because you are in a deficit right now. You are 

in a deficit right now. You have no money. 

Mr. FRANK. And I do think that greater progress both as to how 

much of your income is taxed and to what the benefits are is going 

to have a part of the longer term solution, and to repeal the taxation now would, I think, go in exactly the wrong direction. Thank 

you, Mr. Chairman 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Texas, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. I have to follow 

that? 

Ms. Kennelly, thank you, first, for your service to your country. 

I have a question. Looking in your testimony, you talk about I 

guess for lack of a better term, hazards and vicissitudes of life in 

referring to the risk associated with personal accounts. But aren’t 

there a lot of risks to leaving our Social Security in the hands of 

Washington? We have been discussing the trust funds. Historically, 

the trust fund has already been raided 59 different times. We have 

had 20 different tax increases, which means every time you are 

putting in more money and receiving the same benefits, your rate 

of return is going down. We have decreased benefits including the 

20

taxation of Social Security benefits, which you just alluded to. We 

currently have no ownership rights in our Social Security. We have 

had a number of Supreme Court cases attest to that. So maybe 

there are some risks associated with the marketplace. But aren’t 

there a whole lot of risks involved in leaving our retirement security in Washington as well? 

Ms. KENNELLY. Yes. The hazards and vicissitudes of life is a direct quote from President Roosevelt. We do have a real problem 

with savings in the United States, and that is why I am glad you 

are having this hearing. And you know, I think one of the best saving plans and probably the only one we have right now is Social 

Security. Every time we get a pay check, you and I, every 2 weeks, 

Social Security is taken out of that pay check. And that will be 

there when we retire. And we can count on that. We cannot outlive 

it, and it is adjusted for inflation. So no, I do not think we should 

change the system. 

Mr. HENSARLING. Let me ask you this question. I guess you also 

alluded to the fact that you are not in this business anymore of 

having to come up with reforms. But as I understand current law, 

if we do not act, in 2042, we are looking at approximately a onethird cut in Social Security benefits. Now, you say that personal accounts will lead to significant benefit cuts. But by not choosing a 

reform plan, haven’t you chosen the status quo? And the status 

quo, I think, by any account includes a huge benefit cut for, among 

others your 3-year-old granddaughters. I have a 3-year-old daughter. And aren’t we looking at massive benefit cuts for them if we 

do nothing under your plan? 

Ms. KENNELLY. No, I do not think so because I think we have 

got a surplus to 2017, and I think all of you can resolve this situation before then. But if you look at what the President—he has not 

laid out a plan. We know that. But he has looked at a second commission plan, and we see the cuts in benefits. And the guaranteed 

benefits, every dollar you put in to a personal account is taken out 

of your guaranteed benefit. And so as a result—I have to tell you 

something. Some people forget it. The market goes up. The market 

goes down. And you cannot—what the President is saying, there is 

a hope, there is a hope that every young person will get more. Can 

I tell you something? That is only a hope. What I say is there is 

a risk. 

Mr. HENSARLING. Well let’s talk a little bit about the market. 

First, according to the Social Security trustees, according to GAO 

and just about anybody else who will opine on the matter, if we do 

nothing, today’s younger workers are either going to receive a benefit cut of about a third or they are going to see their payroll taxes 

increased by 43 percent. Or we can explore the President’s option 

of looking at personal retirement accounts. Now, you allude in your 

testimony about the stock market goes up, the stock market goes 

down. And indeed, it does on a day-to-day basis, on a month-tomonth, and on a year-to-year basis. But I think, with the exception 

of the Great Depression, there has never been a 4-year consecutive 

period where the stock market has declined. And indeed, the Heritage Foundation has done a study and has said that a 66-year old 

male worker who received $35,000 of salary who is presently, as he 

retires receives about $1,500 Social Security. Had he been allowed 

21

to invest half of his Social Security in a personal account, in half 

stocks, half bonds, over his working life, he would be making three 

and a half times that, over $5,300 had he been allowed to be in a 

personal retirement account. I mean, right now, that is a much 

greater rate of return than Social Security is promising but cannot 

deliver. Why, if there are only three choices on the table—massive 

benefit cuts, massive tax increases or giving seniors greater retirement security with a rate of return that over 20, 25, 30 years of 

their working life will give them greater retirement security, why 

wouldn’t we choose that plan? 

Ms. KENNELLY. Well, first of all, Congressman, there is not only 

three things on the table. There is a number of adjustments on the 

table. Washington is full of adjustments. We have talked about 

them for years. And if you cobble those adjustments together—and 

they will be very difficult things for you to have to decide about—

but if you cobble those things together, you can keep the traditional 

system. 

Now, your gentleman that you are talking about, maybe he 

would do better. But what I have to say to you is that Social Security was never meant to be an investment system. Never meant. 

It was a safety net. It was a social insurance program. I know none 

of you like to hear that word but that is what it was. That was so 

that people, as they got older, after they stopped working, they 

have income. And by the way, we have never heard in this room 

today the word disability. And I understand from the Commission—and Congressman Penny was on the Commission—I understand they said, well, they only had 6 months; they could not adjust or they could not address disability. Let me tell you something. 

One-third of those people taking Social Security is not retirement. 

It is survivors and disability 

The CHAIRMAN. The gentleman’s time has expired. 

Gentleman from Pennsylvania, Mr. Kanjorski. 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

Senator, I have always enjoyed your frankness and candidness. 

I appreciate it today. I do not think we can get to the heart of this 

matter unless we do away with the hypocrisy on both sides, and 

I agree with you in that regard. But I want to highlight one of the 

hypocrisies that really bothered me in the last 7, 8 years, if you recall, a Contract For America allowing people to draw Social Security regardless of their income at 65. When I go home to my district, I refer to that as the lawyers, doctors, accountants and business executive relief act because, in reality, that is what this Congress did. It gave a hundred billion dollars more away of Social Security by arming the right of people regardless of if they are employed at higher incomes than they had in the past to draw full Social Security. And I did not hear any outcry from the community, 

whether it is the business community or the country as a whole. 

It just went by. And as a matter of fact, it is interesting to note, 

that cost about a $100 billion to the Social Security system. And 

to fix the notch years problem would have cost $50 billion. So when 

you look at the equities involved, it is disturbing to me. 

Two, I do not think we solve Social Security until we solve the 

budget crisis in the United States and get to a balanced budget. 

And I have seen, over my course of years, I have served a good part 

22

of time with Barbara and Tim, and we went through hell in 1993 

to get this country on a course of a balanced budget. And then, in 

the 2000 election, we saw hypocrisy arguing that that money in 

Washington in the surplus is your money. And they went without 

a vengeance, and they gave not only the surplus away—if there 

was any surplus, and I am not sure there ever was—they gave a 

hell of a lot more. And now they represent to the American people, 

we only have a $412 billion deficit, when in reality, we know we 

do not count the cost of the war, a $100 billion. We do not count 

the $150 million of taxation that we are taking into Social Security 

and expending it for general operating expenses. So as we sit here 

today, we have a $680 billion deficit but nobody answers that. And 

then we have the President circulating around the country, making 

the suggestion that private accounts are a solution to all problems, 

when in reality we all know it does not do anything for the solvency of Social Security. All it does is reconstruct the program and, 

interestingly enough, not to contribute one more dollar toward the 

rescue but to in fact, just go further in debt, and I think intolerably 

in debt. 

I cannot understand why, particularly senior citizens like yourself, Senator, cannot, you know, belly up to the bar if you will and 

level—be the spokesmen of rationality to the American people, and 

tell them that their president and their Congress are lying to them. 

And what I fear is we could easily make adjustments that Barbara 

is talking about, increase the caps a little bit, increase the rate a 

little bit. And it will look perfect. But the reality is, so we take a 

$100 billion more a year in from Social Security payments. If we 

are spending it to make up the general shortfall of revenues in the 

general fund, what have we accomplished? We are using Social Security for general tax revenues, and that is the greatest sin of all. 

And then to have the President say we are not going to honor 

that commitment and pay back those funds sometime in the future 

certainly questions whether or not our lenders are going to continue to be there as loyally as they should be. 

So, having been with all these great minds over the last 20 

years, Senator, and having been as candid as you have always 

been, don’t you really believe that to solve Social Security, to solve 

Medicare and to solve Medicaid, it is fundamentally a question of 

revenues for general expenditures of the United States, and that 

we have to get back to a balanced budget before any solution really 

applies? 

Mr. SIMPSON. You are finished? 

Mr. KANJORSKI. Yes. 

Mr. SIMPSON. Mr. Congressman, with that attitude, nothing, 

nothing will be solved. If you want to go on that tack, keep right 

on going, and nothing will happen for your country. They can do 

it over here, you can do it over there. You are all good at it. I have 

been in it. But I never played it. Hypocrisy is the original sin 

around this place, saying that you are doing one thing and then 

doing another. 

You know, all the stuff I watched here, I am not—I certainly am 

not a temple of rectitude. But I will tell you, if that is your tack, 

and to bring up, you know, the old crap and just keep stringing it 

out, about the Contract For America, this or that; get back to the 

23

issue in front of this country and that is the Social Security system. 

And the only reason you are playing with this one first, if you cannot solve this one in a bipartisan way, Medicare is going to eat this 

country up. Forget this other stuff. Social Security and Medicare 

are the entitlement programs that will crush out all discretionary 

spending. And when you come in here from your district seeking 

a little education money or a little whatever, whatever, it will not 

be there. It will not be there. 

And who is telling us that? Everybody with a brain is telling us 

that. Every good person on the right and the left is telling us that. 

The status quo is the cruelest cut of all. If you want to talk about 

the cruelest cut, the cruelest cut is the status quo. Nobody over 55 

is going to lose a nickel. That gets lost in the babble and the 

hysteria. Just a second. I have just got to finish. 

May I finish? I listened intently to you, sir. 

Social Security was set up for the little guy. It was an income 

supplement. It was 46 percent of the replacement rate for a ditch 

digger. That is what it was for. It has been distorted beyond belief 

with disability, student aid. We finally stopped that one. Everything that happened to it, it collapsed of its own weight because 

of generosity. Let me tell this little caper. In the Senate, we put 

in an amendment, it passed the House and the Senate that, and 

said if the cost of living allowance goes up less than 2 percent, 

there will be no COLA for Social Security. Oh, it was a good idea, 

and it passed. But guess what? And it was Republicans and Democrats that did it in. Once it reached 1.5 percent, they went to the 

Floor and said, how about the little people? How about this and 

that? And so they blew that one right out of the water. There is 

not anything you cannot blow out of the water with demagoguery 

about senior citizens 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from the first State. 

Mr. CASTLE. Thank you, Mr. Chairman. 

Let me just bring in a little bit of politics. And I think I want 

to ask Senator Simpson and Tim Penny this question. But I just 

read an article in the Washington Post from Monday and just excerpting from it, it said in different places, numerous studies of retirement savings programs such as 401(k) plans have found that 

choice may be the last thing that people want. And some expert 

from Wharton School said, in the society of specialization, people 

would rather trust their investment and savings decisions to perceived experts just as they trust their car repairs to mechanics and 

their legal problems to lawyers. And at the end, they went to a 

woman who had some economic woes and problems, et cetera. And 

they said, Bush’s Social Security proposal would let the woman divert some of her payroll taxes, 4 percent of her earnings, into an 

account with her name on it. She could invest and mix it with 

stocks and bonds or apply it all to the Treasury notes, just above 

the savings investment, and watch it grow. Singletary thought 

about it for a moment, then shook her head. I still like the old routine, she said, I like the check. 

I had a half dozen town meeting at home, and I sort of ran into 

the same thing. A lot of people just were not that interested in 

making investments. Maybe they are like me, you know. I wait till 

24

the market is topped out, and then I make my investment, and it 

goes down. And there is a record of people doing that, by the way. 

Most of us average investors do not do particularly well. I am trying to look for a method—I think there is a problem, and I think 

some of the solutions you are talking about make some sense, but 

I am trying to look at a way of selling this. Is one potential way 

of selling it, instead of having a basket of investments, even a 

Thrift Savings Plan which the Chairman asked about, to do something such as what most mutual fund families are doing now, 

which is have a year related type of plan with more equities than 

bonds and later on that kind of thing, or pure Federal investments 

at a later time and just one thing so you are basically riding with 

the market and everybody understand what it is? And if you are 

40 years out, you may have 80 percent equities and 20 percent 

bonds and narrowing down to the time you retire when maybe you 

just have nothing but Treasury notes or something of that nature? 

Should we be considering something a lot simpler, so there will be 

more acceptance of this in terms of these so-called personal investments? Have we made it too complicated? 

Mr. PENNY. Well, as I mentioned in my remarks, I think and in 

response to a question posed by the chairman, I think the Thrift 

Savings Plan is a good model. I do not think it is terribly complicated. Janitors in the Federal work force have figured it out. 

Now, whether we should have another fund in there, that would 

be sort of a life—a life cycle fund where it sort of changes over 

time, becomes more conservative as you reach, in terms of more 

bonds and such when you reach an age closer to retirement, I think 

that that makes some sense. But I would——

Mr. CASTLE. You would keep the thrift savings but maybe add 

something. 

Mr. PENNY. Yes, but maybe add this——

Mr. CASTLE. I am looking for simplifications. 

Mr. PENNY. Or a fail safe for those who make no choice. But I 

would not want to totally eliminate choice. I think the Thrift Savings Plan works well for all sorts of Federal workers, some of whom 

are not market savvy, but they have figured it out. So I think it 

can work for us. 

Mr. CASTLE. Thanks, Tim. 

Senator? 

Mr. SIMPSON. My cell phone has a symphony on it. 

Mr. CASTLE. Well, if you have got to take the call, we can go on 

to another question 

Mr. SIMPSON. No, I do not need to take it here unless you all 

want to listen. 

Yes, you asked a question, Mike. Yes, life cycle investing, I think, 

is a vital thing. That is the new title for that. So if you are 40 years 

back, you are doing a different kind of investing; 30, 20, and you 

keep changing that. I think most mutual funds are going to that. 

I think the confusion that comes from this plan, from the President’s plan, let’s call it that so that we know what we are talking 

about, about the evil empire, the President’s plan, I have a little 

confusion myself about what is the percentage. It kind of bounces 

around. Is it a quarter of the 6.2? Or is it 4 percent of the 6.2? Or 

25

is it 4 percent of the 15.4? And I know that that should be steadily 

related, but it is related through different mouths. 

Mr. CASTLE. I would like to ask another question. May I do that 

before my time is up? 

Mr. SIMPSON. Yes, you can. Ask her a good tough one. 

Mr. CASTLE. Any of you can answer this but I really—my time 

is almost up. But essentially, I mean, as I look at this thing and 

I listen to the Republicans and Democrats, basically Republicans 

are taking the position that we are not going to raise taxes at all. 

So we are not going to take the cap off, whatever the heck it is 

now, $94,000. We are not going to raise rates. In other words, we 

are not going to have any additional revenue coming into it. The 

Democrats seem to be taking the position—and I do not mean just 

here—but seem to be taking the position that they are not going 

to reduce benefits at all, essentially that they are not going to raise 

the age at which you would get it or change the cost of living or 

whatever it may be. It is pretty simple. If you are not going to do 

either one of those things, you are not going to solve the problem, 

is the way I look at it. To me, it is just two forces that have come 

together for political reasons, and nothing is happening, in addition 

to the earlier question I asked about the investments type thing, 

in addition to other problems that exist out there. How do we break 

through this? 

Well, I will tell you what impresses me the most, and, Senator, 

you served on some of these and so has Tim, as a matter of fact, 

served on some of these type commissions. But do we need something to move this away from the pure politics, like a 9/11 commission? And I was really impressed by Tom Kean and Lee Hamilton 

when they said they were going to do it together. Everything was 

going to be done unanimously, and they came up with a recommendation. Do we as elected officials need something like that 

to back us up in order to get this done? 

I do not think anyone can deny there is a problem out there. 

Maybe you can deny you do not want to go to the personal accounts, but nobody can deny that there is a financial problem out 

there, and in a few years, we have got to do something at some 

point or we are going to have a crisis 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. CASTLE. Can I have my question answered? 

The CHAIRMAN. Yes. 

Mr. CASTLE. Does that make sense to have a commission is the 

question. 

Mr. SIMPSON. Well, sure it does. And I have the naive view that 

because the crisis was so evident and there had been commissions 

and the Danforth-Bob Kerrey commission and this commission and 

that commission and thoughtful people and think tanks on both 

sides presenting enough evidence. 

But after the diatribe that I have heard, you need to get a commission to cover yourselves again because you ain’t going to make 

it. You had better get a commission, and you had better get it together because this obviously does not have anything to do with Social Security or the reform of Social Security. It has just reached 

hysterical political babble. And it is disgusting. 

Ms. KENNELLY. No, Senator. 

26

Mr. SIMPSON. Yes. Yes. 

Ms. KENNELLY. No. No. To answer Representative Castle, no, I 

will answer you. Every time you say that you are not going to take 

a red dime from people 55 and older——

Mr. SIMPSON. A red dime? 

Ms. KENNELLY. What did you say? You are not going to take——

Mr. SIMPSON. No. Go ahead. 

Ms. KENNELLY. Red nickel. 

Mr. SIMPSON. Anything. 

Ms. KENNELLY. Whatever. You are not going take anything from 

people 55 and older. So, you know what, I am sitting here looking 

at a mother who is 70 years old, and she has got a daughter 47 

years old. And that daughter has a couple of kids, and life has not 

worked out too good. My members are older. My members are 65 

and older. My members are not caring about whatever red or blue 

nickel you are taking from them. They are worried about their children, and they understand that Social Security is a traditional program that will protect their children when they retire because 

some of us are going to have hard luck. You talk about 55 year 

olds. You want to know, Congressman Oxley, you want to know 

what our line of defense is right now? It is older people that understand that one-half of them would be in poverty without Social Security. It is older people that understand that two-thirds of them 

retire for half their income on Social Security. What is going to 

change in the next 10 or 20 years that people—are they going to 

be wealthy all of a sudden? I do not think so. I think you people 

have to protect the Social Security system. And then, what you are 

doing today, financial education, absolutely do it. Make sure people 

put their money in a 401(k). Make sure people have an IRA. Make 

sure people save who are not saving. You are doing absolutely the 

right thing. But do not take away Social Security. 

Mr. SIMPSON. I know it is inappropriate, Mr. Chairman, to respond to a fellow witness rather than addressing the Chair. I know 

that. So I will address the Chair. I would say, and I respect Barbara, and I watched her in the Congress, and we worked on some 

things together. These people are not worried about their children. 

They have seen their children and grandchildren walking on their 

pants with their caps on backwards playing Snoopy Snoopy poop 

dog and Enema man, and they do not care about them like they 

used to care. 

But I will tell you if this is the case, if this is the case that the 

seniors are caring about only their children, then stop using the 

word cut. Stop putting in your course—I am a member of this 

group. Let me tell you. I get e-mails. I get FedEx packages. I get 

mothers milk. They send me everything. And in there, it says, call 

Enzi and Thomas and Cuban and tell them not to cut us, us meaning all these people over 65. If that is not hypocrisy, I have missed 

everything 

Ms. KENNELLY. I have nine grandchildren, and I care 

The CHAIRMAN. The gentleman’s time has expired 

Mr. FRANK. Mr. Chairman, can I ask unanimous consent that 

further——

Mr. SIMPSON. You left last time and left him with those questions. 

27

Mr. FRANK. Further testimony from Senator Simpson be rapped 

rather than spoken. 

Mr. SIMPSON. You will pay dearly for that. 

The CHAIRMAN. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT OF GEORGIA. I hate to interrupt this colloquy, but let 

me see if I can get to where I think the problem is. And first of 

all, let me make the record strong and clear: We on the Democratic 

side are fiercely, fiercely strong on protecting Social Security. Let 

it be known that this is a Democratic program by a Democratic 

president. And we talked about FDR. But when FDR made this 

program, FDR, in 1935 I believe——

Mr. SIMPSON. 37. 

Mr. SCOTT. 37. I forget the day but there was an interesting program over this past week by the History Channel that brought 

FDR back to life. And when FDR signed the Social Security Act, 

he said this: He said the reason we are signing this act is so that 

the American people, our senior citizens, will never again have to 

wallow in the dust of poverty. Social Security is not an investment 

program. It is an insurance program. 

And I think that is where the problem is. And I would like for 

each of you three to respond to the problem that we face here, now 

is this Trojan horse called private accounts. We will never be able 

to deal with the true issue of strengthening and saving Social Security as long as we are batting around this Trojan horse called private accounts. President Bush has gone all over the country with 

campaign stops where he has his crowds policed and secured so 

that only people who would agree with him would come in. But 

wherever the American people have had to come in unfettered to 

be able to give their opinion on this issue, they have strongly rejected private accounts. And I tell you why. And I hope you will 

agree with this. It is almost like trying to fit a round peg in a 

square hole. The whole investment arena and Wall Street and the 

private sector and privatization is wonderful. It is fine. But it is an 

exercise in collective risk taking; whereas Social Security is a collective exercise in risk reduction, guaranteed benefits for life’s misfortunes, for children without the father and the bread winner. It 

is not an investment program. And secondly, it did nothing to solve 

the Social Security problem of solvency. 

So what the American people, I think, are looking and hoping for 

is, yes, to get to the real solution of Social Security. But as long 

as private accounts—the only thing, mind you, that President Bush 

has even put on the table, the only thing there. Don’t each of you 

agree that the American people are looking for us to move this Trojan horse off and not get it mixed up? Because Moynihan, you 

quoted him, and you quoted him almost right. But he did bring up 

private accounts. But he brought it up outside of Social Security. 

Private accounts, on the other hand, not only do not solve Social 

Security’s solvency problem, but it takes money out, $2 trillion, 

minimum, just setting it up over the next 10 years, which exacerbates the problems for other benefits. 

So I think we need to deal with this Trojan horse. I think we 

need to understand it and put it in its proper perspective, get it 

off the table. And then if we want to solve the problems with Social 

Security, wouldn’t it make sense to solve the problems of Social SeVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
28

curity on the legs on which Social Security stands and fix that 

problem with the toughness it will need, whether it is benefit cuts, 

whether it is raise the minimum age of retirement, whether it is 

expanding to $90,000 income level? 

But the American people will look, with honesty and a lack of hypocrisy, if we dealt with Social Security on the merits of the program on the intent of it and move this Trojan horse called private 

accounts out of the way. 

Mr. PENNY. Mr. Chairman, if I might be the first to respond, and 

others can jump in of course, if they want. First of all, since I was 

on the commission that Senator Moynihan cochaired, he did sign 

off, along with every other commission member, on reform plans 

that included personal accounts as part of Social Security, not an 

add on, but as part of the Social Security revenues that are currently being raised. 

Mr. SCOTT. Well, that is not my understanding. 

Mr. PENNY. The objective of the President’s commission is to 

strengthen Social Security, and it is a 250-page report. Check it 

out. And he did sign off on that approach. Secondly, though, I think 

to your point on personal accounts being part of the debate, I do 

not know—you know, and this also gets to Congressman Castle’s 

question about a commission. If you are going to have a commission, and I am not sure that that is where we are going to go on 

this issue, but with or without a commission, everything has to be 

on the table. And personal accounts need to stay on the table just 

so we can look at all possible options for the future of this program 

The CHAIRMAN. The gentleman’s time has expired. The 

gentlelady from Illinois, Mrs. Biggert. 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

Just a couple of things that—one fact is that personal savings as 

a percentage of personal income has decreased from 7.5 percent in 

the early 1980s to 1.1 percent in the last two quarters of 2004. So 

we are seeing that people are not having a nest egg and a lot of 

people then are relying on Social Security as—completely for their 

retirement. What we have found, I have founded a financial literacy caucus, financial literacy and education caucus, with my colleague, Representative Hinojosa. And we have had just great bipartisan support for this and as well as private companies coming in 

with all of the education tools that they are using to educate the 

public. And in going to town hall meetings and talking to constituents, they were so afraid of the personal accounts because they said 

well, they did not know how to invest, and it is just going to put 

money in, and they would not know how to do it, and they would 

lose all the money, and realized the importance of financial literacy, that people really need to understand our whole financial 

system. They did not know what compound interest was. Students 

did not know the difference between a check, cash, or whatever. 

And so this has been a big boom. And I think that the financial 

literacy is so important to the understanding of the American people of Social Security. And I know Congresswoman Kennelly alluded to the financial literacy. If you could comment on how you 

think financial literacy will tie into the personal accounts and the 

whole understanding of Social Security. 

29

Ms. KENNELLY. Congresswoman, I thank you for doing what you 

are doing. What I have found, serving, is that we have become so 

busy, you know we have got e-mail. We have got phones. We have 

got computers. I have, you know, I told you about my nine grandchildren. But I have three daughters that work. They are so busy 

all the time. Why I am so insistent on wanting to make sure that 

we have this financial safety net of Social Security is that I do not 

think people do have enough time to be thinking about what they 

should be doing and saving. And I thank you for doing that because 

we have to save for our future. There is no doubt about it. 

You just look at the way the whole financial world is right now. 

Social Security is very moderate. Compared to other countries, Social Security is nothing. I mean, the average income is like $9,100, 

and so we have to do what you are saying and educate, and I thank 

you for doing it. 

Mrs. BIGGERT. Would anyone else care to comment? 

Mr. PENNY. Well, we have a lot of options for savings now, and 

part of the problem is that too many people, about 50 percent of 

our work force in fact, get all the way to age 50, which is pretty 

close to retirement, and they plan—they have not made any plans 

beyond Social Security. So, frankly, I am of the view that one of 

the virtues of doing a personal account above a safety net within 

Social Security is it will educate people about what those investments can do, and it might incent them to supplement that savings 

with other savings because all of the other voluntary tax credits 

and other savings incentives in the code today are not getting the 

job done. 

Mrs. BIGGERT. I think that was the point that I was trying make, 

that once they see, like, a Thrift Savings Plan or they have had the 

education in economics, that they will realize that they can have 

an ownership through Social Security but also then will be able to 

have the knowledge to invest beyond that. So thank you. I would 

yield back 

The CHAIRMAN. The gentlelady yields back. 

The gentleman from Texas, Mr. Green. 

Mr. AL GREEN OF TEXAS. Thank you, Mr. Chairman, and Mr. 

Ranking Member. 

Thank you, the members of the panel, for the service that you 

have rendered to our country. I compliment you, each of you. I believe in America. I believe in the greatness of America. And having 

had an opportunity to travel to other places, I have concluded that 

one of the things that makes America great is how we treat people 

in the streets of life, those who, for whatever reasons, do not have 

very much as opposed to those in the suites of life. How we treat 

people in the shadows of life, how we treat people in the twilight 

of life, and I think that Social Security is a means by which we 

take care of people in the shadows and the twilight of life. 

I represent a very diverse constituency. We have some lawyers 

and some doctors. But we have a lot of janitors and teachers and 

preachers and yard men and service station attendants, ditch diggers. All of this is honorable work. They all pay 6.2 percent, for the 

most part, of 100 percent of what they make because most of them 

make less than $90,000 a year; 6.2 percent of 100 percent, and they 

30

do it without complaining. We do not hear them whining about how 

this 6.2 percent is going to place them in the poor house. 

The question becomes, why do we not? And they call this to my 

attention: Why do we not want to see others who make more than 

$90,000 a year—I hate to say they can afford it, but a lot of people 

think that they can—why don’t we want them to pay more of their 

income into Social Security? If 6.2 percent is good enough for yard 

men and ditch diggers, 100 percent of their salaries, why is it not 

good enough for those who make far in excess of $90,000 a year? 

This is a real problem for people who work hard every day for 

every penny they get. And we rarely address this question. So I 

would ask that you, each of you, if you would, address the question 

of the 6.2 percent extending to those who make a lot more than 

yard men and ditch diggers. 

Mr. SIMPSON. Yes, sir. And I think it was Representative Davis 

that was the person that spoke before. Was that you, sir? That was 

an excellent relation. And Congressman Green——

Mr. AL GREEN OF TEXAS. Yes, sir. 

Mr. SIMPSON. Well, now, hang on tight, because I was at a seminar with Senator Paul Simon, who was a very dear friend of mine 

who died a couple of years ago. We had a seminar at Southern Illinois University with Senator Dave Pryor, Democrat of Arkansas, 

and Jack Danforth, Republican of Missouri, and Paul, who was a 

Democrat from Illinois. And our recommendation was to raise that. 

It was unanimous, to raise the $90,000. In fact, some of us, nameless of course, recommended taking the lid completely off and paying the whole thing on whatever you made. Anyway, it was unanimous to raise that. And so I have been over that cliff. And I found 

people who came to me, you talk about the ditch digger, I will talk 

about the rich guy, who came to me and said, ‘‘Just take the lid 

off and I will quit working as hard.’’ I said, ‘‘You would not do that; 

that is nuts. You are making a wad.’’ Well, I would. I said, ‘‘Well, 

I must have missed that somewhere!’’ So I have no problem with 

that whatsoever and have put myself in the public eye with regard——

Mr. AL GREEN OF TEXAS. Senator if I may, and I beg you to indulge me, because I greatly appreciate the comment that you just 

made. But I would say to that person who told you that, I would 

look him in the eye and I would say, the ditch digger does not stop 

digging. 

Mr. SIMPSON. Well, I did not want to get into that. I am just telling you I was not pleased at his remark. I did not clap him on the 

back and tell him he just told me a joyful thing. I said, I think you 

are a greedy——

The CHAIRMAN. The gentleman’s time has expired. 

Mr. PENNY. Mr. Chairman, if I could quickly respond. 

Mr. SIMPSON. Let me just say one thing. I think, I just want to 

say this——

The CHAIRMAN. Let me respond—if you respond, Senator Simpson, and then, Mr. Penny and then we have got to get on to the 

other side, 

Mr. SIMPSON. No. 

Mr. PENNY. I just want to respond in three quick ways. Since I 

already mentioned earlier in testimony that I do not have a probVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
31

lem with a means testing approach to, you know, dealing with Social Security’s future. This is a different way of going about it, 

where you would tax the wealthier workers more. So if that is part 

of the package, fine by me. 

But I would say two quick things. I think you can make a stronger case to extend this benefit to all income if you are focusing 

strictly on survivors and disability benefits, because those are more 

insurance related as opposed to retirement income related. Just a 

clarification that I think often gets glossed over in this debate. And 

then 

The second is, that alone does not fix the future financial problems. And factcheck.org from the Annenberg School at the University of Pennsylvania is doing a good job of sort of analyzing this 

Social Security debate. And you might want to go to a report that 

they issued on March 8 which looks at that option and some other 

options and tells you how much of the solution it adds up to because whether you do it or not, it is important to know how much 

of the problem it fixes. And it does not get the whole job done. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Alabama, Mr. Bachus. 

Mr. BACHUS. Thank you. I want to make two remarks about two 

Democrats. Mr. Frank said we are always quoted, fond of quoting 

dead Democrats. But Franklin Delano Roosevelt said in a message 

to Congress in 1935 that he envisioned the Social Security program 

including voluntary contributory accounts in which people could 

supplement Social Security. So he, actually, in that message to 

Congress, he, I think, had that thought. 

Second, someone—there has been an argument over Daniel Moynihan, and he actually—what he said about personal savings accounts is they were a valid extension of Franklin Roosevelt’s—he 

called it a valid extension or valid completion of what Franklin 

Delano Roosevelt initially envisioned. 

Now, I want to go back. I have handed each of you all—or I am 

handing you some pages. And the first thing I would like to do, just 

in a bipartisan way, is I think the first thing we need to understand is we need to understand what the program was when FDR 

founded it. I think that that is where we ought to always start because we are talking about—we all, today, we have said this program, this is what FDR started, this is what he wanted, it was 

good enough for him, it was good enough for our parents and our 

grandparents. And what he started in 1935 was something where 

the average employee paid in 1 percent of their wages. And the employer matched that. Now, the first page I have handed you, it 

started out at 2 percent. Now, today, it is 12.4 percent. So it is six 

times the tax rate. 

I do not think Franklin Roosevelt ever envisioned that we would 

pay one out of every $8 that we made into Social Security when 

he started the system where every employee paid in 1 percent of 

his wages. I do not think he ever thought we would get up to $1 

out of $8. 

Now, the second thing that we had, in the system he started, 

there were over 42 workers for every retiree. I do not think Franklin Roosevelt ever envisioned—and back to that, talk about the 2 

percent. We have talked about maybe supplementing. I think when 

32

you were paying 2 percent or 1 percent of your wages into Social 

Security, you had some money, maybe discretionary. But for instance, the average teacher—on that second page I have got the average teacher, young teacher in my district—under Franklin Delano Roosevelt, she would have paid $340 a year into Social Security. 

Today, she is paying over $2,000 in and her employer is matching 

it. So she is paying over $4,200 in. Under Franklin Delano Roosevelt’s plan, she would have paid $600 in. Now when she paid 

$600 in, she could have gone out, I think, and taken some of that 

other money. But she is paying—there is $4,200 going in for her. 

Now, the next chart, as I said, was—that is the one about there 

were 42 workers. Now, if we go to 45, there were still 42 then. But 

at one time, there were more than that. Today, it is down around 

three according to this chart. And I am going to introduce all of 

these into the record. And we are headed, as you can see in this 

chart, when our children, before our children retire, we will be 

down to two, two workers for every one. I do not think Franklin 

Roosevelt ever envisioned that there would be one retiree for every 

worker. 

And the third thing I do not think he ever envisioned—maybe I 

would not—this maybe is not true—is that, at the time he started 

Social Security, the average worker did not live to retirement age. 

The average worker did not live to retirement age. The average 

worker never drew Social Security. Today, they are living—and 

even in 1950, they did not. They still were dying a year before. As 

late as 1950, they were dying a year, the average worker died a 

year before Social Security. 

Today, the average man is living 7 or 8 years past retirement. 

The average woman is living 16 years past retirement. And back 

then, almost all the work force were men, over 75 percent. Today, 

it is closer to 50 percent. So I would ask any of you all to comment. 

First of all, can we go up on taxes? I notice Mr. Kanjorski said that 

maybe we could raise taxes a little bit. Do you think that is what 

Franklin Roosevelt envisioned? 

The CHAIRMAN. The gentleman’s time has expired. 

The panel may respond. 

Mr. PENNY. I would respond to the tax question by just giving 

you another way of looking at this. If the taxes applied in 1935 

when the program was first enacted had been adjusted for inflation 

over the last 60, 70 years, it is an interesting—it tells an interesting story, because in inflation-adjusted dollars, the maximum 

tax that any worker would be paying today would be $900. In reality, the maximum tax that is being paid today is $11,400, almost 

12 times more. 

Now, even if you factor out some of the additions to the program, 

survivors benefits and disability payments, which is about a third 

of total cost, that still leaves you with about $8,000 in maximum 

taxes paid into this program today as compared against $900 maximum on an annual basis when it was created. So we have done 

a lot with this program growing over time. And we have dealt with 

these higher promises and obligations of the program with a continually higher payroll tax. So I think you make a good point. 

But the other point you make about these three statistics here—

the number of workers per retiree, the longevity of the work force 

33

today compared to then, and the taxes and what has happened 

with taxes over time—all three of these suggest to me that if we 

were to start all over again, let’s pretend we did not have a Social 

Security program, and we were to sit down as a Congress to design 

one today, we would not design the program that we have. We 

would design something different than what we have, and we 

would try to do something that would actually inject some longterm savings on behalf of the individual into this program rather 

than leaving it all reliant on this kind of generational transfer. 

The CHAIRMAN. Gentleman’s time has expired. 

Go ahead. 

Ms. KENNELLY. Yes, Congressman. 

President Roosevelt could not have envisioned the Internet either. I mean, things change. Things change. And you know what? 

We are living longer. And isn’t it wonderful we are living longer? 

And if you look at these figures, that would not have taken care 

of us living longer. So we are paying in because we are living 

longer. And that is why I am here today to say that we have a Social Security system where we pay in so we have a retirement system. And we have just a basic safety net. That is all it is there. 

What you are talking about today is IRAs and 401(k)s and all the 

rest, and that we should be doing. But these figures, they do not 

mean a thing because we are all living longer. 

And I would like to talk to Mr. Scott for a moment. 

Mr. BACHUS. Well, they mean a great deal, I would think, because of those very things. In fact, Alan Greenspan—you said payas-you-go system. It is a pay-as-you-go system. Alan Greenspan 

said that is unsustainable. Charles Schumer, last month, Senator 

Schumer, a living Democrat, said we all agree that it is 

unsustainable. 

Ms. KENNELLY. 1983——

Mr. BACHUS. His quote was——

The CHAIRMAN. The gentleman’s time has expired. 

Mr. BACHUS. Nobody disputes that. 

The CHAIRMAN. We have got to move on. 

The gentleman from Kansas.

Mr. SIMPSON. How about me? Didn’t I get——

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. 

Number one, Ms. Kennelly talked and several have talked since 

her about the fact that there are now three parts to this program. 

One is for partial retirement benefits. One is for survivors. And one 

is for people with total disabilities. And I do not think anybody 

wants to leave those latter two groups out. I hope that is not the 

case. 

Number two, I have no problem at all in concept with the President’s proposal for partial private accounts. My concern to the people on this panel is borrowing a trillion to $2 trillion over 10 years 

and adding it to our $7.7 trillion national debt deficits of over $400 

billion a year, not getting better. I have six grand kids. I do not 

have nine. But I have six, and I am very very concerned about the 

future of my children, my grandchildren and everybody in this 

room, and this nation’s children and grandchildren for the future 

if we do not change the way we are doing business here. I appreciate very much people like Senator Lindsey Graham, who is a 

34

former colleague here, coming out and saying we need to look—to 

start thinking outside the box and start examining some other options. And Senator Graham, to his credit, has not just demagogued 

this issue. He has talked about raising the wage cap from $90,000 

I think to $140,000. I am not saying that is the solution here, but 

I think we should start coming together, Republicans and Democrats, and putting aside partisan politics and thinking about what 

is right for our people and our nation in the future. And I very 

much appreciate people like Senator Graham who are willing to 

stick their neck out a little bit and say, we need to look at some 

different options. 

You know, to me, it is almost disingenuous. We look at our Social 

Security system we used for the last several years, two decades, 

more, all of the money for some worthwhile things, like education 

and health care, and then some other things that people might 

have some dispute about, like Iraq and some further tax cuts. Then 

we say, oh, my gosh, what happened to all the money? It is all 

gone. We have a crisis. Well, we do not have a crisis, but I think 

we would need to change the way we are doing business. And I certainly recall that—we need to come together sooner rather than 

later and start to address it and find some constructive means to 

solve this problem. 

Maybe if we would have surpluses and Social Security, maybe we 

should stop spending those on everything else and start paying 

down debt or doing something different that will at least put future 

generations in this country in a better position financially to respond to, because what we are doing right now, what we are doing 

right now is using all of this Social Security money, again for some 

worthwhile things, but we are charging this to the future of our 

kids and grandkids, and we are going to say to them, you have to 

pay it back. And I say that is grossly, manifestly unfair, and we 

should not be doing that. We are putting an almost unsustainable 

burden on the future of our kids and grandkids. I did the bill back 

in 2001, 2001, that would raise IRAs from $2,000 to $5,000. And 

Ben Cardin and Rob Portman said, could we make that part of our 

retirement bill? And I said, well, heck yes, because I knew it would 

pass that way. And it did. I think we need to start examining options like that, too, outside of Social Security so as not to increase 

the debt further, and encourage people through tax incentives to 

save in IRAs, 401(k)s and employer pension plans. I am going to—

I could go on and talk about a lot of other things, but I guess I 

would like to just hear some reaction if I could. 

Ms. KENNELLY. Well, let me answer you, Congressman. I would 

caution you, I would caution you very carefully about Senator Graham’s proposal because there is a big difference between raising 

the cap to pay for personal accounts and raising the cap, you know, 

to do the traditional program, a huge difference. 

Mr. MOORE OF KANSAS. I am not suggesting paying for personal 

accounts. I was talking about to try to extend the solvency of Social 

Security. 

Ms. KENNELLY. I read every word that Senator Graham has said, 

and I think his idea is to raise the cap to pay for personal accounts. 

My idea, and not that—I do not have to do it anymore. You people 

35

have to do it. But if you do raise the cap, it should be for the traditional program. 

Mr. MOORE OF KANSAS. I agree with you. 

Ms. KENNELLY. One of the pieces. 

Mr. MOORE OF KANSAS. I agree. Other comments or reaction? 

Mr. MOORE OF KANSAS. Other comments or reaction? 

Mr. PENNY. I don’t necessarily agree with that. I mean, frankly, 

if you are going to come up with some extra money, I think it ought 

to make room for personal accounts. I don’t see how, long term, my 

kids are going to be better off if we simply try to prop up the status 

quo. They will end up paying more and getting less, which has 

been the history of this. Every generation pays more but doesn’t 

necessarily get more, and I don’t think we can keep going on like 

that. We have to start prefunding some of their Social Security. So 

if we are looking at new revenue, we clearly shouldn’t be looking 

at it only to prop up the status quo; we ought to be thinking in 

terms of what it can do to build a nest egg for the future. 

But, besides that, this committee’s contribution to this issue can 

be this whole issue of, outside of Social Security and whatever we 

do for the long term of Social Security, is there a better job we can 

do to wrap around some retirement plans that really mean something to the average worker out there? Because, as I said earlier, 

50 percent of our workforce gets all the way to age 50 without making any other plans or arrangements, and we can’t go on as a society with that many people waiting too long to start saving. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from New Mexico, Mr. Pearce. 

Mr. PEARCE. Thank you, Mr. Speaker; and I join others in thanking you all for your service. 

In kind of a response to something Mr. Green asked, we have 

asked that question before we went to the District about raising 

the caps; and, frankly, the way the law is set up right now, you 

raise the cap, you also have to increase the payout. So it would require a change at the other end, too, to have much effect; and, in 

the end, you don’t get much bang for your buck because there 

aren’t enough people making a million dollars a year to really prop 

the whole system up. It is a piece maybe, and that is what the 

President, I think, says when he indicates everything is on the 

table as far as solutions. 

Ms. Kennelly, I would ask you, as CEO of the National Committee to Preserve Social Security, my understanding of your testimony is basically that we can do about the same thing that you did 

in 1983, that we can do adjustments. Have you looked at the trustee’s report that shows, you know, if we have decades and decades 

of retirees coming in and the costs are kind of easing up and easing 

up and then when the boomers start retiring 4 years from now the 

costs just escalate tremendously and we didn’t have to deal with 

that escalation in 1983, we were dealing with—how do you resolve 

that tremendous increase in cost that you see on that curve. 

Ms. KENNELLY. Well, the reason, sir—Congressman, the reason 

you have a surplus now to 2017 is because we realized that the 

baby boom was coming. I get such a kick out of it, that people were 

surprised the baby boomers were there. They were in their late 20s 

and early 30s when we——

36

Mr. PEARCE. What the trustee report shows as of 2042 is that all 

those IOUs, if you cash them in, they are gone. What does your—

what is your recommendation for 2042? 

Ms. KENNELLY. You are going to have very hard decisions. Social 

Security has always been a system with equity and adequacy. 

Mr. PEARCE. And could I ask for your recommendations for 2042? 

In other words, I am assuming you are right. We will cash in those 

IOUs. I don’t believe anybody up here thinks that we are not going 

to cash those in. But they run out. Even the IOUs are empty in 

2042. 

Ms. KENNELLY. Well, first of all, they don’t run out overnight. 

People think they run out overnight. 

Mr. PEARCE. Well, ma’am, for 2018—if I could reclaim my time, 

ma’am. Thank you. 

In 2018, we go into a deficit. Your testimony mentioned that, and 

that is adequate that we should. In 2042, we have simply cashed 

in—maybe it is 2043, 2041—we have cashed in all those bonds. I 

am asking——

Ms. KENNELLY. Congressman, you went from 2017 to 2042. It 

doesn’t happen overnight. It does not happen overnight. 

Mr. PEARCE. And my question is, you said we don’t need to fix 

it now. What would you do in 2043? 

Ms. KENNELLY. Well, what you have to do is take a series of adjustments—that everybody in this town knows about—and you 

take those adjustments and cobble them together so we have a Social Security system that we can retire with. 

Mr. PEARCE. And the trustees have said that it would take a tax 

of 20 percent on everyone’s earnings to make those adjustments. 

Ms. KENNELLY. No, no, no, absolutely not. 

Mr. PEARCE. These costs they show—they show that if we incrementally increase the cap or incrementally increase the tax, that 

we only buy 3 or 4 more years liquidity. And these are serious 

problems. I think Mr. Moore has begun the discussion, and we 

need to sit down and lay the things on the table. We can’t sit here 

and talk in politicized terms. We have got a real financial problem——

Ms. KENNELLY. And you shouldn’t. Absolutely, you shouldn’t. 

Mr. PEARCE. I think the one comment that you have made that 

is exactly on track, and that is when you said, what is going to 

change. I think we, as a Congress, are going to have to decide—

because, frankly, this idea of a safety net is one that is way overused, that the idea——

Ms. KENNELLY. And you don’t think the United States of America should have a safety net? 

Mr. PEARCE. No, ma’am, I am saying we do. But you are the one 

who is saying it should only be a safety net, and in fact it is the 

only safety program that many Americans have because they view 

themselves completely at the trust of the United States. 

Mr. PENNY. If I could jump in quickly——

Ms. KENNELLY. Let me show you what your colleague put in. 

This money is going into the Social Security——

Mr. PEARCE. Mr. Penny, if you would like to address——

37

Mr. PENNY. Well, I would just like to speak to the options that 

are out there, because my colleague, Ms. Kennelly, referenced that 

lots of people are talking about these options. 

These proposals are being analyzed by an organization that is 

outside the political realm. It is the Annenberg School at the University of Pennsylvania. They have a site called factcheck.org, and 

they have analyzed all the options that Ms. Kennelly’s organization 

and the AARP and other groups have sort of implied but not officially endorsed. And they don’t get the job done——

Mr. PEARCE. They don’t get the job done. 

Mr. PENNY. They add up all of these options, and they fall short 

of fixing the program for the next 75 years, and none of them proposes any sort of solvency beyond the 75-year window. 

Mr. PEARCE. That is my point, and that is a very difficult discussion. 

Ms. KENNELLY. Well, private accounts makes it worse. You take 

the money out of the system. 

Mr. PEARCE. Actually, you said, ‘‘What is going to change,’’ and 

I think the only thing that can change is the mindset of America. 

They would have to change the way they view the safety net. 

Ms. KENNELLY. And, Congressman, that is what we have—we 

have a totally philosophical conversation going on——

Mr. PEARCE. That is the absolute truth. 

Ms. KENNELLY. Do you want to have the system that we have 

had, or do you want to have a new structure? That is the whole 

discussion that is going on. 

Mr. PEARCE. I think Mr. Simpson has said it fine, that we are 

going to protect the seniors while we try to figure out some way 

to wiggle out of this problem. 

Mrs. BIGGERT. [Presiding.] The gentleman’s time has expired. 

Mr. PEARCE. Thank you, Mr. Chairman—thank you, Madam 

Chairman. 

Mrs. BIGGERT. The gentlewoman from New York, Mrs. McCarthy, is recognized For 5 minutes. 

Mrs. MCCARTHY. Thank you, Madam Chairman. 

Well, I am glad we have solved all the problems this morning, 

haven’t we? Where are we? We are the same today as we were yesterday and will probably be the same way. 

Listen, real life. We talk about people saving. I worked hard all 

my life. My husband worked hard all his life. We thought we had 

money. Unfortunately, the company he worked for went bankrupt. 

We lost about $350,000, what we had put in there. He was 49. I 

was 48. Okay, we panicked. 

Now I am a saver. I come from a family that came from the Depression. I always believed in putting $10 away every week. Here 

we are. I will be dealing with a son that is probably going to be 

on permanent disability down the road. Certainly, I am a widow. 

I got here. I heard about this Thrift Savings, and I started maxing 

out as soon as I was allowed. 

We are talking about, if we go with these private savings account, a thousand dollars a year? Is that something along that way, 

at a certain percentage? Well, I have maxed at $10,000 the first 

couple of years. What is it—we are up to $14,000 because I am over 

38

50. I am still not going to have enough money when I retire. I 

mean, that is what it comes down to. 

Now I live in the Northeast. What I have through savings, hopefully, if the market comes or stays, and I just switched over to all 

bonds because that is where I am supposed to be at this age, with 

all of that—and the pension, from what I understand, that we get 

from this place is not going to be terrific, and my Social Security, 

which I am going to be guaranteed to have if, hopefully, I live into 

my 80s, no guarantee on that. Even with that, it is not going to 

be enough. 

This committee and what this Congress should be doing is how 

are we going to get people to save? How are we going to teach people to save? Social Security will never sustain any of us. My parents, unfortunately, came from the workforce. They worked very 

hard. That is all they had, was Social Security. Now if they had 

lived longer than they did, believe me, the children would probably 

have to support them, but it kept them out of poverty. 

For someone like myself, I am single, it is going to be part of my 

whole plan. My girlfriends, who basically have always worked all 

their lives, unfortunately never in a high-paying job, I told them, 

62 start taking Social Security. It is going to help them a little bit 

because they will never make over what the maximum would be to 

affect their Social Security. 

We have a problem, but the problem is we haven’t seen a bill. 

We don’t even know what is out there. We haven’t come up to any 

solutions, and that is a shame because there are millions of me out 

there—and there are millions of me out there. And I will do what 

I can to certainly protect the younger people like my son, who is 

only 37, like I said, who will most likely be on permanent disability 

somewhere down the road, maybe sooner than what we thought. 

Should the government do this? Well, I think the government 

has a responsibility to make sure that people aren’t living in poverty. I feel very strongly on that. And the truth of the matter is 

the majority of us, as Americans, work our tails off all our lives, 

and we do. We are not asking for anything. 

All I am saying is I would like to stay in the house that I have 

been in since I was 5 years old and stay on Long Island, but even 

with working and saving and putting money away every single 

year, sacrificing even now, I am probably not going to be able to 

do it. And that is a shame, but that is the way it goes for us that 

are in middle-income families. 

What are the solutions? I can’t give you the solutions because 

those smarter than me—you know, you can offer solutions, but unless both sides start talking and sit down and say how we are going 

to do it—I happen to think Social Security should be there. I don’t 

know how we are going to save it, but we should. But we should 

be talking about how are we going to get these people to save so 

we have something, like myself. 

Mr. PENNY. And I think you started with the common ground. I 

think both sides of the aisle want to make sure that those that are 

disabled are adequately covered, that survivors get some sort of a 

benefit through this system, and that for all workers, especially 

those that don’t earn a lot, that we have an adequate safety net. 

39

I think that is the common ground. I don’t think either side disagrees on that, and I think that is where to begin the debate. 

I can relate to this in personal terms, as you have related to this 

in personal terms. My youngest brother is multiply handicapped, 

he is on disability, so I know the importance of that program. My 

mother, because my father died young, is now retired on a Social 

Security check and nothing else. I don’t know how she makes ends 

meet. So I understand the importance of the safety net. 

But I think that is where you begin the common ground. There 

is a lot of room to disagree about what we ought to do above and 

beyond those basic elements, but I think that is a common ground 

that both Republicans and Democrats ought to be able to join 

hands together and work on. 

The other, though, is your point about saving and how much you 

have to set aside now to get ready for retirement. I was somewhat 

at the same point. I didn’t start saving seriously until I was in my 

late 30s; and, because of that, the amount I have to set aside every 

year is a lot more because I have only got a couple decades for this 

money to grow and earn for me. But had I started when I was 18, 

a much smaller amount on an annual basis would have put me in 

a much better financial position today, and I think that is the virtue of thinking of reform in a way that gets people saving earlier. 

And right now we are not doing that. 

Mr. SIMPSON. May I just say a word——

Mrs. BIGGERT. The gentlelady’s time has expired. 

Mr. SIMPSON. If I can just say a word? I have been very quiet. 

I have been leaping forward. I crouched. 

Congresswoman McCarthy, you are so correct. All of us have that 

amazing thing in our background. Our wives or our spouses—and 

my dad was a United Mine Worker. He was a union guy and then 

went to law school, and after he didn’t think working in the mines 

would be what he wanted to do. 

But, anyway, the real issue is this. We all agree that the system 

is unsustainable. That is the word. But to get rid of the babble I 

would go to the trustees of Social Security. I always went back to 

them because I respected them. Bob Reich, Robert Rubin, these are 

not Republican nuts, these were people who were telling us this. 

All you have to do through the years is go back and see what the 

trustees of the system were saying, a really wonderful group of people. And you can scoff at these numbers, but these are real numbers, whether you like them or not. The Congressman has—he has 

presented them. They are not babble. They are real. 

The life expectancy was set—the retirement was set for 65 for 

one solid reason, because the life expectancy was 57. It was a Ponzi 

game in that sense. They knew there would be reserves because 

the life expectancy was 57, and the retirement was 65, and they 

thought it would never change. 

Well, things have changed. And I have no desire to go back and 

take out the things that were never supposed to be in Social Security. Disability payments, payments to children under 22, that was 

never intended in the original package. It was for the wage earner. 

And all the stuff came later. 

Only 7 percent of the American people make over 75,000 bucks 

a year. So you are not going to get what I was hoping to get when 

40

I tried to lift that lid over $90,000. They said, well, let me show 

you the figures, and they don’t get you there. Even if you took it 

completely off, the revenue lasts about 2 weeks. 

But, anyway, doing nothing is unsustainable. Pay attention to 

the trustees and trust them. And I will remain forever puzzled how 

groups like the AARP and the committee that Barbara represents, 

4 million members, presenting no alternatives whatsoever except 

cobbling. Cobbling is out of the picture. Don’t point your finger and 

say, you do it. The groups that are playing in this game know that 

in the year 2017 something will happen. They know that the IOUs 

will be called. They know in 2042 that it will pay out only threefourths instead of—and they are going to do nothing except say, we 

have time. 

Let me tell you, I was here from 1979 to 1996, and we never did 

a thing except in 1983. And we tried in 1993 with a bipartisan 

commission and failed completely because of the shrieking and 

howling that went up. They have no alternative, nothing to 

present, just keep the membership up, get them alarmed, spook 

them up and keep the dues paid. 

Mrs. BIGGERT. Unfortunately, time has expired——

Ms. KENNELLY. May I respond? 

Mrs. BIGGERT. We have another panel to go. 

Mr. SIMPSON. She certainly should respond. 

Mrs. BIGGERT. Very briefly. 

Ms. KENNELLY. Can I tell you something? I sit here as a woman 

who absolutely thinks—I thank the President of the United States, 

I thank President Bush for bringing the attention on this whole 

problem. I thank him for letting us all know that by 2017 more 

money will be going out than coming in. I think right now all of 

you should solve this problem. I do not think you should do personal accounts. That is a whole new structure. What I do think you 

should do is correct the situation, and you can do it. 

And, sir, my dear friend, Senator, we are not saying do nothing. 

We know how difficult these people are going to have to make 

these decisions. I made them in 1983, and they can make them 

now. But don’t say I say do nothing. 

Mr. SIMPSON. What alternative——

Mrs. BIGGERT. The gentlewoman’s time has retired. 

The Gentlelady from Florida, Ms. Brown-Waite, is recognized for 

5 minutes. 

Ms. BROWN-WAITE. Thank you very much.

You know, I have the highest number of Social Security recipients of any Member of Congress. I have got a quarter million of 

them. And as I talk to my seniors and have town hall meetings, 

I tell them what I want to accomplish. I have a mother-in-law who 

only has Social Security. I want to make sure that my grandson 

isn’t taxed so much that all he will have is Social Security, whether 

it is a Social Security of today or whether it is a revised amount. 

I want to make sure that he has the ability to invest. And if all 

we do is the same old, same old, then he will be taxed so high that 

he won’t be able to invest in anything. 

Ms. Kennelly, if you don’t support personal retirement accounts, 

the trustees have said there are only three ways to maintain solvency: the payroll tax would have to be increased, benefits would 

41

have to be reduced, or $4 trillion will have to be transferred from 

general revenue to the trust fund, which really means that there 

will probably have to be a tax increase. Which does the national 

committee prefer? 

Ms. KENNELLY. Well, Congresswoman, I love meeting you. I 

haven’t met you before, and I know that you have the highest number of older people over 65, and I know what you are going 

through. But what I want to say to you is personal accounts makes 

the situation worse. Solvency—the President has agreed that solvency is not being addressed. If you in fact do personal accounts, 

you make the solvency problem worse. It brings it closer. And benefits have to be higher. You have to borrow more money. So personal 

accounts is not the answer for your people, I am telling you. 

Ms. BROWN-WAITE. Well, first of all, the majority of my people, 

the 250,000, are already on Social Security, and their Social Security benefits would be intact. There is no proposal at all to reduce 

Social Security benefits for those receiving or those near—55 being, 

quote, near. And I think that is a safeguard that Americans need. 

I also put in a bill that would say you cannot have any budget 

action that would reduce Social Security benefits for people already 

receiving it——

Ms. KENNELLY. You are absolutely right, Congresswoman. 

Ms. BROWN-WAITE. And when you say that you thank the President, I want to make sure that you are not thanking the President 

because it gives you great opportunity to go out and frighten seniors out there. Because, quite honestly, I have read some of the material, and it does frighten seniors. 

Ms. KENNELLY. Congresswoman, you don’t have to frighten seniors. You don’t have to. They are frightened already. 

Ms. BROWN-WAITE. They are frightened by the literature that is 

sent out by certain groups, including yours. You cannot tell seniors 

that their Social Security is going to be taken away from them. It 

is not, plain and simple. Do we agree on that? 

Ms. KENNELLY. We agree on that, Congresswoman. 

Ms. BROWN-WAITE. Would you put that in your next publication? 

Ms. KENNELLY. I agree on that. But what I am trying to tell you, 

that my front line of support against personal accounts are people—I am a grandmother—I don’t know, maybe you are a grandmother——

Ms. BROWN-WAITE. I am a grandmother. I explained my benchmark. 

Ms. KENNELLY. The point is, by the President saying that he 

won’t cut anybody’s benefits 55 and over—and the senator mentions that—that is all fine and good. But most grandparents understand the accidents and vicissitudes of life, and they understand 

that maybe their children and their grandchildren are going to 

have to need the traditional protection of social insurance. That is 

all I am saying. 

And I am not scaring anybody. Can I tell you? You don’t have 

to scare anybody these days. They are scared enough. 

Ms. BROWN-WAITE. Well, certainly some comments and proposals 

that are mentioned in your mailouts certainly don’t help matters 

any at all, and seniors do become frightened. 

42

But I still haven’t heard which you prefer. I mentioned what the 

Social Security Trust Fund has said that would be options. Which 

do you prefer, the tax increase, as you had previously voted for, or 

reducing benefits, or transferring money from general revenue to 

the trust fund, which is going to mean a tax increase? 

Ms. KENNELLY. Congresswoman, as I started out my testimony 

today, I don’t have to say that anymore. I did it in 1983. I took 

those tough votes, and you are going to have to take those tough 

votes. You are going to have to take those tough votes. I only say 

I think the traditional program is better than the new structure 

that the President is presenting, personal accounts. We disagree. It 

is okay. 

Ms. BROWN-WAITE. When I talk to non-seniors in my district, 

they tell me—my own children tell me they don’t believe Social Security is going to be there for them. So the comment often is I will 

take reduced benefits if I can do some investing on my own, something similar to what you, mom, and you, Ms. Kennelly, were able 

to do through the Thrift Savings Plan. 

Most people do not—most people—our children and grandchildren do not believe Social Security will be there for them. As 

a matter of fact, your own Web site says that, even after 2041, 

without any changes, the trust funds will continue to pay seventy 

percent of the benefits. That is a benefit cut. Seventy percent of the 

benefits is a benefit cut. 

Ms. KENNELLY. That is a fact. The trustees tell you that. 

Ms. BROWN-WAITE. Well, I think you are selecting facts that support your argument. 

Ms. KENNELLY. That is what you are arguing. I never said that. 

Ms. BROWN-WAITE. That absolutely is what the——

Mrs. BIGGERT. The gentlelady’s time has expired. 

The gentlewoman from New York is recognized for 5 minutes. 

Mrs. MALONEY. I welcome the panelists and thank them for their 

public service. 

Social Security is very special to New Yorkers. It was created by 

President Roosevelt and Robert Wagner and Secretary of Labor, 

Francis Perkins, but the only one quoted today and is repeatedly 

quoted is the great senator, former senator, from New York, Senator Moynihan. I remember him saying, thou shall not purloin pension funds, and talking about preserving Social Security. So I called 

up his daughter Maura and asked her to get to his papers and get 

them to me. She sent me an article that she published entitled, 

Don’t Take Senator Moynihan’s Name in Vain; and I ask permission to place this article in the record. 

Mrs. BIGGERT. So ordered. 

[The following information can be found on page 123 in the appendix.] 

Mrs. MALONEY. And in it—I just want to quote one line. She 

says, President Bush and others quote my father, but they fail to 

clarify that Moynihan proposed individual accounts as add-ons that 

would supplement Social Security, not as carve-outs that would replace the funds. 

Now I, for one, would follow his lead on that. I would support an 

add-on. But the debate that I see is the one between—and the big 

difference between the two parties is really the problem of solVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
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vency. If they would take the private accounts off the table or treat 

them as add-ons, as one of the economists for the Republican party, 

Hubbard, said they might over the weekend—but as Greenspan 

testified, as the President has testified, the present plan with the 

private accounts doesn’t do anything to address the solvency of the 

Social Security plan, which is the Democrats’ main concern. We 

want it solvent. In fact, it makes it worse. It would make the trust 

fund insolvent 11 years sooner, in 2030, not 2041; and that is the 

effect of the private accounts. 

Again, I would support Senator Moynihan’s support for private 

accounts as add-ons for the fundamental structure of Social Security. 

Now I would like to ask Barbara Kennelly, since she used to advise me on Social Security—and actually, I believe she is the first 

Democrat woman to serve on the Ways and Means Committee and 

her specialty was Social Security. I would like her to comment on 

the fact that the Ways and Means staff has put out about the seventy percent tax on private accounts when they have to pay back 

the loan with 3 percent, using the President’s numbers that the 

private accounts would make, what is it, 4.6 percent? That is a seventy percent tax on the private accounts. And, also, they report 

from the Ways and Means staff that the shifting of the President’s 

proposal and the Republican-dominated proposal of shifting from 

wage indexes to price indexing, which they state—and other economists and CRS states—will reduce benefits by 40 percent in the 

next 20 years on top of whatever happens with this fight. 

But I would like all of the panelists to respond to this report; 

and, again, I ask permission to place it in the record. 

Mrs. BIGGERT. Without objection, so ordered. 

Mrs. MALONEY. It was a study released by the Yale finance economist, Robert Schiller. He is best known for predicting the stock 

market bubble and burst in the 1990s. He released a study on the 

likelihood of an individual’s winning or losing if they opened the 

kind of private accounts President Bush has proposed to replace 

Social Security’s guaranteed benefit over time. His study focuses on 

the rate of return for the private accounts and the likelihood that 

investors would make enough in their accounts to pay the privatization tax and still have money left over. 

Professor Schiller found that 71 percent of the time account holders would lose money. That is, their accounts would not even earn 

enough to pay the privatization tax and have money left over. And 

more money would be deducted from their monthly Social Security 

checks to pay the privatization tax than they had in their accounts 

when they retired. And given that workers would have little left in 

their accounts after paying the privatization tax, it is extremely 

unlikely that the accounts would be able to make up for the additional mandatory benefit cuts that accompany privatization, which 

would reduce benefits by more than 40 percent for future workers. 

I would like comments, starting with Barbara Kennelly, who 

served on the Ways and Means staff. 

There are many, many problems with these private accounts. If 

you want to have them, do it as an add-on. But when you have 

leading economists saying that you are not going to be able to pay 

the privatization account tax, it is making matters worse, then why 

44

in the world are we doing this unless someone wants to destroy Social Security as we know it? 

But, Mrs. Kennelly, if you would respond; and other members of 

the panel, if they would like to respond. 

Ms. KENNELLY. Thank you, Congresswoman. 

Yes. You know, I hear private accounts are voluntary. They are 

about as voluntary as a shotgun wedding, to be very frank about 

it. 

You have two series of cuts. And we don’t have the President’s 

plan. I admit that. I know that. But what we do know, as the 

President told us, that we can look at a blueprint of the second 

commissioner’s plan—commission’s plan, and in that plan everybody gets the cuts and their beneficiary. But then, having had the 

cuts—and that is where the money is, by the way. When you go 

from wage to price, that is where the money is, and that is where 

you get the big money, and that is why everybody gets the cuts, 

not only those that choose but also the disabled and others. 

But then what we have been able to foresee or look at is that 

when you go into the personal account every dollar you put into a 

personal account gets deducted from the guaranteed benefit. So, 

once again, there is a second round of cuts. 

Then what they say is you are going to have to pay 3 percent 

on top of what comes out, inflation, because you are taking a loan 

from the government is exactly what you are doing. So, I mean, I 

don’t understand this. I really don’t understand why we are doing 

these personal accounts, because it is a situation where you are 

dismantling Social Security, but, more than that, the American 

people aren’t going to get a very good deal. 

Mr. PENNY. Madam Chairman, if I can respond quickly. 

First of all, in reaction to your reference to Senator Moynihan, 

he was the co-chair of the President’s commission. It is a 250-page 

report. His name is on it. It was a unanimous report. And it does 

include recommendations that include Social Security as part of, 

not simply as—or as personal accounts as a part of, not simply as 

an add-on to the traditional program. 

Secondly, your reference to the——

Mrs. MALONEY. Did the report include it as an add-on also? 

Mr. PENNY. One of the recommendations did; two did not. So 

check the report and look at the totality of the report which sort 

of lays out the arguments that undergirded our work and led us 

to some of the conclusions we made. 

Secondly, just to get the solvency, which is this longer-term problem beginning beyond the trust fund, let’s assume the trust fund 

is there and we redeem it somehow. You have got a program that 

can only provide about 72 percent of the promised benefits beyond 

2040. And so, yes, there are some recommendations in the President’s commission report that deal with how we keep the program 

financed for the longer term. 

What I want to clarify is that you can reject all of these recommendations, but you have got to replace it with something else. 

So you can either do it on the benefit side or the tax side or a little 

of each. All we are laying out is one or two or three different ways 

that you can get there. And if you want to attack all of those ways, 

45

at least admit that your alternative is going to have to raise the 

same amount of money over time. 

Thirdly—and here is where the personal accounts really do come 

into play—with these changes, which would be agreed to ahead of 

time as workers in the workforce would agree that in exchange for 

their personal account they would take some reduction in their 

basic benefit, that is a front-end decision. But every calculation 

that the Social Security actuaries made for us demonstrates that 

for low- and middle-income workers they end up doing better in 

total benefits at the end of the day than they would under the traditional system. So you have to look at this as a total benefit package. 

The other thing is this keeps the system solvent for the long 

term, whereas all these other cut-and-paste approaches still leave 

us with long-term insolvency in the system. If you are going to do 

this, do it once and get it done with. Don’t just tinker with it every 

20 years, as we have done in the past. 

Mrs. MALONEY. A fact check. The CRS study of March 31, 

2005——

Mrs. BIGGERT. The gentlelady’s time has expired. 

Mrs. MALONEY.—show that the fallback can effectively reduce 

total benefits 33 to 54 percent——

Mrs. BIGGERT. If you would like the senator——

Mrs. MALONEY. The purpose is—Congresswoman Biggert, we 

work very well together—is to get information and to study and to 

understand what is going on. If you hear something that you think 

is inaccurate and you have a CRS study that says the opposite, I 

think it serves the benefit of all of us to have the study put in the 

record so that we can all study it. I am not trying to be partisan 

in any way, one shape or the other, but this says that these benefits would be cut 35 to 54 percent, which is contrary to what he 

says. 

I know Mr. Penny. He will read it. He will read Schiller’s report 

because he is thorough. I served with him, and I have great respect 

for him. But if we are going to share information, we should have 

the opportunity to get it in the record and share it. Because we 

need to come together and solve this. And I for one would come together at any table if you take privatization off the table because 

of the reasons that we put forward and do it as an add-on, as the 

senator did in his private writings. 

I yield back, and I request permission to put these three studies 

in the record. 

Mrs. BIGGERT. Without objection, so ordered. 

Mr. SIMPSON. May I? 

Mrs. BIGGERT. Senator. 

Mr. SIMPSON. I don’t want to get into this, but I have to. 

I served with Pat Moynihan for 18 years. He was my mentor on 

the Environment and Public Works Committee. He was my mentor 

on the Clean Air Act, and on Social Security. I chaired the subcommittee. He would come—and I can assure you as honestly as 

I can that he did talk about personal accounts. Because where were 

all of these groups when Bob Kerrey and I—a Democrat—put together a package with personal investment—we called it PIP, perVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
46

sonal investment plan. I never heard anything. Where was the hue 

and cry then? 

Let me tell you, I cannot believe what I am seeing in America 

with this. Doing nothing is the path to insolvency. If personal accounts will cost you $3 trillion, $5 trillion, do you know what the 

cost is out there if you do nothing? It is horrendous. And what is 

being proposed by everybody? Nothing. Except the only two that 

really work, raise the payroll tax or cut the benefits. Quit crapping 

around. That is how you get there. If you really want to get there, 

that is how you get there. Any other stuff is babble into the vapors. 

But I can tell you, after this and listening as I have in America, 

I believe if you took personal accounts completely off the table that 

that would solve nothing in this atmosphere because it has become 

so politicized. Nothing. 

Mrs. BIGGERT. The gentleman from Georgia is recognized for 5 

minutes, Mr. Price. 

Mr. PRICE OF GEORGIA. Thank you, Madam Chair. 

I want to welcome each of you—I guess I should say to congratulate you for your patience and your tolerance of your backside for 

sitting there for this period of time. There is great advantage for 

asking late, there is also great disadvantage because you want to 

respond to everything that you have heard. But let me just make 

a few comments, and then I have a question about process, not policy. 

Just by way of potential clarification and to respond, I guess, Republicans fiercely, fiercely are dedicated to preserving Social Security. We are fiercely dedicated to preserving Social Security. 

Where did we come up with this ridiculous idea of personal accounts? I would draw your attention to Mr. Penny’s statement 

where he said in President Roosevelt’s 1935 message to Congress 

on Social Security he outlined a vision for ultimately extending the 

program to include, quote, voluntary contributory annuities by 

which individual initiative can increase the amounts received in old 

age, unquote. So it is not a new fabrication or something that we 

came up with out of thin air. 

There was a comment early on about what do we call it? Is it 

a crisis? The President calling it a crisis. The first time I heard crisis in this was in 1997 or 1998 from President Clinton who said, 

quote, it was a looming crisis, unquote. So I think that it is important that we quote individuals appropriately and attribute appropriately. 

Ms. Kennelly, you mentioned that personal accounts are not a 

good deal. Well, Social Security right now is not a good deal. The 

return is less than 2 percent. So Social Security currently is not a 

good deal. 

I have had all sorts of meetings in my district. I had a huge summit this past week where I had a hundred of the brightest high 

school kids in my district come together and talk just about Social 

Security for an entire morning. Every one of them favored personal 

accounts because they understand. I asked how many folks thought 

they were going to get Social Security. Not a single hand was 

raised. They understand. 

Now I want to put policy aside, because facts are tough things. 

You all have had great experience on the Hill here and great expeVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
47

rience with difficult issues. I would like to ask each of you, how 

would you recommend that we proceed from a process standpoint? 

How do we get through the poison that is obviously here to move 

toward what I believe must be a bipartisan agreement as we move 

forward? And I would like to hear from each of you. 

Ms. KENNELLY. Well, I will start, Congressman. 

When you say Social Security is not a good deal——

Mr. PRICE OF GEORGIA. I would like to talk about process. 

Ms. KENNELLY. But one-half of people over 65 would be in poverty level——

Mr. PRICE OF GEORGIA. I am interested in process. 

Ms. KENNELLY. What I have been saying all morning—and I 

have been here for two and a half hours or something like that. 

What I am saying is we are having a debate about what to do 

about Social Security. Should we take the traditional program and 

do what we have done—and I differ with Congressman Penny that 

we should finish it now. We have always had to adjust Social Security. We have adjusted it many, many——

Mr. PRICE OF GEORGIA. Do you have any thoughts about the 

process, about how we get to a solution? 

Ms. KENNELLY. Yes. You take the process, and you look at what 

you have to do. There is numerous ways that you can adjust the 

system. You don’t take big clumps. You take little adjustments. 

And you can do it. You absolutely can do it. 

Mr. PRICE OF GEORGIA. Thank you. 

Ms. KENNELLY. And don’t forget by the way, sir, that we have 

right now—and the senator gets upset about this, but you have 

time to do this. We should do it this year. But we should adjust 

the system so that we get ready for 2017 when more money is 

going out than coming in, and we can do it. 

Mr. PRICE OF GEORGIA. Thank you. 

Mr. PENNY. Well, I think the first thing, in terms of process, is 

to perhaps, without taking personal accounts and a long-term fix 

off the table, perhaps just talk about at the appropriate committees 

what it would take to prop up the status quo over the long term. 

Because what you will find is that it is a bunch of ugly stuff. Some 

groups will be more inclined to just raise the payroll tax a little 

here and a little there, a little more later. Others will actually talk 

about some benefit reductions that might be appropriate. Some 

might be means tested. Some might be more generalized. 

But there are no easy options.That is my point. And I think if 

you talk about what it takes to fix the current system, what it will 

convey to people is that, first of all, even that isn’t easy; but, secondly, almost all of those options are a worse deal for younger 

workers. 

So I think at that point it then leads into a discussion, what can 

we do at the end of the day that at least gives these younger workers the opportunity for something better than simply benefit cuts 

and tax increases? And I think it leads you back to personal accounts as part of the mix. 

The second thing I would say is never take anything off the table 

because I don’t think you are going to get a bipartisan consensus 

unless both sides are willing to look at everything the other side 

48

has to bring to the table. So it is a matter of process. I think that 

is important as well. 

Mr. SIMPSON. Madam chairman, let me just say when we had the 

commission with Danforth and Kerrey, we had an Internet computer game that said, okay, what do you want to do to make Social 

Security work? Send in your recommendation, and we will give you 

an idea how that feels. Not one thing came out that didn’t raise 

the hackles of one or two or 20 groups. It is all sheer pain, sheer 

pain. 

I can say to you—you asked the question—your only hope is a 

bipartisan commission in this atmosphere. That is your only hope. 

Nothing else. Nothing else. But if you are going to see people reject 

one thing, their favorite thing—that is how we never did a Clean 

Air Act—members would say: I won’t give up this under any circumstances; I won’t do this—you have to get in a room and finally 

say, okay, put it all out there, let’s quit this stuff. 

But I tell you, I am going to be very disappointed in a group of 

38 million Americans who won’t present a proposal of the AARP, 

and a member of that—I am deeply disappointed in Congresswoman Kennelly’s group of 4 million people who won’t present an 

alternative and they never will because they won’t ever, ever take 

the heat and lose members, period. 

Mr. PRICE OF GEORGIA. Thank you. 

Mrs. BIGGERT. The gentleman’s time has expired. 

The gentlelady from Wisconsin, Ms. Moore. 

Ms. MOORE OF WISCONSIN. Well, thank you, madam chairman; 

and it certainly is a privilege to be here before such a distinguished 

panel. 

I will get right to the point. I think the gentlelady from New 

York really raised some of the questions that I had, and I can start 

right away with Congressman Tim Penny. 

You stated on page 4 of your testimony that the Social Security 

actuarial data that you were looking at says that folk, even lowincome people, would be better off with the personal accounts than 

in the current existing system. I am asking you, first of all, did this 

actuarial model include the switch from the wage indexing to the 

price indexing and did it consider the 3 percent privatization tax? 

Is that part of the assumptions which indicate that the lower-income people would be better off? 

Because indeed, as Mrs. Maloney pointed out, the CRS analysis 

says that, literally, the Social Security benefit would disappear 

with those two changes combined, which is what we perceive to be 

the President’s proposal. 

You know—and without going into a long-drawn-out discussion 

of my own personal background, you are actually looking at the 

face of a person who would be most hard-pressed by major—by the 

loss of a Social Security system. I am extremely guilty of not saving 

every dime I can rake and scrape. I spent it on feeding and housing 

my three kids. And of course nobody told me to have any kids, but 

being a woman I had them anyway. So our parents and so on—

and, as a Member of Congress, of course I have joined the Thrift 

Savings Plan. 

I do agree that we need to save more. I do agree that Medicare, 

Medicaid are the real looming crises, which if, Senator Simpson, we 

49

are going to look at European models, we ought to look at having 

some universal healthcare to try to get some cost efficiencies in 

those programs versus destroying Social Security. 

But my question is really for you, and the others may add. 

Thank you. 

Mr. PENNY. The short answer to that is, yes, the benefit adjustments or the benefit reductions that were part of the commission’s 

report were taken into account when these estimates or projections 

were prepared for us. And they do demonstrate that, for the lowestincome workers, they end up being better off under the new system 

than they would under the traditional system, with all of that 

taken into account. 

Ms. MOORE OF WISCONSIN. With the price index. 

Mr. PENNY. With all of that taken into account, yes. 

And the other point is that we relied on the Social Security Administration actuaries to run the numbers on everything we did in 

the commission. So we weren’t sitting there with our own little set 

of economists coming up with our own numbers. We relied on the 

government bureaucrats who have worked their entire careers in 

this area to come up with the numbers and put a number on our 

proposals. 

The other thing——

Ms. MOORE OF WISCONSIN. Entirely different conclusion, so I——

Mr. PENNY. And I understand that, because even experts can 

come up with different assumptions about how they run their numbers. But we relied on the Social Security actuaries to run these 

numbers. 

The other thing, which is little known of our report, is that we 

did increase the basic benefit for the lowest-income workers, those 

that stay at low wage all of their lives, and that is a little-known 

fact in our plan. But we lifted that benefit to a level that would 

assure that no one, if they live on Social Security and nothing else, 

would be receiving an income level that was below the poverty rate. 

So you have got to look at this as a package deal, and I would 

recommend it. In addition to reading other reports about what the 

commission recommended, you should go to the commission documents and what the Social Security actuaries said about our report. 

Ms. KENNELLY. Congresswoman, I would hope it was a package 

deal, because the assumption was there would be a 4.6 percent adjustment in inflation, and I am not so sure we can count on 4.6. 

Also, don’t apologize if you didn’t save. None of us saved. Absolutely. But you talk about young people. We have heard about 

young people. None of us when we were young thought we would 

get old, let alone that we weren’t going to be lucky. And millions 

of dollars have been spent on young people to see that they would 

not need Social Security. But I tell you, 4.6 percent inflation, Congressman Penny, I think that is very high. 

Mrs. BIGGERT. The gentlelady’s time has expired. 

The gentleman from Minnesota is recognized for 5 minutes. 

Ms. MOORE OF WISCONSIN. Madam Chair——

Mr. SIMPSON. I would respond. She asked a question. It will just 

take a moment for me. 

50

I do hear you clearly, Congresswoman. Let me tell you how bad 

I am. There was a Social Security commissioner under the Republican administration who decided not to go tell the American people 

what was going to happen to Social Security. Moynihan and I went 

after her. I was in the majority. She said, well, I have a packet I 

am taking all over America to show how great Social Security is 

for young people. We looked at it and said, this is babble, absolute 

babble. And she would never answer our questions. She was dispatched, unRepublican—she was a Republican. 

That is where I am coming from. This is phony bologna. And I 

don’t care what party you are in. If you are going to go to young 

people and tell them they have nothing to worry about, that is bizarre, it is grotesque, it is sick. 

Ms. KENNELLY. That is not what I said. 

Mrs. BIGGERT. The gentleman from Minnesota is recognized for 

5 minutes. 

Mr. KENNEDY. Well, let me, first of all, thank all of you for being 

here for this extended period of time. We know it is a long period 

of time, and we appreciate you devoting the effort to be here as 

well as devoting the attention to really study the issues, because 

we need to have a firm debate. 

I want to especially welcome my fellow Minnesotan, Congressman Penny, who has been a strong, independent voice on this issue 

and many other issues. We appreciate his dedicated service and 

being with us here today as well. 

I think we need a debate. I think there is a lot of confusion out 

there. But part of where I am getting a little confusion—and if I 

may ask you, Congresswoman Kennelly, you said that everybody 

over 55 was not going to be touched, but then you also just said 

everybody gets cut. Now I am—which is it? 

Ms. KENNELLY. No, I absolutely agree with the President. Anybody 55 and older does not get cut. 

Mr. KENNEDY. So everybody doesn’t get cut——

Ms. KENNELLY. No, anybody 55 and older does not get cut. What 

I am saying is those 55 and older are worried about those younger. 

Mr. KENNEDY. Now one of the issues we haven’t really had a 

chance to dialog, and I will just mention the commission didn’t get 

a chance to really wrestle around, was the disabled, and you just 

made the statement that the disabled got cut. I don’t—I haven’t 

seen anybody’s proposal that cuts the disabled, and clearly I have 

no intent of allowing any of the disabled to be cut. What are the 

options? How do we make sure that in the end we get to that resolution in whatever is proposed here? 

And I just maybe put that out to each of you. What thoughts do 

we have to make sure——

Ms. KENNELLY. Well, what I said was that the Congressman’s 

commission didn’t address that. They said they only met 6 months, 

and they couldn’t address it. 

What I am saying is when you are talking about personal accounts, you are putting money into personal accounts, you have to 

grow those accounts. Now, the President says they will continue to 

grow up, and you will make more money. I just wonder how if you 

are 35 years old, you are riding home, get in an accident and you 

can’t earn any more money, how do you grow that account? I 

51

haven’t heard any answer to that. I do know that with disability, 

Social Security pays. When you are disabled, they pay you for the 

rest of your life. 

Mr. PENNY. I will speak to this, but not on behalf of the commission. I tried to be clear today when I am responding to something 

that grows out of my commission work and when I am not, and on 

this one the commission didn’t come to any recommendations in 

that regard. 

My own personal view is that you really have Social Security 

that is in two different pieces. We call it all insurance, and technically under law it is an all insurance program where one generation of workers pays money in with the intent to draw these benefits later. But most people think of the Social Security retirement 

piece as a retirement program, not as an insurance program. But 

we all understand the disability and the survivor’s benefits to be 

an insurance program. 

Frankly, when you think about insurance, it is to protect against 

something you hope will never happen. There but for the grace of 

God go I. I might need disability. I might be in a survivor’s circumstance. 

So I think really it is defensible to say that as we address Social 

Security’s future we separate that part of the debate out. You 

might have a totally different approach to dealing with that piece 

of the Social Security system, and then we can isolate and have a 

different discussion about what we ought to do with the retirement 

piece. 

Mr. SIMPSON. I would ascribe to that totally. The confusion comes 

from people not understanding what it was to be when it started. 

It was an income supplement. That is what it was, nothing more, 

nothing less. And from that we added to it because we are compassionate people. 

To hear Democrats and Republicans saying that one side or the 

other is not going to protect the insolvency, I agree with the Congressman here, this is absurd. To get up and say that Democrats 

are the only ones that fiercely want to protect the solvency, hell, 

there are millions of us as Republicans that want to protect the solvency too, and you can’t do it with the status quo. Everything that 

you are going to lose if you did this hideous thing of, quote, privatization is peanuts compared to what is going to happen on the outyears to young people. 

Mr. KENNEDY. Well, I would just conclude by saying I think you 

are right, we all are committed to making sure Social Security is 

there for seniors. When my parents rely on it, we are going to 

make sure it is there. 

And, Congressman Penny, you are right, there is added confusion 

with having two separate sort of objectives, the one of disability 

and survivors, which nobody wants to allow that to really change 

because we do want it to be there for us or our family or anybody 

we know if that comes, but we sometimes have some confusion. So 

I just thank you for being here. I would encourage everyone to try 

to approach this in a factual way so we can enlighten the public, 

as opposed to confuse the public. 

Mrs. BIGGERT. The gentleman’s time is expired. 

52

The gentleman from Missouri, Mr. Cleaver, is recognized for 5 

minutes. 

Mr. CLEAVER. Thank you, Madam Chair. 

Those that are kind enough to be here are probably interested 

in having lunch. I am assuming that you are normal humans, so 

you want to go probably——

Mr. SIMPSON. We do want to go——

Mr. CLEAVER. Senator, I agree with you. I think the only way we 

are going to come up with an acceptable plan for the solvency of 

Social Security is through some kind of bipartisan work. That is 

why I have wondered why the President has not invited into the 

White House the leadership of both parties and say to them and 

then say to the Nation, I am asking for a bipartisan plan to come 

out of Congress, and I would like for you to start on it immediately. 

I mean, I have been waiting on that to happen. Can you help me 

understand why it hasn’t? 

Mr. SIMPSON. I would say there are a lot of things that I am disappointed in with presidents I have worked with, and I have 

known 11 and worked with four—three—and I never agreed with 

all of them. I enjoyed President Reagan and President Clinton. I 

enjoyed the first President Bush, a close friend. I knew President 

Jimmy Carter. So I can only say I don’t know why they don’t do 

that. 

I am disappointed when I see things happen where people aren’t 

invited to the White House. I was disappointed when I watched 

this House for 40 years, where they just ate Republicans alive; and 

now I am disappointed when they eat Democrats alive. So that is 

me. I am a rather independent soul. 

But I can tell you, you are going to have to do it. You are going 

to have to do it with a piece of legislation that says this Congress 

will appoint—will form a bipartisan commission consisting of—you 

will have your appointees, the President has his appointees. Just 

say it won’t get done, and then just go ahead and do it. 

Mr. PENNY. I would concur with the senator’s comments. 

But in coming to the table, whether it is the leadership being 

called to a discussion, which then grows into some sort of a negotiation, or whether it is a commission, it has to be done with the 

respect that both sides deserve, which is to say both sides are allowed in this process to bring anything and everything to the table. 

It can’t be preconditioned that your ideas—I will only talk to you 

if your idea is off the table, or vice versa. 

Mr. CLEAVER. But I think one of the things that Democrats are 

saying is that—I know one of the things we are saying is that we 

don’t want to make the American public believe that privatization 

is a part of the fix. So as long as we are saying that we are in need 

of preserving Social Security by having privatization, we are not 

being quite honest with the public because that is not a part of it, 

of any plan that would solve our problem. 

And of course someone—my colleague from Georgia said that 

President Clinton said there was a looming crisis, President Bush 

said there was a crisis, and that is not synonymous. Looming crisis 

and crisis are not synonymous. 

But the point I want to make is I agree with you probably more 

than I disagree in terms of the need for us to sit down and come 

53

up with a bipartisan solution. But I think one of the problems we 

are going to have is that if the public is told that privatization is 

a part of the solution then I think that runs away at one-half of 

the team needing to deal with the problem. 

Ms. KENNELLY. Congressman, one of the most interesting statistics—and I don’t know if the Chairwoman knows this—but in 1983 

there were more Democratic votes in the House that voted for the 

solution and more Republican members in the Senate that voted. 

That is truly bipartisan, and I think that is where we have to go. 

Mr. PENNY. If I might respond to your comment about whether 

everything ought to be on the table. It seems to me that there is 

some comparability between one side saying they will talk about a 

solution but we can’t bring up taxes and the other side saying we 

will talk about solution but we can’t bring up personal accounts. I 

think that there is no harm in having it in the mix. In fact, there 

may be a lot of reason in the final analysis to have it in the mix. 

Because a solution without personal accounts somewhere in the 

equation is essentially a solution that will rely on tax increases 

and/or benefit cuts, which to the next generation of workers essentially means pay more, get less. And I think personal accounts 

have a place in this debate. 

I also would suggest that if you look at the various analyses that 

has been done about long-term solvency in the program there is 

something to be said for personal accounts as a way of replacing 

what you might have to give up anyway just to shore up the current system. So in some respects it gives the younger workers an 

opportunity to earn back what they otherwise might be losing in 

a basic benefit cut or losing through higher taxes that don’t buy 

them any added benefits. 

So, again, I just think there is no reason to leave that out of the 

discussion if you are going to come to the table and look at all options. 

The last point is, you are right, Clinton said it was a looming crisis, Bush should have said it was a pending crisis. Because that 

change in terminology does acknowledge that we are that much 

closer to the crunch point and we need to think a lot more seriously 

about this issue or we will soon be in the crisis. 

Mrs. BIGGERT. The gentleman’s time has expired. 

Mr. CLEAVER. Thank you. 

Mrs. BIGGERT. Seeing no further questioners, the Chair would 

like to thank all the honorables for being here—Alan Simpson, Barbara Kennelly and Tim Penny—for just a spirited hearing and also 

one that gave us a lot of insight and a sense of history into this 

issue. We really appreciate you being here. Thank you very much. 

Now I would like to welcome the second panel, if you would come 

forward and take your seats. 

This is panel number two: We have Sheryl Garrett, who is the 

founding principal of Garrett Financial Planning, now Financial 

Planning Firm, headquarters in Overland Park, Kansas. Ms. Garrett is a certified financial planner, and for the past 3 years she 

has been named one of the top 25 most influential people in financial planning by Investor Advisor Magazine. 

Next is Dallas Salisbury, President and CEO of the Employee 

Benefit Research Institute, a nonprofit bipartisan organization 

54

founded in 1978 and focusing on policy, research and education on 

economic security and employee benefits. 

Third is Hans Riemer, who is the Washington director of Rock 

the Vote, a not-for-profit organization founded in 1990 to engage 

young people in the political process. He is also the founder of the 

20-30 Center of Public Policy Organization for Young Adults based 

in Washington, D.C. 

We thank you for your patience. I know it has been a long morning. So let’s proceed as quickly as possible. 

Mrs. BIGGERT. We will start with Ms. Garrett, and you are recognized for 5 minutes. 

STATEMENT OF SHERYL GARRETT, CERTIFIED FINANCIAL 

PLANNER AND FOUNDER, THE GARRETT PLANNING NETWORK 

Ms. GARRETT. Thank you, Madam Chairman. 

It is my extreme honor to be here and be part of this process. 

It is quite enlightening, to say the least. 

As you mentioned, I am a certified financial planner. However, 

I have recently retired from working with individual clients. 

I have received a lot of attention during my career for working 

with normal people, everyday rank and file. Some of the folks in 

this room earlier were mentioning ditch diggers and teachers and 

all those types. I work with all of those types. Very, very connected 

with individuals from all walks of life, and that is my claim to fame 

in the financial planning area. 

Everyone has questions about their money at some time or another; and everybody deserves access to competent, objective financial advice on their terms. The popularity of this service model has 

been so great that in the year 2000 I launched the Garrett Planning Network to train and support other financial advisors in 

working with clients as I do. We now have over 250 members 

across the country, and growing rapidly, to help serve the needs of 

everyday people to answer those questions, to help them with what 

they need to do about financial planning. It is the mission of our 

organization to make competent, objective financial advice accessible to all people. 

The role of the financial planner or the financial advisor is one 

of the most important and rewarding roles or jobs that I could ever 

imagine. We have the responsibility to consider all the 

potentialities and help clients consider all pertinent issues, the 

risks they might face, and what strategies they might have available to them. However, the majority of financial planning and 

smart money management decisions really aren’t all that complicated. 

There is only so many variables involved. One of the most important variables, we can spend less and save more now. Unfortunately, too many people don’t believe that they have any control 

over the amount of money that they spend now or in the future. 

For most persons this is simply not true. We have much more control than we are willing to take on and enforce on our families or 

ourselves. 

Former generations have had to do this. They could only spend 

what they had. There was no such thing as EZ credit. Most Americans spend at least 100 percent of their net paycheck. One of the 

55

solutions to that is don’t let it come home. Get it invested in that 

thrift savings account or that 401(k) or the Roth IRA before it 

comes out in the paycheck. That is one of the things that we have 

to do. 

Spending less in retirement is another variable. Unfortunately, 

that is what most of us will be facing is spending less in retirement 

than what we are living on now. We are going to only have what 

we have saved, hopefully some Social Security, and possibly some 

kind of a company pension. We must make adjustments, just like 

everyone before us did. There are no other options. 

Getting better returns on our investments is another variable 

that we all strive for. However, unfortunately, too many retirement 

plan participants take what they deem as an ultra conservative 

view and invest their money in hypersensitive, low interest rate 

money market type fixed income investments in an attempt at 

being conservative. And unfortunately, that is exactly the opposite 

thing that is happening. 

Fortunately, there are excellent resources available on the Internet. One of my favorite is at TIAA-CREF.org where an individual 

can go in and determine what an appropriate asset allocation 

should be for them. There are wonderful tools out there at our disposal. However, everyone needs to have money invested for growth 

to offset the effect of inflation, and the younger we are the more 

important it is that we have money invested for growth. 

Inflation is the biggest or one of the biggest risks that we individually face in our long-term financial security. We can not afford 

to allocate too much of our money to short-term fixed income investments. We cannot afford to remain ignorant or complacent regarding our financial futures. If citizens are truly aware of the lack 

of security in our current Social Security retirement program we 

will make adjustments to take care of ourselves in retirement. 

In my planning work, clients under age 40, we count zero of Social Security in their retirement projections. For those individuals 

between 40 and 65 I discount that benefit by at least 50 percent 

and assume only a 1 percent cost of living adjustment. 

I am 43 years old. By the time there is going to be some hard 

hit adjustments in this program, I am just entering into retirement. It is affecting me, not just my kids and grandkids. 

The most important thing that we really have control over, one 

of those variables I mentioned, is working longer. It is the most significant and controllable variable that most Americans have at our 

disposal is how long we remain in the work force. 

In 1950 almost half of men over age 65 were still in the work 

force. Today that number is less than 20 percent. We are saving 

less, living longer and retiring earlier. Why are we surprised that 

we cannot afford to maintain our standard of living in retirement 

when we spend as much time in retirement as we do in the work 

force? 

Fortunately, one of the healthiest things that I am seeing is people are talking about working longer and talking about staged retirements. We have to be realistic about Social Security. Dramatic 

measures must be taken to ensure long-term solvency. Our citizens 

must recognize that living in the land of the free comes with responsibilities, responsibilities to care for ourselves now and in the 

56

future. We are free to screw up and we are free to succeed. But we 

must be held accountable for our own financial futures. 

Thank you. 

[The prepared statement of Sheryl Garrett can be found on page 

82 in the appendix.] 

Mrs. BIGGERT. Thank you very much. Mr. Salisbury, you are recognized for 5 minutes. 

STATEMENT OF DALLAS L. SALISBURY, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, EMPLOYEE BENEFIT RESEARCH INSTITUTE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AMERICAN SAVINGS EDUCATION COUNCIL 

Mr. SALISBURY. Mr. Chairman, thank you. It is a pleasure to be 

here. 

I just note that one issue that was mentioned earlier is the issue 

of longevity. And my 91-year old father and 88-year old mother—

the words must take care of themselves, they did things right. 

They saved, they annuitized. They sold their home on a reverse annuity mortgage for 20 years. They sold an apartment house on a 

25-year mortgage. Regrettably, in quotes, they are still alive. And 

Social Security is what they now live on. And so the longevity aspect of this, along with working longer, should not be overlooked. 

I was asked first to talk about the connection between financial 

literacy retirement security and Social Security reform. And I 

would simply note that last point. Risk is something that people 

need to deal with. The risk of outliving one’s assets, the risk of living too long, the risk of poor health, of not saving, of excessive 

debt, of excessive interest expense. 

Financial literacy for those that are lucky, like those that were 

here today, who have Social Security plus a Federal pension, plus 

the Federal thrift plan, frankly, they don’t need to know much. 

Those who don’t have those special benefits, who are low income, 

who don’t have the capacity to save much at all, they need intense 

financial literacy and training. It is required for the present Social 

Security program and the knowledge of when I will be eligible for 

benefits, only 18 percent of Americans know that. How much the 

benefit will be, only 21 percent of Americans know that. And how 

to constrain spending to income to meet program needs. 

Reform that includes individual accounts requires far greater 

knowledge than the American public has today. And learning from 

experience, from programs like the Federal thrift plan can help. 

Research has documented a number of approaches mentioned earlier today that would improve outcomes. Automatic enrollment, 

automatic contribution increases, pre-diversified investment options like life cycle funds, matching the contribution the individual 

is asked to make and someone to talk to when they need help. 

Second, I was asked to address EBRI’s involvement in another 

government initiatives on financial literacy. We joined with other 

organizations in 1995 in the public and private sector to form the 

American Savings Education Council. Those groups then joined together in that same year to create the Jump Start Coalition for 

Youth Functional Literacy. We worked with Congress in 1997 to 

draft the SAVER Act. Working with the Department of Labor, we 

launched Choose to Save national public service campaign in 1997. 

57

For nearly 10 years we have worked with the ASEC government 

interagency group that comes together several times each year to 

coordinate efforts on financial education and financial literacy. National summits on retirement savings were held in 1998 and 2002 

and presenting new financial literacy opportunity when another 

one is held by statute in 2005. The FCC, OPM, DOD, the Federal 

Reserve, the Social Security Administration, the Extension Service 

and many more continue to hold investor education forums around 

the Nation and have done so for the last 10 years. 

Now, as was mentioned earlier, the Financial Literacy Education 

Commission is completing its analysis and the formulation of a national strategy for financial literacy. FLEC has established a consumer resource web site, mymoney.gov and 1-800-mymoney number that allows individuals to request a tool kit of publication. 

Every Congress Member should urge their constituents to call that 

number. A new Choose to Save public service announcement will 

soon begin airing that urges Americans to visit mymoney.gov. 

Third, you ask about the status of financial literacy programs 

and their relevance to retirement security and Social Security reform. Hundreds of public and private groups across the Nation are 

now working on financial education and financial literacy. School 

curriculums have been developed and are being delivered. Teach 

the teachers programs are taking place around the Nation. 

The FLEC strategy should reinforce these efforts and provide a 

framework for increased coordination. No Child Left Behind will be 

adding financial literacy questions to exams and many school districts are already expanding what they teach our Nation’s children. 

There is much more to be accomplished but much is already being 

done. 

Financial literacy is a key to retirement security as it can move 

individuals to plan and budget, to save while managing credit and 

it can assure that they do not choose to retire before they have sufficient resources to allow security. Financial literacy is important 

to Social Security reform in the same way as knowledge of the program, its age provisions, its benefit levels and its options will be 

essential for decision making. 

With financial literacy comes the knowledge that if you choose to 

save for your future, you gain freedom of independence. Out of 

that, we have often had the message if you don’t want to work forever, you do need to choose to save. 

I would conclude with three factual notes. In terms of prior discussion, the data does show that simply taxing all earnings in the 

economy would in fact provide 75-year financial solvency for Social 

Security. The Social Security actuaries say that that would provide 

98 percent of financial solvency. 

Secondly, that the Senator previously stressed, the issue of TSP 

and of change. I would simply underline in terms of financial literacy the issues of health care expenses and long-term care expenses, huge financial needs that there is a need for financial literacy education on. 

Thank you. 

[The prepared statement of Dallas L. Salisbury can be found on 

page 99 in the appendix.] 

58

Mrs. BIGGERT. Thank you so much. And I would like to personally thank you for all you do. It is a subject that is very important 

to me and I think to the Nation. 

Mr. Riemer, you are recognized for 5 minutes. 

STATEMENT OF HANS RIEMER, WASHINGTON DIRECTOR, 

ROCK THE VOTE 

Mr. RIEMER. Thank you for the opportunity to present our views 

today. My name is Hans Riemer. I am the Washington Director for 

Rock the Vote. As an advocate for our one million members and 

supporters, Rock the Vote believes that all Americans can learn 

how to invest for their future. 

At the same time we also believe that everyone should have a 

basic safeguard to protect them if they are unsuccessful with their 

personal investments. That safeguard, which is Social Security, 

should be sufficient to protect a middle class standard of living 

while at the same time lifting low income workers out of poverty. 

We make it a point to emphasize with young people that if you 

want a decent quality of life when you are older, then you must invest on your own by fully participating in pension, 401(k) and IRA 

type plans. Social Security will be a floor or a basic protection, but 

it is not intended to provide your entire retirement income. 

You must save for your working life beginning at the youngest 

possible age. There is a world of difference, however, between the 

message, don’t count on Social Security to be your only income, and 

don’t count on Social Security at all. Many young people have come 

to believe that they should not count on Social Security for anything. 

It is no mystery why they would think that considering the constant media reports about Social Security’s impending bankruptcy 

which strongly implies there will be no money for future benefits 

and that Social Security Administration will have to close its doors. 

Many advocates of privatization have also fostered this impression. Consider the remarks of President Bush who recently said 

without changes this young generation of workers will see a UFO 

before they see a Social Security check. 

In fact, Social Security is not going anywhere. Since current 

workers pay the benefits for current recipients, the only way that 

the program would disappear is if there were no workers paying 

into it. Clearly that is never going to happen. While there is indeed 

a decline in the number of workers paying into the fund relative 

to beneficiaries, there are still more than enough workers to make 

ends meet. 

If the goal of promoting financial literacy is to empower people 

to understand their personal financial situation and take action to 

improve it, a good starting point would be clearing up this unfortunate misunderstanding about whether Social Security is going to 

disappear. 

According to the Center for Economic and Policy Research, an average income 21-year-old is promised nearly $24,000 per year in retirement benefits from Social Security. After 20 years, that is 

$480,000 in today’s dollars. Now the shocking news is that even 

without changes for the entire lifetime of a typical young adult, Social Security has enough money to pay 70 to 80 percent of his or 

59

her benefits. That is not perfect but it is not bankrupt. In fact, our 

so-called bankrupt Social Security program can provide with no 

changes at all benefits to future generations that are larger than 

people are receiving today. I wish my 401(k) could be bankrupt like 

that. 

So why are we hearing that dramatic changes are needed to 

avert bankruptcy? In our view, these statements are designed to 

stampede young people into supporting proposals that they would 

reject if presented a full accounting of the facts. 

A February 2000 survey that we conducted shed some light on 

this question. Our conclusion from the research was that the more 

young people learn about private accounts the less they like them. 

Here are two examples from the survey. sixty three percent of 

young people would oppose private accounts if it meant, quote, 

massive new Federal debt in order to pay current benefits. Well, 

according to the Center on Budget and Policy Priorities, the administration’s Social Security plan is likely to require nearly 5 trillion 

in new borrowing over the next 20 years. 

seventy percent would oppose private accounts if it meant, quote, 

cuts to your guaranteed benefits would be so severe that you could 

not make up the difference with money from your private account. 

I ask you to consider the plan introduced by Senator Graham, and 

I quote from the Center on Budget and Policy Priorities. 

‘‘Under the plan, the retirement benefits for typical wage earners 

who are 25 to 35 today, including the monthly income from their 

private accounts, would be twenty seven percent or $4,900 lower 

than what they receive under the current benefit structure....this 

benefit cut is larger than the cut that would be needed if no action 

were taken to shore up Social Security’s finances.’’

Other polls have also demonstrated a rapid erosion of support 

among young people for private accounts. The Pew Research Center survey released in late March, for example, finds that, quote, 

people under age 30 who have heard a lot about the proposal are 

more than twice as likely as their less engaged peers to oppose the 

idea. 

Fortunately, there are many changes for Social Security that 

young people would likely support. For example, raising the 

amount of income subject to Social Security taxation. Most young 

people have no idea that you stop paying Social Security taxes 

today once you hit $90,000 approximately, since they never earn 

anywhere near that amount. It is a loophole so big that Bill Gates’ 

entire income can pass through. Making the tax fairer would be a 

big step in the right direction. Most important, that is the kind of 

change that can preserve the essential guarantee. 

As the pension system has changed around us, today’s younger 

workers, more than any generation to come before, are responsible 

for investing on their own for most, if not all of their income above 

Social Security. Perhaps that is why so many young people are telling us we want that guarantee to be there today and tomorrow. 

To address their concerns and to promote financial literacy 

among today’s youth I ask you to join us in saying don’t be fooled, 

Social Security is not going bankrupt. 

Thank you for your time. And on behalf of our members, thank 

you for inviting Rock the Vote to be present today. 

60

[The prepared statement of Hans Riemer can be found on page 

96 in the appendix.] 

Mr. BACHUS. [presiding.] Thank you. Without objection, the testimony submitted by the National Association of Investors Corporation and the statement of Susan Molinari, Americans for Consumer 

Education and Competition will be placed into the record. 

[The following information can be found on page 116 in the appendix.] 

Mr. BACHUS. At this time I guess I will recognize myself for a 

question. Mr. Riemer, let me ask you this. You are talking about 

most young people in you all’s survey oppose personal savings accounts or personal investment accounts. 

Mr. RIEMER. Yes. We conducted a survey where we asked people 

if they favored them and we worded it quite neutrally. Do you favor 

private accounts? And then for the group that did, we followed up 

and said would you favor it if it meant this, X, Y, or Z? 

Mr. BACHUS. What about the—you were sitting back there during the first panel—the thrift savings accounts. Do you know the 

worst you would have done under those accounts? 

Mr. RIEMER. I am sure you could tell me. 

Mr. BACHUS. The worst you would have done if you had made all 

the wrong decisions would have been 4.3 percent annually. Now, 

that includes what we had as a stock market meltdown a few years 

ago of historic proportions. But the worst you would have done is 

4.3. The best you would have done is 11 percent. So most Federal 

employees have earned on their money in these accounts between 

4.3 and 11 percent. You know, the worst—if you made all the worst 

decisions, you still had 4.3 percent. 

Do you know what the return on Social Security is in the rate 

of return? 

Mr. RIEMER. Well, I actually don’t believe that is really a valid 

calculation. 

Mr. BACHUS. Well, now that is what people would get back. You 

think there is something wrong with the calculation? 

Mr. RIEMER. I think it is a misleading calculation. 

Mr. BACHUS. How is it misleading? 

Mr. RIEMER. Well, because Social Security provides—can you 

imagine a 401(k) that could provide disability insurance, life insurance? 

Mr. BACHUS. Oh, no. I am talking about on the survivor’s insurance part. 

Mr. RIEMER. But that is part of the cost side of the program. 

Mr. BACHUS. I am not talking about on the disability. I am talking about on the——

Mr. RIEMER. Well, it is my contention that you can’t separate 

them out as cleanly as some would suggest, and a 401(k) that 

could——

Mr. BACHUS. Well, actually the way you separate them you take 

the contribution for the disability part and you back that out and 

then you are left with the 5.2, I think it is, that goes in, of the 

wages that goes in for the survivors insurance fund. And then you 

calculate what people have gotten back over the several years. And 

then you get what is the rate of return. But I wonder, do you know 

what that rate of return is? 

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Mr. RIEMER. I suspect it is exactly the same rate of return that 

a 401(k) would get if it could do everything that Social Security 

does. 

Mr. BACHUS. But they don’t. They——

Mr. RIEMER. Exactly. 

Mr. BACHUS. Because it is loaned to the government. The rate of 

return now is about 1.6 percent, between 1.6 and 1.8 percent. And 

I just—I guess my question would be, if young people had a choice 

on investing in a fund that yielded 1.6 or 1.8 return and one that 

yielded somewhere between 4.3 and 11 percent, you know, I think 

they would all choose that second account. 

Mr. RIEMER. Well, I believe that the thrift savings plan is a good 

plan, and the thing that I like particularly about it is that it comes 

on top of Social Security, and I wish that everyone had that kind 

of option. 

Mr. BACHUS. What if we took—you know, President Roosevelt’s 

original—his original proposal and his Social Security for the first, 

I guess, 15 years functioned with a 2 percent tax. You know, employees put in one, employers put in one. What if we set the rate 

at 8 percent, which is where it was about 12 years ago, and then 

we allowed folks to either choose—they could put the other 2 percent into a personal savings account or they could put it into Social 

Security. Would you be opposed to giving them that choice? 

Mr. RIEMER. So that would be a mandatory increase? 

Mr. BACHUS. No, it would be a voluntary thing. They could either 

put it into—they could continue to have it in Social Security, or 

they could elect to put it in to a thrift savings. 

Mr. RIEMER. I am not sure that I really understand. Are you asking if people were allowed to save money in addition to the Social 

Security tax that they currently pay? 

Mr. BACHUS. No. What you would have to do, you would have to—because one out of every $8 is going into Social Security now. 

So, you would have to reduce that somewhat, because I don’t know 

that—I am not sure, do you think the American workers are capable of putting more than one out of $8 into Social Security? I 

guess——

Mr. RIEMER. You mean taking money out of the Federal budget? 

Mr. BACHUS. Well, let me maybe just ask you this. The rate of 

inflation and the interest rate are both above what the rate of return is on Social Security. And that seems to me like we are not 

getting a very—a good rate of return for Social Security. Do you 

agree with that? 

Mr. RIEMER. No. I think Social Security provides a good rate of 

return. 

Mr. BACHUS. Okay. 

Mr. RIEMER. It lifts Americans out of poverty. That is the rate 

of return that the program provides. 

Mr. BACHUS. But don’t you think a bigger rate of return would 

move them that far away from poverty, I mean even further away? 

Mr. RIEMER. Naturally it is a balancing act between the maximal 

rate of return and the maximal reduction of poverty. 

Mr. BACHUS. My time has not expired because there is nobody 

else seeking time right now. I don’t see anybody. Everybody else is 

listening intently. So I will ask——

62

Ms. GARRETT. Sir, could I add to that question? 

Mr. BACHUS. Would you like to respond? 

Ms. GARRETT. I would. Being a younger financial planner, and I 

am always going to hold to that position, regardless of my age, I 

tend to attract a lot of younger clientele. So I am working with people in their 20s, 30s, 40s, 50 years old. These individuals are having absolutely no problem with me not counting Social Security in 

their long-term retirement projections. However, we say that hopefully there will be some sort of benefit there. We just don’t know 

what it is going to look like. It will change. It has to change. 

I mean, we know that something magical is going to happen. 

Well not in a magical positive sense, but something definitely is 

going to happen between now and 2040 or whatever year we happen to come up with, because every time you recalculate it is a different number. But some time in my early retirement years there 

is going to be a major change needed or a change in benefits. 

When I talk to younger clients about these issues, they would not 

like to rely on their financial solvency, their personal financial 

planning, they don’t want to count on Social Security as even one 

of the three legs of the stool. That is a very rickety leg that we are 

talking about. It needs to be firmed up. It is an important part of 

it and, yes, it does need to be firmed up. I do not want to eliminate 

it. 

However, the most important component are—the folks that I 

have been working with over the years are recognizing is that 

there are two other legs of this stool from the original plan. It 

wasn’t always just Social Security. We need to be responsible for 

the other two-thirds. And the folks that I am coaching, we are talking about let’s deal with the whole retirement need, how much capital do you need to be able to sustain your retirement. Let’s accumulate it all based on these assumptions, and if we happen to get 

some Social Security, wonderful. 

However, there may be some unexpected health care costs that 

we haven’t factored in that is going to wipe those out. So I think 

from a financial planner’s perspective the only prudent thing that 

we can do, given what we know today and what is on the horizon, 

regardless of how changes occur, is to not count full benefits for 

those between age 40 and 65, and not count any benefits for those 

under 40. 

Mr. RIEMER. May I? 

Mr. BACHUS. Yes. 

Mr. RIEMER. It is an interesting observation. I am actually going 

through the process now of—I just recently bought a house. And I 

can tell you that if I thought I had to save enough for my future, 

discounting Social Security, I wouldn’t have been able to afford a 

house. I couldn’t pay my mortgage. So I think the observation that 

you have made certainly works for people in a position of financial 

privilege. But particularly for the lower income and middle income 

part of America, that is not a decision they can really afford to 

make. 

Ms. GARRETT. Actually the folks I am speaking of are middle income, are very much middle income. And one of the things that we 

do have going on that is outside of the discussion, but the housing 

market. I mean, I did a presentation in southern California reVerDate 0ct 09 2002 12:17 Oct 06, 2005 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 G:\DOCS\23616.TXT FIN1 PsN: MICAH
63

cently, talking to a group of near retirees, and an individual said, 

I have got $400,000 of equity in my home and $100,000 in my retirement account and I want to retire in 3 years. What should I do? 

And I said, move to Kansas. 

How else are we going to be able to make ends meet if we don’t 

make those adjustments? Sometimes it may mean that we have to 

sell our home in a more expensive part of the country and relocate. 

You know, we have heard the term ‘‘menu of pain.’’ there are a lot 

of things that we are going to have to do as a country and we will 

have to do as citizens to be able to make ends meet. It is not going 

to be pleasurable, but it is all critical. 

Mr. BACHUS. Okay. Thank you. Mr. Salisbury, do you have any 

comment? 

Mr. SALISBURY. I just add a comment vis-a-vis the base, which 

is in the modeling we have done that is presented in the testimony, 

if one looks at somebody born in 1975 who is 30 today, the current 

law maintenance of Social Security would produce an annual benefit of $11,200. Simply saying we are not going to raise taxes and 

doing a purposeful gradual reduction in the benefit formula would 

cause that person to get still $9,600, and that is essentially into 

perpetuity. That is not just 75 years. 

So I think per the discussion, one of the important messages that 

the Congress should be giving people and youngsters particularly 

is there will in fact be a program there, even if, in quotes, taxes 

are held at their current level. If you move to somebody born in 

2015, their benefit under the current program would be $36,500 because of the current indexing formulas. Even with gradual reductions so that you did not increase taxes, that individual would end 

up with a benefit of $24,500 per year in today’s dollars. And so——

Mr. BACHUS. Well, how much—they would pay in—there would 

be 12.6 percent of their wages would be paid in either by them or 

their employer, right? 

Mr. SALISBURY. Absolutely. That would be. But I am just—I will 

go the next step, which is, I guess a family values issue, is I look 

at Social Security probably as the most effective, should we say, 

avoider of a divorce in America that could have ever been imagined. I view every dollar I pay in payroll taxes at this point because 

it is in supporting my mother, my father, my mother-in-law and my 

father-in-law. And as a practical matter, I would not want to have 

to sit down at the kitchen table with my wife of 31 years and negotiate those monthly transfers to my parents. So my rate of return, 

I will view my rate of return as 100 percent, and per your question 

of how one calculates. 

And as a matter of communication with young people, when I 

talk with their now both grandchildren and great grandchildren 

about this and you explain this to them in the context of what family transfer means and what the payroll taxes mean, as opposed to 

thinking of it, in quote, as an investment account. 

Your points are well taken. If one adds some type of a defined 

contribution account on top of whatever the Social Security benefit 

is, the individual is clearly—because that benefit as designed by 

most individuals talking about it would go to the individual. That 

is an individual account. It is not an insurance pooled arrangement, and it will definitively create a higher rate of return. 

64

Somebody who lives to 91 today gets a—or I—my genetics are 

such, I have an aunt at 105. I will probably live to a hundred. I 

will in fact get a far greater rate of return out of Social Security 

than the percentage that you cited. 

On the other hand, my grandfather on my mother’s side died 3 

months after he began receiving Social Security. His rate of return 

was nowhere near what you just described, even though he died in 

1954. 

So that is my only comment on the rate of return analysis, is 

averages can be very misleading. And that is an average return 

which is accurate in the way it is calculated, but it also, in comparison to an investment account, somebody with long longevity 

versus short longevity, it depends on how you do the calculation. 

Mr. BACHUS. What about—you know, I am just looking at myself. 

I pay, you know, if you talk about it as an insurance, as strictly 

insurance as opposed to investment, I am paying for a million dollars worth of insurance. I am also, you know, paying into Social Security. What I pay in for that insurance costs much less—I mean, 

even an annuity. I will use that as an example. My father had Social Security. He had an annuity. He lived to be 87. But his annuity paid him within—well, I think the Social Security was $12,000 

a month. His annuity was a thousand a month. But his annuity, 

he paid much less into his annuity and he only paid in for 15 years. 

And yet he got back almost the same thing. 

Mr. SALISBURY. It would depend on what period. If you take the 

individual’s 25 percent of today’s retiree, his only benefit is Social 

Security, the annuity value for average life expectancy for that individual is about $250,000. You multiply that to the 24,000, roughly, 23 to 24, that is the maximum benefit, that annuity value at 

today’s dollars is about $750,000. And you then have the disability 

issues, but you also, per my family point and others, if somebody 

lives to 91 or 105, that throws off the calculation. 

So I think your point is the combination of thinking and dividing 

really what portion of Social Security does the Congress feel it is 

justified to maintain as a base benefit program in which rate of return really is not, in quotes, a relevant factor, versus what portion 

of the program would you want to move to, in quotes, an investment type of portion. And obviously, those can go from zero to 100 

and in either direction as a matter of policy. And that is the challenge you and the Congress face. 

Mr. BACHUS. Do you think that FDR, when he first proposed it, 

you know, as he proposed it, it was workers could take one out of 

every $100 they earned. Do you think he envisioned that as a system that would get up to 6 or $700 out of every dollar? 

Mr. SALISBURY. I doubt that he envisioned any direction on it. As 

you know, the program was created because of the circumstances 

of the Great Depression. And essentially it was the only way to 

allow some people to move out of the labor force and retire. It 

was—in today’s parlance, it was contemplated far more as, in 

quotes, a welfare benefit than it was the base retirement program. 

I would note, and just in the word context and some comments 

made earlier in the hearing, is essentially there is only one Social 

Security system in the world that is less generous than the United 

States and that is the United Kingdom. Every other system in the 

65

world is substantially more generous than the United States system. And the UK curve is about here. We are about here and everybody else is way up here. So it is—and I only say that because 

of a statement earlier where somebody said that it was bankrupting many governments elsewhere in the world. They didn’t 

mention Italy. They could have. They did not mention France. They 

could have. They didn’t mention Germany. They could have. Those 

are all countries whose programs, judged against ours, are about 

three times as generous, therefore about three times as expensive. 

Mr. BACHUS. Okay, let me ask you this. And I am just—you 

know Alan Greenspan said that in my judgment that the existing 

pay-as-you-go system is not working and we have to change it. 

Now, would you agree with that? 

Mr. SALISBURY. I would agree that either benefits have to be cut 

or taxes have to be raised in the long term to make the program 

solvent. Absolutely. 

Mr. BACHUS. Okay. Now, those are two options. I mean, raise 

taxes or cut benefits. 

Mr. SALISBURY. Or raise retirement age. I mean it is a long relationship. 

Mr. BACHUS. And actually, you know, President Clinton made a 

speech at Georgetown in 1998 and he actually said there are four 

things we can do. I don’t know if you are aware of that. But one 

of them was he proposed getting a better rate of return. 

Mr. SALISBURY. Well, he proposed moving the trust fund, in 

quotes, the trust fund assets and transferring them into a pooled 

investment fund that would be a diversified portfolio, frankly, not 

dissimilar to what President Bush is in fact proposing. The only 

difference is that the President currently is proposing what I will 

describe as a software overlay on that pooled investment account. 

And President Clinton did not propose that, in quotes, administrative overlay. 

But you are absolutely correct. What in essence they both are 

proposing to get a higher rate of return is essentially the same. The 

difference between the two proposals or the two Presidents and 

that speech and more recent speeches really goes to the issue of 

what you do vis-a-vis the benefit reductions. And as you point out, 

President Clinton did feel that all four of those approaches should 

appropriately be on the table. 

Mr. BACHUS. All right. You mentioned raising the retirement 

age. The AARP is—you know, they have come out against raising 

the retirement age. They have come out against cutting benefits, 

as I understand it. And they have—I don’t know what they have 

said about raising taxes. But what do you feel like, of those four 

options, what do you feel like——

Mr. SALISBURY. Well, I have actually—in the speech that the 

head of the AARP recently gave at the AARP, he actually mentioned all of those as possibilities and said they did not have a firm 

position on anything except not wanting an individual account as 

a carve-out. And they have said that they would be willing to 

have—they would support an individual account as an add-on, but 

the benefit reductions, in quotes, don’t seem to have been put on 

that list. 

Mr. BACHUS. What about——

66

Mr. SALISBURY. As a matter of many of the points raised earlier, 

the fundamental problem, vis-a-vis the 83 reforms or frankly earlier reforms is we are pretty bad at projecting anything for 75 

years, let alone 50, versus 150. We have not accurately projected 

longevity. We have not accurately projected inflation. We have not 

accurately projected earnings rates. None of the above. 

So I think part of the dilemma, frankly, for the Congress is that 

the last panel said do it and do it forever. As a practical matter, 

I don’t believe there is anything you can do that guarantees that 

it will be, in quotes, forever. And one of all of those assumptions 

that frankly there is the greatest probability that we are wrong 

about in current actuarial assumptions is longevity. The amount of 

money that this Congress, quite appropriately, in my personal 

view, is putting into biotechnology research, the National Institutes 

of Health and the drug research, we are spending huge amounts 

of the Nation’s resources to assure that the actuaries are wrong. 

And in essence, the one factor that one might look back at what 

Franklin Roosevelt designed and say what might he have done differently. 

Well, the one thing I in hindsight would say he probably would 

have done would have been to index the retirement age to longevity 

if what was said earlier is true, that the reason for picking 65 was 

because half the people didn’t live that long, or more than half. 

And if that is the case, then indexation to longevity would meet the 

primary objectives of the program. And then if you went the other 

step that was discussed in the last panel by members here, which 

was quite explicitly separating the disability and survivor benefit 

programs, so to speak, and figuring out what the appropriate benefit levels were for survivors and disability, having, in quotes, a 

separate retirement insurance program for a floor of income, and 

then per what you are describing, a tier equivalent to TSP, and you 

were then to index the life expectancy for purposes of that Social 

Security retirement tier. 

As many of those that have argued over the years against raising 

the retirement age, essentially, what that argument has most frequently been is because people become disabled, because people 

can’t continue to work. You can’t raise the basic retirement age. Essentially, you would manage that separation. The institute luckily 

just does numbers on all of these things. We have never been in 

a lobbying business and we aren’t. So what I just said is my personal opinion as one who with genes that suggest I may be here 

till a hundred would have to say that it would be totally fair in my 

view for Congress to say that I should not receive Social Security 

benefits for 35 years, and that maybe I should work a little bit 

longer, which is why I had no personal objection in 1993 to raising 

the retirement ages. 

I just couldn’t quite figure out why such a modest increase was 

legislated. But that is a personal opinion. 

Mr. BACHUS. Well, I can tell you that I have personally said that 

I believe raising the retirement age has got to be part of the solution because——

Ms. GARRETT. May I tack on, please? I wholeheartedly agree with 

what Mr. Salisbury just shared as far as longevity is our major 

risk. When the plan was instituted we died for the most part when 

67

the benefits began and that is why it worked. With demographics 

shifting as they are, with longevity increasing and medical science 

making that happen, we could be living in retirement 40 years or 

more. That is just what I am looking at personally. Imagine future 

generations. 

Mr. BACHUS. You also had like 85 percent of the work force were 

men. 

Ms. GARRETT. Exactly. 

Mr. BACHUS. Now it is closer to 50 percent. And so they were not 

living as long as the work force is now because women are now living 16—the average woman lives 16 years pass retirement age. 

Ms. GARRETT. As I mentioned earlier, I think it is critical that 

we fix this leg of the stool. I do not want to eliminate it in any way, 

shape or form. But some drastic measures are going to be necessary. And I believe from the younger people that I have spoken 

with, there is a lot more flexibility than may have been revealed 

as far as what we are willing to accept. You know, many of us are 

saying I don’t expect anything out of Social Security other than to 

support my parents or my grandparents, and I proudly pay my Social Security taxes knowing that I am helping to take care of my 

parents because they took care of me. 

Well, if I knew for a fact that come age 75, 85, whatever, I was 

going to get a certain guaranteed amount of income for the rest of 

my days, I would very much be pleased with that result. That may 

mean that I am paying additional taxes. It may mean I am paying 

100 percent taxes on any benefits that I receive. But it also will 

instill the fact that we all need to work longer, and I don’t mean 

work in a horrible sense. But I believe that work, where it is being 

a vital, active, productive component of our society and our communities is part of human nature. 

It was only up until three generations ago that we even got this 

notion that it is healthy to retire in our 60s, that that was the objective. That was the definition of financial success, to retire before 

your parents. 

Well, our parents might have retired at 65, died at 75. They only 

spent 10 years in retirement if they lived that long. We are talking 

about, 20, 30, 40, who knows how many years in retirement? We 

need to raise that retirement age. I believe young people will support that, knowing that we would have that Social Security retirement benefit available when the time came. 

Mr. BACHUS. Mr. Riemer. 

Mr. RIEMER. The only thing I would say is that young people 

should also be offered a chance, I am not sure how you would do 

this, but some kind of dialogue about the retirement age. Offer 

them a chance on the alternative to pay into the system more and 

I think you might find that a lot of people would rather pay more 

and retire at the current age than retire at a later age. But again 

I think this is all a very reasonable discussion so——

Mr. BACHUS. Well, I would say that I think all of you have said 

and I think you are all right in saying that, you know, it will take 

several different things if we are to at least maintain the system 

with the benefits that they are promised today. I mean, would you 

all agree on that? 

Ms. GARRETT. Absolutely. 

68

Mr. BACHUS. And the solution is probably, I think, all those 

things ought to be on the table. But none of those things would 

solve the problem alone. I do believe the clearest thing you see as 

a difference between FDR’s proposal, which was that people—the 

retirement age was a year shorter than—I mean that the life expectancy was a year shorter than retirement age and now it is a 

decade past retirement age. And if Mr. Salisbury is correct, in the 

one thing we may have underestimated is the number of retirees 

and how long they live, then our—with the present figures, we are 

saying that we are going to go from 3.3 workers for every retiree, 

down to about 2.1, I think it is, even if we—with what is predicted 

now. So it could actually be worse than that. 

They are telling me that we need to clear the room for another 

hearing. And so does anyone have a—well, let me ask you this. 

Mr. Salisbury, I do think what President Clinton proposed, he 

proposed getting to the same place as President Bush as far as getting the rate of return up. Do you think that that is a sellable proposition, what President Clinton proposed as part of the solution? 

Mr. SALISBURY. We have surveyed on both approaches, and for 

reasons that I have no ability to understand, and also Rasmussen 

Research very recently polled on the question, and it was a very 

neutral form of the question, and the public across all age groups 

is amazingly opposed to, in quotes, the government investing in the 

private sector, whereas when the other question asked, well, are 

you opposed to the government setting up individual accounts 

which will be invested in the private sector, the numbers go up 

markedly across every age group. 

As we say, for practical purposes it really is no different under 

the current proposals. But the public perception is that it is quite 

different. If all of you sat down, meaning both political parties, sat 

down at the table and the conclusion on a bipartisan basis was that 

that is what should be done, so that both political parties determined that that is what they were going to go sell the public as 

part of an overall package, then based on our surveys I have no 

doubt that that, as part of a total solvency package, could be sold 

in the same way, frankly, that any bipartisan package, as a practical matter, will be able to be sold if it is what both political parties and the President are out there saying. 

I believed the same thing when President Clinton was seeking to 

move Congress and the administration towards a consensus view. 

The important thing, frankly, far more than the pieces of the package, is the consensus that leads everybody arm in arm to say to 

the American public, this is what we have done and we have done 

it together and it is what is in the best interest of the program. 

I would just add a concluding comment back to the financial literacy subject, is that the tremendous strides that this committee, 

through the creation of the Assistant Secretary of the Treasury for 

this area, the creation of the Financial Literacy and Education 

Commission, its support of so many government programs in this 

area and the private sector developments is something you and the 

committee really should be heavily commended for because that is 

in the long term the primary tool that will make some of what has 

been discussed in this room today possible. 

69

In the absence of basic financial education, in the absence of 

higher literacy on such crucial issues as life expectancy, then all of 

these problems will be far, far greater for the Congress in the future. So if that is achieved it can make the amount of lifting and 

the frequency that you have to do the lifting a far more pleasant 

exercise. 

Mr. BACHUS. I agree. And that was actually in the flat tax which 

I was the principal sponsor of that. And Mr. Riemer. 

Mr. RIEMER. I just wanted to say that I strongly agree with what 

Mr. Salisbury said and we would support that as well. 

Mr. BACHUS. Thank you. I very much appreciate all of your testimony and I think things that all of you have proposed probably 

should be on the table. 

Mr. RIEMER. Thank you for your time. 

Mr. BACHUS. Thank you. 

[Whereupon, at 1:55 p.m., the committee was adjourned.] 

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