Nick Smith

Mr. SMITH of Michigan

Mr. SMITH of Michigan. So the challenge is Social Security has an unfunded liability of about $12 trillion now. But now we have made even more promises in Medicare and Medicaid. So not only deficit spending is how much we overspend in one year; the debt is adding up every year's overspending. It is now over $7 trillion of debt in this country, in addition to the promises that do not know how we are going to pay for. But within the next 3 months, Congress probably again, as the gentleman from Maryland (Mr. Bartlett) and I talked earlier, is going to have to face up to increasing the debt limited. My guess is we will do it again like we have done in the past, so that we do not have to talk about it, so we are not embarrassed in this Chamber. It will be some legislation that is hidden in the rule, so if you vote for the rule you vote for an increase in the debt limit, which I think should disturb us, because it does not make us stand up and deal with the huge challenges we are facing in this country in terms of overpromising and overspending.

Mr. SMITH of Michigan. No plans. I do not see it in terms of responsibility much different than what any family should do, what any business should do, and that is you cannot just keep going deeper and deeper into debt without any plan to ever pay that debt back. I am a farmer from Michigan, the gentleman is a farmer from Maryland, and philosophically we felt that if we can pay down the mortgage on the farm so that we can leave our kids a little better chance of having a better life than we have, we should. But in this body, in Congress, we are not doing that. We are not only not paying down the debt; we are increasing the debt load that they are going to have to be responsible for, and the tremendous amount that is going to have to come out of their pockets to pay the increased promises and even the interest on the debt, not even mentioning starting to pay that debt down.

Mr. SMITH of Michigan. It is a whole different 1-hour debate and discussion; but just, for example, one country, we have $100 billion deficit trade with China, and what does China do with that extra $100 billion? They probably invest it in our companies, or buy some of the property in the United States. So it makes this country more vulnerable. But in terms of the total debt, both our Treasury bills, the debt of companies, we are becoming more and more dependent on other countries. It is time we took ahold of ourselves, pulled ourselves up from our bootstraps, and started to be responsible, and not leave the kind of debts and responsibility to our kids and our grandkids simply because we think our problems today are great. I thank the gentleman from Maryland for joining me.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, as the gentleman from Hawaii (Mr. Abercrombie) said, yes, we have had many conversations about Social Security including the stealing of the extra trust fund surplus that has been coming in. We have never been quite square with the American people. I would yield to my colleague.

Mr. SMITH of Michigan. Mr. Speaker, I think that the people of Hawaii are still wide awake and listening to this debate. Mr. Speaker, I am going to comment tonight not only on Social Security but what I consider a huge challenge for this country, and that is going deeper into debt and increasing the spending of the Federal Government and sacrificing the increased burdens of that increasing debt in addition to the kind of high taxes that it takes to accommodate this kind of spending and this kind of servicing of the debt. The first chart I have is a pie chart that I wanted to sort of show how the Federal Government is spending $2.4 trillion. And we see the largest piece of this pie is Social Security, spending 21 percent of all Federal spending; and that is going up. In 1983 we had the Greenspan Commission that gathered together because Social Security was going broke, and what they decided is to dramatically increase taxes, payroll taxes, our FICA taxes, for Social Security and at the same time reduce benefits. And that is the challenge for Social Security, that is the challenge for Medicare, that is certainly the challenge for Medicaid, the three major programs where Members of Congress have continued to make promises over and above far beyond our ability to pay for them in the future. And that is the problem with extra pressure on increasing taxes and increasing debt on these kind of unfunded liabilities. We see the other pieces of the pie. Defense is 20 percent; 2 years ago it was 19 percent. Interest. Look at this issue of interest on the debt. It is now 14 percent of total spending. Within 6 to 8 years that amount of the piece of pie that interest consumes servicing this increasing national debt is probably going to double. Now, interest rates right now are almost at record lows. We know that interest rates eventually are going to increase. And so increasing interest rates in addition to the increased debt is going to consume a lot larger piece of the total Federal spending. Then how do we accommodate that increased spending? Do we simply say, well, we are going to increase debt more or increase taxes more? Increasing debt puts additional pressure on the interest rates which is going to up interest rates and up the cost. If we increase taxes, that puts our businesses at a greater competitive disadvantage to other businesses in other countries that we are competing with. Right now we charge our business approximately 18 percent more taxes than the taxes that are charged to our major competitors in the major industrialized countries of the world. The other problem with the increased debt is how fast government is growing. The debt of this country, we are about 227 years old as a country, it took the first 200 years of this country to amass a debt of $500 billion. Now, Mr. Speaker, we are going deeper in debt over $500 billion a year. For the past several years, and it looks like as far as we can see into the future, we are continuing to increase debt over $500 billion a year. How can we do that? We can do it because Members of Congress have felt that it is in their political interest of getting reelected to expand government programs. And now we are in a situation where almost one-half of the adult population in the United States pays less than 1 percent of the total income tax so they do not have a lot at stake in terms of their pocketbook. So it is easier for that population to elect representatives that promise them more and more Federal programs, more and more Federal spending. Look, there is no limit to the problems in the United States. But a country that does not pay attention to the major concerns and major problems it is facing ends up being dismantled and diminishes. As strong a country as the United States is, militarily, economically, we cannot survive the kind of unfunded liability and increasing debts that we are accumulating. Just briefly to go around the pie chart, and then I will go to unfunded liabilities in a second. The domestic discretionary is 16 percent. Other entitlements is 10 percent. Medicaid is 6 percent. Medicare is 12 percent. Medicare is going to be overtaking Social Security in terms of its percentage of total Federal spending within the next 25 years. Here again, promises we made compounded by the demographics of an increasing retired generation of Americans compared to a relatively small number that are working in this country and paying in their taxes to accommodate Medicaid, Medicare, Social Security and the other programs. On this next chart, Mr. Speaker, I ask everyone to consider the kind of promises that we have made over and above our ability to pay for those promises. I call that unfunded liabilities. The massive unfunded liabilities, in other words, the promises we have made in some of these programs over and above the revenue that is coming in to pay for them, is going to become a disastrous challenge for this Nation. And we pass these budgets now, and we do not pay attention to what we are doing to take care of the problems of Medicare, Medicaid and Social Security. Look at these figures. Medicare Part A, mostly hospitals, is $21.8 trillion. That is going to be needed in today's dollar value to accommodate the promises that we have made just in Medicare Part A. When I say today's dollar value, in effect, these the accumulations, the sum of the Medicare A, B, Part D, and the Social Security comes to $73.5 trillion. In other words, we would have to put $73.5 trillion in a savings account that is going to grow with inflation and probably the time value of money to accommodate the more expensive wage inflation that represents the increase in benefits for many of these programs to accommodate what we are going to have to dig up in the future. To me, Mr. Speaker, it is unconscionable. I hear Democrats say, well, we need more spending, we cannot cut taxes, but Democrats and their budget proposed greater spending than the Republicans did in their budget. But the Republicans, on the other hand, are suggesting in effect, let us borrow more money to accommodate the spending even though we start slowing down the spending. This year, probably the best year since 1995, 1996, we are holding spending down. But even so, Mr. Speaker, holding down this spending, we are still ending up with an increased expansion of the size of the Federal Government that is almost three times the rate of inflation. So just imagine for a moment if you project this out, and the size of government is growing three times as fast as inflation, then we are going to have such an empowered Federal Government with such great dependency from the American people that even more Americans are going to call for more government services. I think as you look at the unfunded liabilities of $73.5 trillion, Medicare Part B, mostly doctors, $23.2 trillion. Medicare Part D is $16.6 trillion. Medicare Part D is the new prescription drug bill that we passed. That is interesting. Last November the projections for the unfunded liability were about $7.5 trillion for the Medicare prescription drug program. Now with the actuary's report that came out about 4 weeks ago, the Medicare and the Social Security actuaries' report, the new estimate is $16.6 trillion unfunded liability. So skyrocketing costs, prescription drugs are sometimes the kind of medical technology that can keep people out of the hospitals. And so if you go in the hospital and you are on Medicare, then your prescriptions are covered. So it is reasonable for some of those drugs to be covered. But to have such a huge expansion of this program without cutting back and reforming the system so that it can survive and so it is sound financially again I think is a great mistake. And of course, I had a tough night that night. I ended up voting against the prescription drug program because I am so concerned that we are digging a deeper hole in terms of the challenge that we are putting on our kids and our grandkids and our great-grandkids to try to pay back what we now consider is our justified overspending. And think about that just for a moment. Do we pretend that their problems are not going to be as great or as challenging in the next generations, 10, 20, 30, 40 years from now? Because that is what you would have to assume when we see Democrats and Republicans, House and Senate, vote to expand spending to the extent that we are, continuing borrowing the money and expect future generations to pay off that debt. Social Security, the Social Security Trust Fund's IOUs, we are going to have to come up with $12 trillion to accommodate the increased promises for future Social Security retirees. About $12 trillion, between 11-, it is between 11.9 and 12.2 that we are going to need over and above the Social Security FICA tax. That is 6.2 percent of what you earned for the employee, another 6.2 percent paid by the employer. But make no mistake, it all comes out of the employee's pocket. We are going to need that $12 trillion over and above what is coming in over the next 75 years to pay for promised benefits. How do we get this Congress' attention? I think, Mr. Speaker, the way to get the attention of Members of Congress is for voters in the United States, this election and every election, to say to individuals that are running for the House, that are running for the Senate, that are running for the President, look, what are you going to do about all of these promises that you cannot pay for? What are you going to do about the increasing debt that you are passing on to our kids and our grandkids, pretending that your problems today are so much greater than theirs? How do we get their attention? I think that is how we get their attention. I think the American people have got to start realizing that you cannot just have government, some money that is printed in Washington, pay for more and more of the problems of America and more and more of the problems of the world. We are in a war. During World War II, I was a little kid, and I collected string. I collected tin foil because Mom and Dad and Uncle Sam said that, look, you need to sacrifice. So during World War II we did. We cut way down on all other spending. Every family in America tried to sacrifice and help fight a war, and we fought a war, and we won a war. But now we are pretending that it is not a real war, and there is no reason to justify cutting other spending because it might hurt us politically back home, and, of course, that is what happens. I was on the Committee on the Budget for my first 8 years in Congress, and you start a new program, and, of course, if they can get funding to continue that program for a second year, it becomes almost like an entitlement, and they form their own lobbyists and special interests to lobby Congress by contributing to campaigns to encourage Members of Congress to continue to contribute and put money in the appropriations process to those programs. And make no mistake, when you take a race track home or a jogging trail or a bike path or a library or any of the other pork barrel projects, the news media probably puts you on television, puts you on the front page cutting the ribbon, and they say, look what our Congressman has brought home. Here is the problem. When you take pork back home to your District and it is in an appropriation bill, it obligates you as a Member of Congress to vote for everybody else's pork, and now we have put in so many line items of so many pork barrel projects that it has become one of the main reasons that we have expanded Federal Government spending. This is another bar chart that represents how much money is going to come out of the general fund to accommodate these programs: Medicare and Medicaid and Social Security. If you see the year 2020, for example, 16 years away, unless we raise taxes or otherwise increase borrowing, we are going to have to reach in to the general fund to the extent of 28 percent, taking 28 percent of this general fund, just 16 years from now, to accommodate our overpromises. I say overpromises, maybe it is nice, maybe it is good, but the fact is we do not have the revenue to pay for those promises because what we are doing at the same time is increasing all spending. We have had increased spending every year that I have been here. Earlier this evening I heard individuals saying, look, President Bush has been using all of the surplus revenues coming in from Social Security and that is bad, but that kind of demagoguery, that does not get us ahead. The fact is, ever since Social Security started, anytime there has been more money coming in through Democrat administrations, through Republican administrations, through Republican control of the House and Senate and Democrat control of the House and Senate, every year we have spent all the surplus from Social Security coming in. There has never been a year since I have been in Congress and for the last 20 years at least that the total debt of this country has not increased. We started bragging back in 1995 and 1996 of a lock box, but that did not last long. It was a gimmick phrase. Hopefully it was going to give us the intestinal fortitude to slow down our increase in spending. It did not work. In one year, we took the Social Security surplus and used it to pay down some of the public debt, sort of like changing credit cards, but the total public debt of this country subject to the debt limit never went down. It continued to go up. Now that debt is over $7 trillion, and within the next four months we are going to have a vote in the House and Senate to, yet again, increase the public debt of this country, and hopefully, we can talk about that vote when it comes up, talk about the fact that we are putting an extra burden on our kids and our grandkids. See what happens in the year 2030? If we do nothing to change these programs, it is going to take over 50 percent of the current general fund that we spend on the rest of the pie chart that we showed earlier to accommodate Medicare and Medicaid and Social Security. Let me talk a little bit before we close tonight about Social Security. I was fortunate enough to chair the Bipartisan Task Force on Social Security. Democrats and Republicans, after we heard testimony from the experts for about a year, we all agreed that the longer we put off the solution to Social Security, the more drastic that solution is going to have to be. With this chart I wanted to just give a quick bird's-eye view of the temporary surplus coming into Social Security, and that is because the taxes were increased so dramatically back in 1983 that we have had a surplus. Now we are anticipating 2017 or 2018 is when there is less money coming in from the Social Security tax than what is required to pay benefits, and there are a lot of people that think that somehow there is a Social Security fund with their name on it. Not so. This is a pay-as-you-go program. Let me just explain that pay-as-you-go program in Social Security. Current workers pay in their FICA tax for Social Security on Monday, for example, and by Friday it is all sent out in benefits. Current workers pay the benefit of current retirees, and that is what is bringing us into the predicament that we are now facing. When we started Social Security back in 1934, the average age of death was 62, and the official retirement age for benefits was 65. What does that mean? That means that most people died before you paid out anything, and the program was working very well. Now people are living longer, the birthrate has gone down, and we are having a problem. Here is how Social Security works. Benefits are highly progressive based on earnings. At retirement, all of a worker's wages up to the tax ceiling that is about now $89,000, all of the wages are indexed to present value using wage inflation. What that means is and what the next blip says is the best 35 years of earnings are averaged, but for example, if wage inflation doubles, let us say, every 12 years, so if 12 years ago you were making $20,000, it is calculated on the way your Social Security benefits are calculated to be double that or $40,000 now. So it is not the actual dollar amount that you earned 10, 20, 30 years ago. It is the wage inflation of what that kind of job would pay today. Here is how the progressivity of the Social Security system works. If you are a very low income worker, you get almost 90 percent back in Social Security checks of what you were making on your job in payroll, 90 percent of the earnings up to the first $7,344 is what you get back in Social Security payments. The next space between $7,300 and $44,200, you get 32 percent of that back, and then after that you get the 15 percent of earnings above the $44,000. So the more you earn, the less percentage of what you get back. So if you are a very high income earner, it is a little over 15 percent. If you are a very low income earner, you get back up to 90 percent. I just put this line in because a lot of people are concerned about the fact that early retirees receive adjusted benefits. It is true. If you retire early at 62, so based on the average life span, a wage benefit is calculated so the person that retires at 62 and now dies at the average age of 86 will get the same benefits as an individual that waits to 65 years old to start taking those benefits. If you wait until 66 or 67, your benefits actually increase in those two following years by 4 percent a year. So sometimes it is to your advantage to wait. There has been a lot of debate and discussion on should we have personally-owned savings accounts that belong to the individual worker that the government cannot touch and that would bring in more earnings than what Social Security would. When President Roosevelt first came up with the proposal for Social Security, he suggested that it be privately-owned accounts, and it would still be accounts that you were required to put in a certain percentage of what you earn, but they would be in your name and you could not take them out until you retired. It was interesting searching the archives. Actually, the Senate passed a bill for personally-owned accounts, and the House, the House said, well, government should be responsible and government should take in all the money and the Federal Government should invest it. I think probably when it went to conference, because it was so soon after the recession, that decision was made, well, we better let government do it instead of having those accounts personally owned. But Social Security is not a good investment. It is a system that we know is stretched to its limits, and that is because 78 million baby boomers begin retiring in 2008. Social Security spending exceeds tax revenues in 2017. Social Security Trust Funds go broke in 2037. Now, just a word on the trust funds. As I mentioned earlier, every year there is more money coming in from the Social Security tax than is needed to pay benefits, and right now we are bringing in about $90 billion more than the benefits. But, again, that runs out in 2017-2018. That is when there is not enough money coming in. The government writes out an IOU to the Social Security Trust Funds. It spends the money on other government programs or paying off some of the Wall Street debt. But, again, we have never had a year where the total debt of this country has not increased, so we are facing a predicament with Social Security Trust Funds. Even if they are paid back, it means increased borrowing or increased taxes. I have a chart I hope to get through in a few minutes, because we are going to conclude this evening's session soon, that shows that every time the United States has been in problems with less money coming in than what is needed for Social Security, they have done one of three things. They have either increased taxes or reduced benefits or a combination of both. Usually, it is a combination of both. Here is a pictorial view of the demographic problems of fewer and fewer people that are working and paying for the benefits of retirees. In 1947, there were 34 working Americans paying in their Social Security tax for every retiree. By the year 2000, it got down to three. The estimate is that by 2025 there is going to be two American workers paying an increased amount of Social Security tax to accommodate every retiree. A lot of people say that economic growth will not fix Social Security. Social Security benefits are indexed to wage growth. So if you have a strong economy, and there is more jobs and higher wages, because you are paying in on those more jobs and higher wages temporarily, there is more money coming in to Social Security. But in the long run, when that person or that increased number retires, then there is more money going out of Social Security. So economic expansion, because of the fact that Social Security benefits are directly indexed to how much you were making when you were paying in, does not solve the problem. It simply tends to fill the hole a little in the early years, but it leaves a bigger hole in the later years. The fact is that it is going to take more than economic growth to fix Social Security. And to think that you can fix Social Security simply by upping taxes again only solves the problem in the short run. We have to end up with a better return on those Social Security benefits. As I make speeches around the country and around my Seventh District in Michigan, a lot of people say, look, if government would keep their cotton-picking hands off the Social Security Trust Fund money, then everything would be okay. And I agree with that, we should keep our hands off that Social Security surplus. It should be really invested instead of spent on other programs. But to represent how great the problem is, what the challenge really is to Social Security, I did this bar chart. Right now what we have borrowed from Social Security, taking all the extra money in every year, plus paying interest on it, the IOUs now amount to $1.4 trillion. But the extent of the Social Security unfunded liability problem is between $11.9 trillion and $12.4 trillion. So I use the figure $12.2 trillion as far as the unfunded liability. That is, again, what we need in today's dollars over and above what is going to be coming in from the Social Security tax. The Social Security Trust Fund contains nothing but IOUs. To keep paying promised Social Security benefits, the payroll tax will have to be increased by nearly 50 percent, or benefits will have to be cut by 30 percent. To me, this shows why Social Security is not a good investment. The real return on Social Security, the return of what you and your employer, or if you are a sole proprietor, of what you pay into Social Security, the return on average is 1.7 percent. And I compare that, over in the far right chart, which is the Wilshire 5000 Index. Over the last 10 years, even with a bad, poor 3 years on equity investments, still the 5000 equity stocks earned 11.86 percent. Compare that to the 1.7 percent that you receive from Social Security. This is how many years it takes to break even on your Social Security benefits. By 2005, you have to live 23 years after retirement. Okay, here, Mr. Speaker, is what we have been doing. Every time we have gotten in some problems, we have simply increased taxes. This chart shows the history of tax increases. In 1940, 2 percent of the first $3,000. In 1960, they decided to raise it to 6 percent of $4,800. Then in 1980, we made a big jump to 10.16 percent of the first $26,000. By the year 2000, 12.4 percent of $76,000. Now it is 12.4 percent of $89,000 this next year. So what we have done is continued to increase taxes to the extent that now 78 percent of Americans pay more in the Social Security tax than they do in the income tax. And that is what that chart says; 78 percent of families pay more in the payroll tax than in the income tax. Here are six principles that seem reasonable to me as we try to face the challenge of how do we change Social Security, and one of the problems that I faced. I have introduced Social Security bills since I first came to Congress in 1993 that have been scored to keep Social Security solvent. In the changes back in 1993, 1994, 1995 and 1996, I did not have to borrow any money from the general fund to accommodate some of the changes that would keep Social Security solvent. The six principles that seem reasonable to me as we protect current and future beneficiaries are that we allow freedom of choice; we preserve the safety net; we make Americans better off, not worse off; we create a fully-funded system; and no tax increases. And maybe, if there is another blip, it should be a system that makes sure that the American economy stays strong instead of the kind of changes such as increased taxes that are going to weaken our economy. Let me conclude, Mr. Speaker, by asking everybody to make a guess of what the FICA tax is in the country of France, for example. Right now the payroll deduction on wages in France is over 50 percent to accommodate the senior population. So no wonder France is having trouble competing. No wonder France did not want to spend any money in Iraq. No wonder there are demonstrations in France, because if you are paying a 50 percent tax on wages that you have to withhold, then you have two options. You either increase the price of your product, that makes you less competitive, or you increase the wages you pay to your worker. Let us not allow America and the United States to get into that kind of predicament. Germany just went over 40 percent of payroll tax. So, again, Germany is discovering that it is much more difficult to compete. Mr. Speaker, I would again encourage my colleagues and I would encourage the American people to start talking to their candidates that are running for Congress, that are running for the Senate, that are running for President of the United States. What is their plan in the long range to save Social Security, to keep Social Security solvent, to save Medicare and Medicaid and keep those programs solvent? It is a huge challenge, and we should be willing to face up to it. Mr. Speaker, we have had a system in this country where those who work hard and save and try and invest end up better than those who do not. So to continue to increase taxes on those individuals that do save and do try and do invest is going to discourage some of the motivation and incentives that have made this country great. Let us deal with these problems now. Great empires that put off solutions to important problems are those kinds of empires that collapse. Let us not allow that in America.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, it is with great respect for the outstanding record of excellence she has compiled in academics, leadership and community service, that I am proud to salute Rosanna May Leddy-Green, winner of the 2004 LeGrand Smith Scholarship. This award is given to young adults who have demonstrated their true commitment to playing an important role in our Nation's future. As a winner of the LeGrand Smith Scholarship, Rosanna is being honored for demonstrating the same generosity of spirit, intelligence, responsible citizenship, and capacity for human service that distinguished the late LeGrand Smith of Somerset, Michigan. Rosanna is an exceptional student at Morenci High School. She has an outstanding record of achievement, exemplified by her status on the All `A' Honor Roll. Rosanna has excelled in athletics as a member of the cross country and track teams for four years and was named academic all- state. Her extensive list of school activities includes Spanish Club, National Honor Society, and S.A.D.D. Rosanna is also secretary of her graduating class. As a Member of the United States Congress, I am proud to join with her many admirers in extending the highest praise and congratulations to Rosanna May Leddy-Green for winning the 2004 LeGrand Smith Scholarship. This honor not only recognizes her accomplishments, but also is a testament to the parents, teachers, and other individuals whose personal interest, strong support, and active participation have contributed to her success. To this remarkable young woman, I extend the most heartfelt good wishes of the United States Congress for her success and for all her future endeavors.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I move that the House do now adjourn.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Chairman, this bill has several problems. The people of Michigan get even less money for their dollar than they did before. Currently, Michigan taxpayers get 88 cents back for every gas tax dollar that we pay to Washington for highway funding. Under this new bill, that falls to 79 cents. That's unacceptable. Today, people in Michigan pay 18.4 cents in federal gas taxes and 20 cents in state gas taxes. All of the state gas taxes stay in Michigan, but only 79 percent of the federal gas taxes will be returned to Michigan. President Bush's budget requested $256 billion over 6 years for a transportation bill. H.R. 3550 has been estimated to cost $284 billion. That's a 30 percent increase above the previous transportation bill of $218 billion. And the reopener provision is going to force us to increase spending in the future. Much of this money is not even spent on transportation projects. There is $3 million for a park in Alabama and $1.5 million for ``streetscape improvements'' in Long Beach, California. There are $1.2 billion for bike paths and more set asides for hiking trails, nature centers, obesity programs for children and battlefield preservation. There are 2,800 earmarks in this bill, 1,000 more than in the last transportation bill. And the Manager's amendment added $1 billion in projects to encourage people to support the bill.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, this is a good budget we passed out of this House and sent to conference. I am hoping that the kind of frugal budget that we sent to conference is going to come back to this House for a final budget of the House and the Senate. One thing that the budget did not deal with is unfunded liabilities. Unfunded liabilities are the promises that politicians make when they do not know where the money is coming from in later years. Last week, the actuaries of the Social Security Administration and the Medicare trust fund came up with their estimates of unfunded liabilities, and that is what this chart shows. It should scare the heck out of us. The Social Security and Medicare trustees have calculated that these programs have $73.5 trillion in unfunded liabilities. Now, if you divide the population of the United States, which is roughly 290 million, into that $73.5 trillion, you end up with over a quarter of a million dollars for every man, woman and child that somehow is going to be responsible for paying for these benefits over and above what we have promised because the money coming in from the FICA tax, and that FICA tax supports Social Security and Medicare, over and above the money coming in in revenues from that tax, we are still short $73.5 trillion. Medicare part A is short $21.8 trillion; Medicare part B, $23.2 trillion; Medicare part D, the drug program that we passed 4 months ago, $16.6 trillion. It is interesting on the prescription drug bill that Tom Savings, one of the actuaries, estimated at the time it was passed that the unfunded liability would be $7 trillion. His estimate now is $16.6 trillion. The danger, of course, is that what we are doing in effect is acting like our problems are so important today that it justifies taking the money of our kids and our grandkids that they have not even earned yet. The unfunded liabilities, in addition to the debt that we are accumulating, now over $7 trillion, is a huge liability to leave to our kids. I am a farmer from Michigan. What we have traditionally tried to do is pay off the farm so that our kids had a little better chance than we did. Instead, we are now faced with a situation, and here is my political take on it. Right now roughly 50 percent of the working population pays less than 1 percent of the total income tax in this country. What we have done is become more and more progressive with the easy flow of language and justification to tax the rich, but here is 50 percent of the population that has little stake but to ask candidates that are running for Congress for more government services rather than less, and politically it has seemed to be to the advantage of politicians to make more and more promises. This represents how many promises we have made over and above our ability to pay for it. I did this chart, this was also with Tom Savings' help, just to show that in 16 years it is going to take 28 percent of our general fund budget to pay for the makeup difference in Medicare and Social Security. By 2030, it is going to take almost 53 percent of the total budget. So what do we do? How do we deal with this? Here is what this Congress, the House and the Senate and the White House has done in the past. This is when we run short of funds in Social Security. It started out with 2 percent in 1940, 2 percent of the first $3,000. It ran short of money, so in 1960 we raised it to 6 percent of the first $4,800. In 1980, we ran short again, so we raised it to 10.16 percent of the first $26,000; and then in 2000, 12.4 percent of the first $76,000. In 2004, now, today, 12.4 percent of the first $89,000. So what we have done is either reduced benefits, increased taxes or a combination of both. That is what we did in 1983. I just call on my colleagues and I call on the American people, Madam Speaker, to ask their Members of Congress what bill have you written, what bill have you signed on to to make sure that we keep Social Security and Medicare solvent and not leave the total bill up to our kids?

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, there is a problem that Congress needs to pay attention to in terms of the dramatic increase in the price of scrap steel. It is hurting manufacturing in Michigan and around our country. China is bidding up the price and hoarding steel. If China won't conduct business and comply with WTO rules, then we need to consider drastic action, such as cutting off imports coming from China. If the shelves of some of our discount stores go bare, buy American.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, this year we celebrate Abraham Lincoln's 195th birthday. In his famous address at Gettysburg, he noted that ``our fathers brought forth on this continent a new Nation conceived in liberty and dedicated to the proposition that all men are created equal.'' The Civil War was ``testing whether that Nation, our Nation or any Nation so conceived and so dedicated can long endure.'' Now, that challenge is with us. Today, we face a threat to the country that may well be as serious. It lies not in the dramatic clash of arms, but in neglect of our Nation's finances, especially our long- term finances. Voters vote for benefits, and politicians promise them without knowing how to pay for it. Just 4 months ago, Congress voted for a prescription drug benefit that adds $16 trillion to the program's unfunded liability. That is over two times our total national entire debt, and it was done mostly for short-term political gain with little reform of the underlying program. There is now a call from some Members proclaiming that the budget we are now working on for 2005 that is actually twice an increase in government, twice the rate of inflation is not enough and we should have more spending to increase taxes eventually. There are very few in Congress who are willing to resist the continual pressure to spend; and I think part of that, Mr. Speaker, is because of the fact that most citizens today now pay less in income tax than they get from government services, so it is easy to ask for more. From the founding of this country, it took until 1975 to amass a debt of $500 billion. Unfortunately, we are now adding more debt to our books every year than we did over the first 199-year history of this country. The deficit for fiscal year 2003 was $536 billion, $631 billion this year, and another $534 billion expected for next year. We have never run a deficit this high, and we need to take decisive action in this budget to address our overspending. This kind of spending means that higher taxes are coming, maybe not in the next year or two, but eventually. The same Congress that could not bring itself to add a few real reforms to Medicare in a gigantic benefit expansion bill is not likely to cut benefits to the degree necessary to head off financial crisis until the disaster is on us. I take some comfort from a new willingness among many members of the Republican Conference to tighten our line on spending. Though some Members expressed concern about cuts in an election year, a strong majority have insisted that we reduce spending. There is general cooperation and agreement that we should spend less, not tax more, and we will see if that determination translates into effective spending restraint. Joining with colleagues who share our concern about government overspending, we will reimpose discretionary spending caps which were in effect from the early 1980s through the surplus period of the late 1990s. It is important, Mr. Speaker, that Congress work hard to cut out unnecessary waste and abuse. We also need to make very hard decisions to prioritize spending. Another aspect of the solution, I think, is improving the honesty of government accounting. I have a bill to require the CBO and the OMB to include unfunded liabilities in their budget projections. This unfunded liability is now projected to be $71 trillion, $71 trillion that our kids and our grandkids are eventually going to have to finance, pay the interest on, and start paying it back. Some people have said that we should not worry so much about unfunded liability because it can be wiped out by reforms, but Congress has shown little political will to deal with the problem. Perhaps making it more visible will help bring about some of the reforms that will be necessary to come to grips with the problem. Congress and the President can redeem their record on spending to a large degree if they push hard for Social Security reform. It would be nice to do it before the election. Maybe we can do it after the election, but it remains to be seen whether we will take on that fight. It will be a fight because steeply progressive taxes and big government have combined to form a powerful electoral block. Here, again, the bottom 50 percent of earners now pay virtually no income tax and, therefore, have little will. Empires decline when they fail to act on fundamental problems, and I wonder at times if we are not too distracted by the endless scandals and the horse race politics of our media culture to grab what is best for our country.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, last week the actuaries of the Social Security Administration and the Medicare came up with their estimates of the predicament that we are facing in those two programs in terms of having less revenue, less money coming in than is needed to pay for promised benefits. The news was not good. I wanted to start with this pie chart to give everyone an impression of how we spend Federal Government money; and as you see by the title of the chart, Social Security is the largest budget expenditure. This is the Social Security piece of pie, if you will, at 21 percent of all of the money spent by the Federal Government. That compares to 20 percent for defense, and defense, 2 years, 1, 2, 3 years ago was a little over 18 percent. So, even though, defense has grown, Social Security is growing even faster. We have Medicare at 12 percent, but that is the fastest growing program; and within 30 years, Medicare will overtake Social Security as the top Federal budget spending program. Other entitlements, 10 percent; domestic discretionary, 16 percent; and here is a problem area over here, interest on the debt, 14 percent. The reason that is a problem is because we are amassing a dramatic increase in debt. Last month, we celebrated Abraham Lincoln's 195th birthday. In his famous Gettysburg Address, he sort of noted whether a country of the people, by the people, and for the people could long endure. The Civil War, of course, was sort of a testing ground, whether that Nation or any Nation so conceived and so dedicated could last. The actuaries in their report last month estimated that the total unfunded liability, the amount of promises or the cost of those promises over and above revenues coming in from the FICA tax, from the payroll tax, was going to be $73.5 trillion. To put that in a little bit of perspective, the budget that we are looking at for this current year is about $2.28 trillion, and for next year the budget we are working on is about $2.4 trillion. The unfunded liability, how we are going to have to somehow cut benefits or increase borrowing or increase taxes is $73 trillion or over $73 trillion; and breaking these down, we see Medicare part A estimated at $21.8 trillion; Medicare part B at $23.2 trillion; Medicare part D, the new prescription drug program, at $16.6 trillion. So passing the Medicare drug bill increased the unfunded liability by $16.6 trillion, and Social Security with the trust funds comes to almost $12 trillion. It is more than a quarter million dollars of the unfunded liability for every American. Every baby that is born tomorrow, every child and woman and man in this country, their share of this unfunded liability that they are going to have to deal with the extra interest on the debt and paying back that debt is over a quarter of a million dollars. This chart that Tom Saving came up with, an actuary in both Medicare and Social Security, indicated how much of the general fund revenue is going to have to be used up to pay for promised benefits in Social Security and Medicare; and we see that within 16 years, by 2020, it is going to take 28.6 percent of our current general fund budget to pay for the promises we have made in Social Security and Medicare. By 2030, it is going to take 52.7 percent of the general fund to pay for these programs. The reason that I am making this presentation tonight, Mr. Speaker, is to call to my colleagues' attention, call to everyone's attention the very serious situation of the promises that have been made over and above the money that is coming in for those programs and how it is going to impact other programs that government now provides. We talked about the Civil War with Abraham Lincoln. The earlier group talked about the Iraq War; but today, we face a threat to the country that may well be more serious than any war we have had. It is not in a dramatic clash of arms, but in neglect of the Nation's finances, especially our long-term finances. Voters vote for benefits, and politicians promise them, without knowing where the money is coming from. They do not know how to pay for it. Just 3 months ago, Congress voted for a prescription drug benefit that adds $16.6 trillion of the program's unfunded liability. That is more than twice our Nation's entire national debt, without knowing where the money is coming from; but when I say without knowing where the money is coming from, actually it means that our kids and our grandkids, that somehow some of these programs justify borrowing from the money that our kids and grandkids have not even earned yet. So to continue promising programs because it seems to be politically favorable to individuals in their reelection is unconscionable in terms of the burden that it is putting on our kids and grandkids. From the founding of this country, Mr. Speaker, it took until 1975 to amass the first $500 billion worth of debt. Unfortunately, we are now adding more new debt to our books every year than it took in the first nearly 200 years of this country to amass because we are going over $500 billion every year. The deficit for fiscal year 2003 was $536 billion. It is expected to be $631 billion this year and another $534 billion next year. We have never run a deficit this high, and we need to take decisive action in this budget to address our overspending; and though this budget is, for lack of a better word, more frugal than maybe any budget that we have passed since 1996, it still increases total spending of the government almost twice the rate of inflation, and it does not deal with unfunded liabilities. It does not deal with changes to Social Security, with changes to the Medicare program or the Medicaid program that are going to allow these programs to survive without threatening future generations with huge tax increases. This is sort of a quick snapshot of the problems of Social Security, a short-term surplus. In 1983 under the Greenspan Commission, they raised the taxes so high that there was more money coming in than was needed; and so that money, maybe the word is ``theoretically,'' was put into a trust fund, but there is nothing there except IOUs because government spent every cent of that money for other government programs. So in the short run, we had extra money coming in, all spent; and now in 2018 we are looking at there being less revenues coming in from even that high tax increase than is needed to pay promised benefits. So a very bleak future in terms of future deficits. When I have given speeches on Social Security, a lot question, how does Social Security work? So, very briefly, let me go through some of the provisions of how the Social Security program works. Benefits, first of all, are highly progressive. That means that if you are a low-income earner, when you retire you can receive up to 90 percent of your average monthly check that you had for the 35 eligible years that you gained your Social Security credits. If you are a very high-income earner, then you come closer to getting back only maybe 15 percent of your average monthly check that you were earning when you were paying in your social security taxes. At retirement, all of a worker's wages, up to the tax ceiling, are indexed to the present value. We are using wage inflation. The best 35 years of earnings are averaged out. So if you only worked 30 years, you got 5 years that is zero, and that is averaged in and averaged out as zero years. The average benefit for those retiring in 2004 equals 90 percent of earnings up to the first $7,344. This is the progressive part. Ninety percent for that low income. Thirty-two percent of earnings between $7,300 and 44,268, and then 15 percent of earnings above the 44,268. Early retirees receive adjusted benefits. SSI. A lot of complaints about SSI, about the abuse of the Supplemental Security Income program and how that is hurting Social Security. Actually, SSI does not come out of the Social Security Trust Fund. It comes out of income taxes that go into the general fund. Joining with colleagues who share my concern about government overspending, I think we are coming to a good start this year in making a difference on how we hold spending in line. It is interesting that Franklin Delano Roosevelt, when he started Social Security in 1934, actually was suggesting that the savings be in private accounts but it be mandated savings based on earnings and that you could not use that savings until your age of retirement. But that changed. Looking at the archives over here, it is interesting, the debate that went on in the House and the Senate in those years. The House passed legislation that said government should run the whole program. Government should take the money and invest it and save it and then give fixed benefits to retirees when they retire. The Senate passed the bill saying these should be individually owned accounts, where individuals could invest in limited investments, but of course forced to save and forced to invest with that money and not being allowed to be taken out until they retire. When they went into conference, the House won that debate; and we ended up with a program where government takes all the money in and spends any extra money that is coming in and then promises that benefits will be paid. Several times over the history of the program since 1935 we have ended up with less money than we have needed, and what has happened is this Chamber and the Senate Chamber across the way, and the President, have simply said, every time money was short, that we are going to cut benefits or raise taxes or do both. And that is what has happened over the years. The system is stretched to its limit in Social Security. There are 78 million baby boomers that will begin retiring in 2008. Social Security spending exceeds revenues in 2017 and Social Security trust funds go broke in 2037, although the crisis could arrive much sooner. The reason the crisis is coming much sooner is because, even though the government has IOUs to pay back the money it has borrowed, government does not know where the money is coming from. So the danger when we come to the point of 2017, when there is less money coming in than going out, whether it is 2017 or 2018, is how does government come up with that money to pay promised benefits? Well, they either cut benefits or increase taxes or increase borrowing. Social Security trust funds go broke technically in 2037, but that is if government pays back everything it has borrowed. Insolvency is certain. We know how many people there are and when they will retire. We know that people will live longer in retirement, and we know how much they will pay in and how much they will take out. We know that payroll taxes will not cover the benefits starting in 2017, and the shortfalls will add up to $120 trillion between 2017 and 2075. So that is $120 trillion in tomorrow's dollars. That translates into $12 trillion that would have to be put in a savings account today, earning whatever the CPI inflation is, to accommodate the $120 trillion that is needed in future years. The coming Social Security crisis, our pay-as-you-go retirement system, will not meet the challenge of demographic change. Here is the problem, Mr. Speaker. The problem with Social Security, the problem with Medicare is the problem we would have with any program that is based on a pay-as-you-go system, where existing workers pay in their taxes which are then immediately sent out in benefits for existing retirees. The problem is that way back in 1940 we had 32 workers for each one retiree. By the year 2000, we got down to three workers for each retiree. And by 2025, the estimate is that there will be two workers for every retiree. So it is understandable that if those retirees are going to receive the same level of benefits, then each worker is going to have to pay in more tax revenue; and that is what we have been doing, is continually increasing the FICA taxes on existing workers over the years. So, two problems: Well, problems, I have to be careful of that word. Two situations that have brought about the demographic changes: One is the situation where people are living longer. The other is the birth rate is going down. Now, remember the chart where we go from the green to the red? That is because of the fact that the big birthrate increase after World War II, the so-called baby boomers, are going to start retiring in the next few years. Some have suggested, well, if we can just get the economy going, that will help; and there is no question that the economy helps in the short run. It helps in the short run because, as wages go up and more people are working, then there is more FICA tax coming in, more Social Security tax coming in. But it does not help in the long run because there is a direct relationship to wages while you are paying in and eventually the benefits that you are going to be taking out. So when the economy grows, workers pay more in taxes, but it also will earn more in benefits when that individual retires. Growth makes the numbers look better now but leaves a larger hole to fill later. The administration has used, I think, sometimes, these shortcut figures to say that the desperation date of when we are going to run out of money is increasing, and that certainly happens with a strong economy. Now, Social Security trust funds versus the Social Security's shortfall. A lot of people suggest that if government would just keep their hands off that surplus money coming in, that Social Security Trust Fund, everything would be okay. I wanted this chart to show the relative difference between what is in the trust funds, the IOUs that are now down in Virginia, and where we have borrowed $1.4 trillion from Social Security over the years. But the shortfall, as you remember, is $12 trillion. So even if we pay all this money back, and we will, somehow. We will pay it back with extra borrowed money or we will increase taxes on the workers in those years when we make the change. The money will be paid back, but it is going to be very difficult as we continually depend on tax increases to solve the Social Security problem. Let me tell you why I am saying that. The situation is real in countries like France and Germany and Japan, where the senior population is a larger percent of the working population than it is in this country. The payroll taxes in France, for example, now are at about 50 percent. So an individual goes to work and works and earns so much money and half of that money is taken out for their taxes to cover the seniors in that country. In this country, we are up to 15.2 percent for our FICA tax. France is at 50 percent. Guess what Germany is? Germany has just passed a 40 percent payroll tax to cover the benefits for their senior population, and Japan is overwhelmed with the problems of their senior population as they try to tax workers. You can understand that if you have that high of a tax, that businesses, that industry, that companies have to pay out, it comes from two places. They have to increase the price of their product or they decrease the salary and wages they are paying to their workers; and that makes them, that makes that country much less competitive. So you can sort of understand, simply by looking at the payroll taxes in France, some of their problems that they are now having with what I understand is 10 percent unemployment and some of the problems they are having with trying to compete with the United States and other countries. The biggest risk for Social Security is doing nothing at all. Social Security has a total unfunded liability of over $12 trillion. The Social Security trust funds contain nothing but IOUs. To keep paying promised Social Security benefits, the payroll tax will have to be increased by nearly 50 percent or benefits will have to be cut by 30 percent or we will continue increasing the debt of this country and the borrowing, which means that there is going to be a mounting interest rate. When we look at the interest rate expense for this country, that is based probably on one of the lowest interest rates that we have had in a long time. So if interest rates go back up to normal, that can eat up twice the amount of the total spending budget that we now have simply because of the propensity of Members of Congress to spend more, to make more promises without knowing how those promised benefits are going to be paid for. This is the diminishing returns on Social Security, and the reason that I made this chart is to demonstrate that Social Security is not a good investment. The real return of Social Security is less than 2 percent for most workers and shows a negative return for some, compared to over 7 percent for the general market. So if you happen to be a minority, which means on average you die before you reach the 65-year- old retirement for maximum benefits, so the average return on the investment for minority workers is a negative figure. If you are average, then you average just under a 2 percent return. But compare this with the Wilshire 5000 Index, where that index, in equities, has earned 11.86 percent, and that is after inflation, over the decade ending January 31, 2004. That is even through the slumping years of 2001 and 2002 and somewhat in 2003. This is how long you are going to have to live after you retire if you are going to break even on what you and your employer have paid in to Social Security. The people who retired in 1940 at the beginning of the program, it was pretty good. They only had to live 2 months after retirement. By 1995, you had to live 16 years after retirement to get your Social Security checks coming in to break even. By 2005, now you have to live 23 years after. By 2015, you are going to have to live 26 years to break even on what you and your employer have paid in to Social Security. This is what we have done to American workers. There are 78 percent of American workers that pay more in the FICA tax, the Social Security tax, than they pay in the income tax. So in terms of tax breaks for working Americans, we should be looking at possibly lowering their FICA tax, because that is where they are spending the money. Let me go into my proposals for changing Social Security. I chaired the bipartisan Social Security task force. After about a year, every member of that task force agreed that we had to do something very quickly to save Social Security. The tendency of Congress is you wait until the disaster hits and then you make changes. But the longer we wait to solve Social Security, the longer we wait to solve the Medicare and Medicaid problem the more drastic those solutions are going to be. The six principles that I think are reasonable are protect current and future beneficiaries; allow freedom of choice; preserve the safety net, in other words, leave some of that trust fund money available; make Americans better off, not worse off; create a fully funded system; and no tax increases. I have introduced legislation. This is my 12th year in Congress. I have introduced Social Security legislation ever since I first came to Congress. Actually, I wrote my first bill when I was chairman of the Michigan Senate finance committee, because it was obvious, even in the late eighties and early nineties, that Social Security was heading for a cliff of very serious financial problems of solvency. The people choosing to participate in the voluntary account program would continue to receive benefits directly from the government. This is my bill that I introduced a few months ago. Those benefits would be offset based on the amount of money deposited into their account and not on the amount of money earned in the account. This means that workers could expect to earn more from their accounts than was the offset for the Social Security benefits that would be reduced. It is interesting to observe some of the municipalities that have elected to have their own personal retirement savings plans rather than have Social Security. When we passed the Social Security bill and started it in 1935, the option for State government and local government was to allow them to opt out of Social Security. Some of those counties now in the United States that opted out of Social Security are having retirees with benefits as high as 40 and 50 and $60,000 a year because of personal investments as opposed to the general Social Security program that has ended up with a 1.7 percent return on Social Security. I think it is important to mention that part of Social Security is the disability program. The disability insurance program is not touched by anyone that has suggested any changes in Social Security, so the insurance part of that program continues to be a government insurance program to protect eligible workers and make payments if they are injured on the job. The worker accounts, the question is, can we do better? Is there some way to earn more than the 1.7 percent that we are now earning on Social Security dollars coming in? All worker accounts would be owned by the worker and invested through pools supervised by the government. In other words, they would be limited to index stocks, index bonds, index cap funds, and investments otherwise determined by the Secretary of the Treasury to be safe investments. So the investments are limited, just like anybody that works for government now. Our Federal payroll deductions go into a Thrift Savings Plan with individual employees and members able to choose how much of the money goes into each plan, but there is a limited choice on the number of plans that you are eligible to invest in. Regulations would be instituted to prevent people from taking undue risks. And until the account balance reaches $2,500, a worker would be limited to choosing one of three funds, an 80 percent bond/20 percent stock fund or a 60/40 fund or a 40/60 fund. And after the balance reaches $2,500, workers would have access to additional safe funds as determined by the Secretary of the Treasury. The legislation that we introduced, and this was bipartisan legislation with Republicans and Democrats that signed on to my bill, the bill would increase contribution limits for IRAs and 401(k)s and pension plans. I put this in the bill because I think it is important that we increase the savings of the United States. The savings of the United States is one of the lowest savings rates in the world. And so how do we get back to the days where the United States had one of the highest savings rates in the world? I think allowing some tax advantages to encourage savings is part of the motivation that can bring us back to a reasonable savings. The legislation I introduced would create a 33 percent tax credit for the purchase of long-term care insurance up to $1,000, $2,000 for a couple. It would create a tax credit to make it easier for low-income seniors to live at home or with family rather than going to retirement care. And low-income seniors would be eligible for the $1,000 for expenses related to living in their own home. Households caring for dependent parents would also be eligible for a $1,000 credit for expenses. I call this fairness for women. I suppose if I was politically correct, I would call it fairness to spouses. But generally women have been shortchanged in the Social Security program. These are the changes that are incorporated in my legislation. For married couples, account contributions would be pooled and then divided equally between husband and wife. In other words, if one spouse was making $80,000 a year and the other spouse was making $20,000 a year, they would be added together; and the eligibility at $50,000 for each spouse and the percentage allowed to go into their private investment account would be based on adding the two incomes together and dividing by two. So both husband and wife would have exactly the same amount every year in their personally owned savings account. The legislation would increase surviving spouse benefits to 110 percent of the higher earning spouse's benefit. Somehow we need to have programs that encourage seniors to stay in their own homes rather than nursing home care that can cost 40, 50, $60,000 a year. This is one of the areas that instead of the current law that says you could have 100 percent of that higher benefit, this legislation would increase it to 110 percent of the higher benefit. The stay-at-home mothers with kids under 5 would receive retirement credit. So for those limited years that they have children under 5 years old, they would be credited for the 35 years that is being used to determine benefits. For those years that they are at home with these young kids, they would be credited with the average earnings for those higher income years. The Retirement Security Act has been scored by the Social Security actuaries to restore long-term solvency to Social Security. There would be no increases in the retirement age, changes in benefits for seniors or near seniors, or changes in the Social Security COLA. Solvency would be achieved by recouping a portion of the higher returns from worker accounts and slowing the increase in benefits for the highest earning retirees. So what we do to help come up with the money to keep this program solvent is we reduce the increase in benefits for higher-income retirees, and secondly we allow a personal investment that can earn more money, but that individual worker still can have a retirement benefit that even though they are working in modest income, they can retire at very much higher incomes. The bill would also call for a loan of $900 billion from the general fund to Social Security to ease in the transition as we go into some of these private accounts. That loan is paid back over the years. When I introduced my first bill in 1994 and 1996, it was not necessary to borrow that money because the surplus coming in in those early years was so much greater. Now the surplus coming in from Social Security is declining; and, of course, as we noted on the one chart, it is going to run out. The program, the trust fund continues. The Retirement Security Act would allow workers to create on a voluntary basis accounts funded from their payroll taxes. It would be in their name; so if they die before the age of 65, they own the money. The money would go to their heirs and their kids. The accounts would start at 2.5 percent of income and would reach 8 percent of income by 2075. Workers would own the money in their accounts. It is their money. Investments would be limited and widely diversified and investment providers would be subject to government oversight. The government would supplement the accounts of low-income workers making less than $35,000 a year to ensure that the lower income workers build up the kind of equity that is going to allow them to retire with much higher incomes. The kind of spending that we have had in Congress means higher taxes are coming, maybe not in the next year or two, but eventually. The same Congress that could not bring itself to add a few real reforms to Medicare in a gigantic benefit expansion bill is not likely to cut benefits to the degree necessary to head off financial crisis. I take some comfort in what is happening this year from a new willingness among many Members of the Republican Conference to tighten our line on spending. And though some Members express concerns that maybe you should not have cuts in an election year, the overwhelming majority of Republicans agree that we have got to cut down on spending, we have got to have some kind of PAYGO rules that put some teeth, if you will, into assuring that we are going to limit spending. Joining with colleagues who share my concern with government overspending, we are going to reimpose those caps that we had in the 1980s and through the surplus period of the late 1990s. Another aspect of the solution is improving the honesty of government accounting. I would like to mention, Mr. Speaker, a bill that I am introducing to require the CBO, the Congressional Budget Office, and OMB to include unfunded liabilities, the $73.5 trillion that we mentioned, in their budget projections. So it is legislation that is going to make us more aware of the fact that we are making more promises than we can afford. To put $73.5 trillion in perspective, it amounts to 7 years of the gross domestic product of the United States, more than 30 times the President's proposed budget for this year; and it means that with 290 million Americans divided into that $73.5 trillion, every man, woman and child has a responsibility for more than $250,000. Some people have said that we should not worry so much about unfunded liability because it can be wiped out by reforms. I think that is the challenge. Are we going to do reforms this election year? Or are we going to put off those reforms until maybe after the election and try to do them next year? Congress and the President I think can redeem their record on spending to a large degree if they push hard for Social Security reform after this election. But it remains to be seen whether we will take on that fight, and it will be a fight because steeply progressive taxes and big government have been combined to form a powerful electoral bloc. Here again that bloc is 50 percent of earners in this country pay less than 1 percent of the income tax; and, as with health care, somehow everybody has got to participate in the taxes that run this government if they are going to look at their demands for increased government and know somehow that it affects their particular pocketbook. The same is true with Medicare and Medicaid. Somehow the reasonableness of those that are frugal in demanding additional health care need to have some kind of reward and those that are wasteful need to have some kind of scolding. The old system, of course, before Medicare and Medicaid was that one worked hard and they earned money and they wanted to save that money, so they were very careful how they spent that money for health care and they asked the doctor, look, how much is this going to cost and why are you charging me this much on the bill? But when there are third-party payers, when government is paying the full bill, it is easy not to be as conscientious in demanding accountability from health care providers. Empires decline when they fail to act on fundamental problems; and I wonder at times, Mr. Speaker, if we are not too distracted by endless scandals and horse-race politics of our media culture to grapple with what is best for our country. Too often, politics get reduced entirely to who benefits and who pays, but there have been times when I have been both surprised and inspired by the American people, by the people in this Chamber and the Senate and the White House who say we have got to come to grips with real problems that are facing this country. Despite the fact that it would sometimes seem easy to say, well, let us tax the rich and spend more money for the less rich and divide the wealth, I think it is important to remember that this country was built on a foundation and a motivation where those individuals that worked hard and saved, that tried and invested and that were careful with their spending ended up better off than those that did not. So as we come with legislation that sometimes on the surface seems attractive to divide the wealth, I think we have got to be very careful; and this gives me help and hope. As Lincoln concluded at Gettysburg ``that this Nation under God shall have a new birth of freedom and that government of the people, by the people, and for the people shall not perish from the earth,'' I think he was right because we are going to come to grips with these problems. It is just important that the American people this year remind their elected representatives. In fact, I say to the American people when they go to debates to ask those individuals running for President, those individuals running for the U.S. Senate, those individuals running for the U.S. House of Representatives, ``What bill have you sponsored or signed on to to save Social Security and to save Medicare?'' Do not let them give a lot of fast talk, but ask exactly what are they going to do to deal with this huge unfunded liability that this country is facing, where promises have far exceeded our ability to pay for them.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I move that the House do now adjourn.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, today is going to be a good debate on the budget. We are going to hear suggestions, maybe from both sides of the aisle, certainly from the Democrats, that we do not spend enough in this budget. The reason I am supporting this budget is because it is probably the most frugal budget spending increase we have had since 1996. There is a weakness in this budget that some day we are going to have to face up to, and that is unfunded liabilities. The day before yesterday, the Medicare and Social Security trustees estimated that the unfunded liabilities for those programs are $71 trillion. What that means is, in 15 years, we are going to have to use 28 percent of the general fund revenue to make up the difference between our promises and the tax funds coming in for Social Security and Medicare. Mr. Speaker, we have got to deal with the entitlement programs if we are not going to leave our kids and our grandkids with a huge debt.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Chairman, I thank the gentleman from Iowa for yielding me this time. I think we have got to be very careful about increasing taxes. There are so many needs out there that it is easy to suggest that we should spend more money. But reflecting on the actuaries' report that came out the day before yesterday for Social Security and Medicare it is bad news. They are now suggesting that if we do not deal with these unfunded liabilities, where the promises are over and above the revenues coming in, we have a future that is going to be very disastrous and complicated. Their estimate is that in 15 years, it is going to take 28 percent of our current general fund budget to cover the difference between the taxes coming in for Social Security and Medicare and what is needed to fulfill the promises we have made. In 25 years, it is going to take over 50 percent of the general fund budget, to cover those two programs. We cannot just continue to increase taxes. We have to start controlling the growth in government and the amount of revenue we are taking out of the pockets of the American people.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, a couple very important events are happening today that significantly impact our kids and our grandkids. One is the budget that we are passing. Although it is the best budget, the leanest budget, that we have passed since 1996, this budget still grows overall at about twice the rate of inflation. If we project that out, to the future and government grows at twice the rate of inflation, eventually we are going to have a government that is much larger relative to our economy and GDP. The other event that has just happened today is the actuaries at the Social Security Administration have released their report on what is going to happen to Social Security. It is not good news in the actuarial report of Social Security. It confirms that Social Security is going broke; less money is coming in than is needed to pay benefits 12 years from now. We continue in this body and across the Capitol in the Senate and the White House to increase our promises of what we are going to provide to people in the future; These are unfunded liabilities when it is not paid for. So our increased borrowing, how much our deficit spending is; how much we overspend in 1 year, how much we have to borrow in 1 year to accommodate that spending adds up to debt. The debt is a sum of all of the deficit spending. Our deficit is now over $7 trillion, and so we are going to have to vote again to increase the debt limit. I brought this chart to show what has happened in the history of the United States when Social Security faces problems of less money coming in than is needed to pay benefits. This is what has happened on the increase in taxes to accommodate the increased spending, and that is what I am suggesting today. If we do nothing, if we do not deal with this problem, if we do not look at the actuarial report of the huge burden of unfunded liabilities that are facing our kids and grandkids, then I think maybe, for lack of a better word, it is unconscionable. Just for a moment, in 1940 the rate was 2 percent on the first $3,000. By 1960, we needed more money, so what did the government do, raise it to 6 percent. In 1980, it was raised to over 10 percent on the first $26,000; in 2000, 12 percent of the first $76,000; and now it is 12.4 percent of $87,900. When government has needed a little more money, what we have done is increased taxes on working Americans. We have got to change from a program of fixed benefits over the next 60 years to a program of fixed contributions. Almost every other State has done that. To fix this around the edges simply puts off the problem to a future date and a future generation, which again I suggest is unfair. For everybody that is interested, I suggest that you take the time, look at the Web site of the actuarial report from the Social Security Administration, and I will just say it, www.ssa.gov/OACT/TR. That report says that the severe long-term consequences are enormous without action. I compliment President Bush for saying that we have got to move ahead on this, that we have got to have a bipartisan group come to grips and understand the enormity of this problem of Social Security. It is a program that has been developed, that now we have 80 percent of our population that are retired that depend on Social Security benefits for 90 percent or more of their total retirement income. It needs to be fixed. It is not fair for this Chamber to demagogue the issue and simply go into this election year trying to scare seniors. If they listen to some other party of a proposed solution to Social Security that it is going to ruin their Social Security. I guess what I am trying to say is, I ask every voter, Mr. Speaker, to go and ask the candidates for President, to ask every candidate for the United States Senate, to ask every candidate for the U.S. House of Representatives what proposal have you introduced, what proposal have you signed on to as a cosponsor that is going to make sure that we keep Social Security solvent.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I thank the chairman for yielding me this time. What are our goals and how do we best achieve them? I would think our goal in this war on terror is to have a safer and better place in America and the rest of the world. I would suggest that we are moving ahead in that direction. Let me just read the resolution: ``Commends the Iraqi people for their courage in the face of unspeakable oppression and brutality inflicted on them by Saddam Hussein's regime.'' I do not think we should disagree with that. ``Commends the Iraqi people on the adoption of Iraq's interim constitution.'' I do not think anyone should disagree with that. ``Commends the members of the United States Armed Forces and Coalition forces for liberating Iraq and expresses its gratitude for their valiant service.'' Certainly nobody would disagree with their valiant service. Is it a question that we are liberating Iraq? I thought the poll that came out was very interesting, where 2,500 Iraqis were polled on their opinion now, a year later, and I will read a couple. Some 57 percent said that life was better now than under Saddam, against 19 percent who said it was worse. Fifty-seven said it was better now and 19 percent said it was worse. Overall, 70 percent said that life was good now. Seventy percent said that life was good now, compared with 29 percent who said it was bad. Asked what political system they believed was needed in their country, 86 percent said they wanted democracy. I met a little over a month ago with 60 nations at the Pacific Interparliamentary meeting. Those people are happy, in my mind, as I judge their conversations, that the United States and Great Britain and the coalition forces are doing something. They are sort of happy they are not paying for it, but they are happy that somebody is aggressive in this war on terrorism. I met a couple of weeks ago in Libya, and Qaddafi, there is no question that Qaddafi did not want to end up the way that Saddam did. I was one of eight Members in Libya, and now we have countries like Libya saying, We are going to give up our nuclear weapons. We are going to give up our weapons of mass destruction. Did Saddam have those weapons? We know he had them. This summer we found all of those airplanes buried under the sand. I think, I suspect, that some place under the sand or someplace, there are still those weapons. We know he had them; we do not know what he did with them. I think the world is safer.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I think it is time for Congress and the President to be responsible. I object to the suggestion that somehow government can control the economy and decide whether it is a strong economy or there is good job growth. Government gets in the way every time. Let me suggest this, Mr. Speaker. If the best possible economic advisors could simply be taken to governments around the world, and with their advice the economy would be strong, job growth would be strong, every country in the world would hire the best possible economists to have a strong economy. The fact is we have a cyclical situation, and for the last several years we have had a worldwide slump in the economy. Europe is even having a more dangerous downturn. In terms of doing some of the things that we should do, and I would suggest, Mr. Speaker, that is government getting out of the way and not imposing rules and regulations and taxes that put our businesses at a competitive disadvantage to other businesses throughout the world. We should not be taxing our business in the United States 20 percent more than what other countries, our competitors, are charging their business. It means that we should not have all of these overzealous regulations to impose extra costs on our business that other countries do not have. The challenge for our kids and our grandkids is going to be huge. Overspending is part of that problem; but not dealing with the unfunded liabilities, not dealing with some of the huge challenges that are going to be faced by our kids and our grandkids is another area where Congress and the White House need to consider. I would like to bring to mind Social Security. We have known for the last 14 years that Social Security was facing tough times. We passed a Social Security Reform Act from the Greenspan Commission in 1983. We dramatically increased the taxes and reduced benefits. I bring this chart to the floor, Mr. Speaker, because I want to call to everyone's attention the danger of not doing something in this House and in the Senate and in the White House to correct the Social Security problem. Social Security is going broke. I just read an article, that it is no big deal because Social Security is not going to become insolvent technically until 2036, because that is how much money is in the trust funds; and if we pay that money back that government has borrowed, then there will not be any problem. But here is the problem and here is the situation, and we are looking for the actuary Social Security Commission report to come out next week. We are looking at a situation where by 2017 there will be less money coming in from Social Security taxes than is needed to pay benefits. What do we do then? We have got these IOUs that government has taken some of this extra money and spent it for other government expenditures; but that means we have either got to borrow more money or reduce benefits or increase taxes. I just want to report to my colleagues what government has done in the past. We started out with a Social Security tax of 1 percent on payroll. By 1940, we decided that was not quite enough money; we raised it to 2 percent on the first $3,000. By 1960, we were short of money again. We decided to raise that tax again to 6 percent on the first $4,800. By 1980, we raised it again to 10.16 percent on the first $25,900. In the year 2000, 12.4 percent on the first $76,000. Now it is 12.4 percent on $89,000. So the dangers of doing nothing is that we increase taxes or reduce benefits. So I plead with my colleagues, stand up and do what is right. Do not demagogue somebody's suggestion of a bill by saying that person is going to ruin your Social Security so do not elect them. I would call, Mr. Speaker, on every voter at every chance they have to go to a forum of individuals running for Congress or for the Presidency, and ask what bill have they offered or signed on to that is going to make sure that Social Security stays solvent. I have done this since I first came to Congress 12 years ago, all scored by the Social Security Administration to keep Social Security solvent. I chaired a bipartisan Social Security task force of Republicans and Democrats. By the time we spent a year studying the problem, we all agreed that we needed to do something very quickly. Mr. Speaker, I call on the White House, the President, and Members of the House and the Senate to move ahead to make sure we save this important program.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. I join my colleagues in supporting H. Res. 540, which expresses the condolences and deepest sympathies of the House of Representatives for the untimely death of Macedonian President Boris Trajkovaski. As we know, President Trajkovski died in a February 26 plane crash in Bosnia-Herzegovina, where he was planning to participate in a conference before traveling to Ireland to present his country's formal application to join the European Union. Boris Trajkovski had been serving as President since 1999. He reached across ethnic divides to hold his country together during the ethnic turmoil and conflict which erupted in Macedonia in 2001. He also represented Macedonia well in working with the international community, both on regional issues and on making Macedonia's case for integration into European and Euro-Atlantic institutions. Macedonia is a country of concern to the Helsinki Commission, which I chair. As they have had to develop democratic institutions over the last 15 years, Macedonia also had to assert independent statehood as Yugoslavia disintegrated and deal with the economic disruption caused by that disintegration. Macedonia had to bear a refugee burden caused by associated conflicts in Bosnia and Kosovo, and be a part of the enforcement of international sanctions against Milosevic's Servia. Macedonia has had to work out differences with neighboring states on sensitive, national issues which run deep in Balkan history, at the same time to overcome divisions within its own, ethnically diverse population. And, like so many of the countries in southeastern Europe, Macedonia must contend with organized crime and corruption, including trafficking in persons, which threaten its further democratic and economic development. It is my hope, Madam Speaker, that the same strength and determination upon which the people of Macedonia have relied in the face of these challenges, will serve them again in the face of this latest tragedy. With the passage of this resolution, the United States Congress can show its support for Macedonia and its people, not only as they mourn the loss of their President, but as they continue on the path of peace and prosperity he was leading them at the very moment he died. In closing, I wish also to express my prayers and personal condolences to family and many friends of Boris Trajkovski. Madam Speaker, I join my colleague Mr. Souder and others in supporting this Resolution and expressing deep sadness over the sudden and tragic death of Boris Trajkovski, the President of Macedonia. In the 1990s, I served as a Co-Chairman of the Commission on Security and Cooperation in Europe, the Helsinki Commission. During that time, the Commission, the Congress, the American government and indeed the international community viewed the conflicts associated with Yugoslavia's demise as a foreign policy priority. In Croatia, Bosnia and then Kosovo, thousands upon thousands were killed, raped or tortured while millions were displaced in ethnic cleansing campaigns. The violence, of course, would reverberate through the region, replacing trust and cooperation with fear and hatred in ethnically diverse communities. Macedonia, as a republic of the former Yugoslavia, was caught in the midst of this turmoil, but it held itself together. Even when fighting erupted within its own borders, many of that country's leaders worked to find solutions to underlying grievances and brought peace back to Macedonia. Of course, international involvement was essential, but so was the presence of people like Boris Trajkovski, who would reach across ethnic lines and work to help all the citizens of Macedonia, not just those of their own ethnicity. Boris Trajkovski, in my view, understood what it meant to be a head of state, to represent the country, all of its people, and all of their aspirations. Since 1999, he moved his country forward. I hope, Madam Speaker, that the people of Macedonia will find not just sorrow in President Trajkovski's death but also the strength to make his vision of a democratic, tolerant and prosperous Macedonia a reality. They can count on support of the United States to that end. As Secretary of State Colin Powell said on February 26, the day Trajkovski's plane crashed in Bosnia, the Macedonian President ``leaves behind a legacy of U.S.-Macedonian friendship that has never been closer or stronger.'' In closing, let me also express my deepest condolences to President Trajkovski's wife, Vilma, his children Sara and Stefan, and other family members and friends. Poverty is a fact of life for as many as 400 million Indians who survive on less than $1 a day. Illiteracy rates, while decreasing, are still high. And the health, economic and security challenges posed by the HIV/AIDS virus may be the most important issue facing India today. Madam Speaker, as our delegation conveyed during our recent visit, and I was want to convey today, the United States is India's partner as she works to address these and other challenges on the way to realizing her potential of becoming a true world power. I returned home with a renewed commitment to ensure that the United States continues to provide economic development assistance for health care and food for the needy, improved energy efficiency and environmental restoration efforts. And we will of course honor our pledge to take the lead in the global effort to combat the scourge of HIV/AIDS, through the provision of medicine, volunteers, and much- needed financial resources. Above all, we must foster a deeper appreciation for the shared values and beliefs that lie at the heart of our two great democracies, and an understanding of the common principles and interests that bind us together. This Resolution is a celebration of India's Republic Day, but also a recognition of our strengthening relationship. I urge all of my colleagues to support it.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I rise to express my support and appreciation for the Civil Air Patrol. In December 1, 1941, just before the attack on Pearl Harbor, in the great tradition of American volunteering and patriotism, civilian aviators and watchers organized the Civil Air Patrol to help protect our borders. During World War II, they attacked 57 submarines and sunk 2 in addition to diligent reporting of suspicious sightings. In recognition of their contribution to the war effort, President Roosevelt declared the Civil Air Patrol an auxiliary of the Air Force. The Civil Air Patrol represents what is great about America. Volunteers come together to assist each other in defending our homeland. The government did not direct them, but they cooperated with the government to help all Americans. The Civil Air Patrol has three missions. It assists with Emergency Response throughout the country. The Michigan Wing flew more mission hours than any other Great Lakes wing. Second, it works with students to teach aerospace science and aviation. The Michigan Wing was given an award by the National Civil Air Patrol headquarters for the best aerospace education program in the Great Lakes. And third, it trains Cadets. Today, I met with Lt. Col. Tim Neill and three Michigan Cadets, Cadet Lt. Sean Croff, Cadet 2nd Lt. Holly Growe, and Cadet Captain Teresa Olson, who impressed me with their intelligence and dedication. Like many young people they have a desire to serve their country and understand how they can contribute to our country and to our armed services. And they are learning about aerospace science and aviation. Additionally, learning discipline and hands on technical experience is excellent. I applaud these young men and women, and I understand their contributions. When I was in graduate school in Delaware, I was the squadron Commander in the Civil Air Patrol. As one of the pilots, I flew search and rescue missions and understand the real contribution that Civil Air Patrol makes to our ``Homeland Security''. Mr. Speaker, we all thank the leaders and students that give their time for the Civil Air Patrol. They represent the best traditions of America.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, I am going to give a short tutorial on Social Security tonight, and this is going to be somewhat bipartisan because I am going to criticize both parties a little bit for not acting on one of the most serious problems I think is facing our country, and that is unfunded liabilities. In other words, the kind of promises that Congress has made to make themselves more popular back home and yet not having any way to pay for it. The estimated unfunded liabilities in today's dollars of the promises that we have made that we do not know where the money is coming from is estimated now at $53 trillion. In other words, we would have to come up with $53 trillion and put it in a savings account that is going to return at least inflation and the time value of money in order to pay for these kind of future benefits. Even at this time, when Republicans are talking about the diligence that we must have in reducing spending, and my guess is we are going to reduce spending even less than what the President has suggested, there still is the problem of dealing with Social Security. I asked the pages a little earlier to listen up to my comments tonight on Social Security because our pages, who are 16- and 17-year- olds and in high school, are the generation at risk that are going to have to put up with our nonaction to solve this serious problem. And as long as the pages are listening, let me just say it is a tremendous service that they provide to America, giving up their time, getting up at 5:30 in the morning, eating quickly and doing all the work we put before them. Okay, here goes the roughly 30, 35-minute tutorial on Social Security. First, I am going to start out with how we divide up government spending. If you look at this pie chart, we see that the expense for Social Security is the largest piece of this pie. Let me remind everyone that Social Security is a pay-as-you-go program where the taxes, FICA taxes that come out of your paycheck immediately, once it gets to the Department of Treasury, is either sent out in benefits to current retirees, or where there is a surplus it is spent for other government programs. Social Security even exceeds the 20 percent increase in cost of defense. Interest is 14 percent, but to continue to borrow this money and pretend that our problems today are so serious that it justifies taking money away from our kids and grandkids that cannot defend themselves I think is unconscionable. Here is briefly how Social Security works. Benefits are highly progressive and based on earnings. Some people have said if the economy improves it will satisfy the problems that we are facing with Social Security. That is not true because as the economy improves and wages go up, that means future benefits, because they are directly related to the wages that you are making, future benefits are also going to go up. It might solve the problem in the short run, but in the long run it does not solve the problem. The second is at retirement all of a worker's wages up to the tax ceiling are indexed to present value using wage inflation. In other words, if you made $20,000 a year 15 to 18 years ago, the wage inflation would credit you on the way your benefits are calculated up to what that $20,000 is worth today. In other words, it would be written down someplace around $40,000. The third blip, the best 35 years of earnings are averaged. So if you only work 20 years, 15 years go as a zero for your average earnings in terms of defining your benefits. The annual benefit for those retiring in 2004 equals, and this is how it is progressive, it equals 90 percent of the earnings up to 7 percent. These are the benefits you are going to get or are getting. It equals 90 percent up to the first $73,440; 32 percent of the earnings between that figure $73,440 and $44,000; and 15 percent of the earnings above the $44,286. In other words, if you are a very low-income person, you can receive back on our average Social Security check 90 percent of what you averaged during the 35 years. If you are a very high income recipient, you are going to get 15 percent of the earnings up to the maximum of what is now $89,000. We have capped your earnings in terms of defining Social Security benefits up to $89,000, and that is geared to inflation in future earnings. Early retirees receive adjusted benefits. If you retire at 62, they figure out how long you are going to live and reduce your benefits accordingly. However, if you decide to put off retirement, maybe until you are 70, then your retirement benefits are indexed to a higher calculation in your monthly payment. So if you are in good health, keep exercising and eat right, sometimes it is going to be to your advantage to put off receiving those Social Security benefits for a few years. What a lot of people come to me and ask, what about all this cheating on SSI? These people are getting my Social Security benefits. That is not true. SSI comes out of the general fund. It does not come out of Social Security. Well, Social Security started in 1934 with President Franklin Roosevelt. When President Roosevelt created the Social Security program over 6 decades ago, he wanted it to feature a private sector component to build retirement income. Social Security was supposed to be one leg of a three-legged stool to support retirees. It was supposed to go hand-in-hand with personal savings accounts. Researching the archives, and if you have never looked at the archives and the history of this country, it is very interesting. Looking at the archives when Social Security was passed, the Senate actually said there should be personal retirement savings accounts owned by the individual worker. The House said no, let us have government take all of the money and the government can invest it. That way we can be sure no snake oil salesman comes in and tries to convince individuals to invest their money some place where it might be risky. In conference committee the House won out, the government won, and from then on every time Social Security gets into a little trouble in terms of income, enough income coming in to pay benefits, it does one of three things: It increases taxes; it reduces benefits; or a combination of those two. Most often it is a combination of the two. Social Security is, what I wrote on this chart, is a system stretched to its limit. There are 78 million baby boomers that begin retiring in 4 years in 2008. This is part of the problem. With a pay-as-you-go program with more and more retirees and a lower birth rate, you end up with fewer and fewer workers paying for the benefits of that increasing number of retirees. Social Security spending exceeds tax revenue in 2017. That is the current estimate. Later this month the Social Security Administration is going to come out with their new projections of how big a problem we have for Social Security. Chairman Greenspan at a House Budget Committee hearing said a couple weeks ago that Congress has got to do something about Social Security. It is going broke. He suggested that we have a few changes in Social Security that slows down the increase in benefits over and above inflation. We had both Republicans and Democrats saying well, boy, we do not want to touch Social Security. As most people know, Social Security is easy to demagogue. We have so many people that are so dependent on Social Security, when somebody says this other guy running for Congress, he wants to ruin your Social Security, and if you do not understand how Social Security works, if you do not understand how great the predicament is going to be and how underfunded Social Security is going to be in the future if we do not make some changes, it is easy to say I better vote for the person that says my Social Security is never going to be touched. There are only three ways to fix Social Security: You either reduce benefits; you increase taxes; or you make a change in the program to get a better return on the money that is being sent in by American workers. What I am suggesting and I put into my bill 10 years ago, and I was the first to say that we should consider private savings accounts in order to get a better return than the 1.7 percent that the average retiree gets from the money that is paid in, that they pay into Social Security. The third bullet on this chart, Social Security trust funds go broke in 2037. But in 2017 or 2018 is when there is not enough money coming in from taxes to pay benefits, and so then you have to increase taxes on somebody else. What Congress has done in the past, they say let us just reduce benefits a little bit. When I introduced my first bill over 10 years, and I have introduced a bill scored by the administration every session of Congress that I have been here since 1992, it was easy to fix the program because there were a lot of surpluses coming in. The point I am trying to make is that those surpluses are going to go away every year. Back to the pie chart, guess how much we take in from Social Security now? We take in from Social Security taxes $540 billion a year, and what we pay out is $450 billion a year. So right now because of the huge tax increase on Social Security that we imposed with a Greenspan commission in 1983, for a short time period at least we are bringing in more revenues than we need. And part of the problem is that this Congress, both sides of the aisle, have said here is some free money so we are going to spend that Social Security extra money and then we are going to write out an IOU to the Social Security Trust Fund. Very briefly, solvency is certain. We know how many people there are, and we know when they are going to retire. We know people will live longer in retirement, we know how much they will pay in and how much they will take out, and we know that payroll taxes will not cover the benefits starting in 2017. What do we do? And the shortfalls are going to add up to $120 trillion between 2017 and 2075. That is in future dollars. So if you count how many dollars every year between 2017 and 2075, $120 trillion, compare that to our $2 trillion, a little over, we are running maybe $2.4 trillion this year, that is our annual budget, a little over $2 trillion, $120 trillion we have to come up with in future dollars. If we had $12 trillion in today's dollars and put it into that savings account, we could accommodate benefits; but that is $12 trillion. Where is it going to come from? This chart represents the demographic problems. The pay-as-you-go retirement system is not going to meet the challenges of a reduced birth rate and an increased longevity for people to live. Back in 1940 there were 37 workers paying in their Social Security tax for every one retiree. By the year 2000, it got down to three workers paying in their Social Security tax for every retiree. Of course we are estimating in 2025 it is going to be down to two. In addition to those demographic considerations, what we are also facing is the fact that we have increased benefits along the way. And so the fewer workers you have to pay that increased benefit, the greater the burden is on those individuals. But more than that, what is it going to do to our economy? Do you know what is happening in France? France has a payroll tax to accommodate their senior population of over 50 percent. No wonder France has such a high unemployment rate. No wonder France is having a difficult time competing with world trade in their production, because a business only has two chances when they have that kind of increased tax: You either have to pay the employees less or you have to charge more for your product. And if charging more for your product makes you less competitive, then your economy is weakened. Guess what the payroll tax in Germany is? Now the payroll tax in Germany is 42 percent. Ours is 15.2 percent, but if we do not do something and we say look, we will deal with this problem later, then the consequences are increasing taxes on American workers. That is a problem for those individual workers, and it is a problem for our economy if we start having to charge business the extra tax to pay those kinds of benefits. That means that the United States Government, Federal Government, has to start considering doing something that almost every State in the Nation has done now, and that is instead of having a fixed-benefit program, you have a fixed-contribution program, and it is going to take 20-30 years to make the transition to that kind of a program. But look, the longer we put it off, the more drastic the solution is going to be. I know I get a little emotional about this issue. Many of us have shouted and pulled our hair and got on our soapbox saying these are real problems, the unfunded liability of our promises. And of course it has been the tendency that politicians that take home pork projects, that start new programs, that make promises, and the needs out there are unlimited, but those kinds of extra promises that are put into law tend to increase the chance that that individual politician is going to be elected to office. They get on the front page of the newspapers, their picture is on television cutting the ribbon, and they end up increasing the likelihood that they will be reelected. Part of that is because now over 50 percent of the adult population gets much more from government services than they pay in in taxes. With 50 percent of the people now paying about 1 percent of the total income tax in this country, it is easy to understand why some say, look, I've got problems, give me a little more government, give me a Representative that's willing to spend a little more money. But for the sake of our kids and our grandkids, we have got to face up, I think, to the real problems that we have today in the unfunded liabilities and the overspending. This is simply a chart that says, starting in 2017, we go from the surpluses of the high taxes that we passed back in 1983 and we go into a future of huge deficit spending. What I think it is good to remind people about is there is no Social Security account. That is the same as saying it is a pay-as-you-go program. The Supreme Court on two decisions now has said just because you pay Social Security taxes all your life there is no obligation on the part of the Federal Government to pay Social Security benefits. That is what the Supreme Court has said. They said Social Security taxes are a law that has been passed by Congress and signed by the President for increased taxes and that benefits are simply a benefit provision passed by Congress and they are not connected as far as an entitlement. These so-called trust fund balances in Social Security are available to finance future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. This was the Office of Management and Budget that said this, just to hopefully emphasize the fact that there is no entitlement program. I am introducing legislation to say that in future budgets of both the OMB, that is the President's budget people and CBO, the Congressional Budget Office, which is the congressional budget office, they have got to include projections on unfunded liabilities; and I think maybe it will help us better realize the predicament that we are facing. Generally, it is a little easier to put off the solutions until the disaster is right there upon you. It is easier in terms of politics. It is not easier in terms of finding a good solution to keep Social Security solvent. As I go around, since it was used against me in my first three reelections that Nick Smith is trying to ruin Social Security, I have probably given maybe between 250 and 300 speeches in my district to my constituents presenting the problem of the dilemma of Social Security. My district is starting to understand better that something needs to be done. Luckily, I have been reelected in spite of the demagoguery. But what a lot of the people say, if government would just keep their cotton-picking hands off of the extra Social Security money coming into the trust fund, it would be okay. This chart represents that it would not be okay. What government has borrowed and spent because of the annual surpluses is now in IOUs down in Virginia and it amounts to $1.4 trillion. The unfunded liability is $12.2 trillion in today's dollars, $120 trillion if you include the future dollar cost of what is going to be unfunded if we stay with the current tax structure. I think I mentioned a little bit, so just briefly, economic growth will not fix Social Security. Social Security benefits are indexed to wage growth. When the economy grows, workers pay more in taxes but also will earn more in benefits when they retire. And so growth makes the numbers better now, but worse in the future. The biggest risk is doing nothing at all. Social Security has a total unfunded liability, this is an old figure, of $9 trillion. It is closer to $12 trillion. The Social Security trust fund contains nothing but IOUs. To keep paying promised Social Security benefits, the payroll tax will have to be increased by nearly 50 percent, or benefits will have to be cut by 30 percent. Let us make sure we do not make that happen. This is a chart that shows what the average retiree gets on the money they send in for Social Security taxes from their paycheck. The real return on Social Security is less than 2 percent for most workers and shows a negative return for some, compared to over 7 percent for the market. If you happen to be a minority whose life span is less, you actually are a loser and you do not get the money that you send in in Social Security taxes. If you are an average, you end up at about 1.7 percent return on your Social Security benefits. I just put this number down in terms of what has happened to the 5,000 stocks in the Wilshire 5,000, the index fund. This is what it has earned after inflation over the decade ending January 31, 2004. So it includes the down years, the low-income years. That is 11.86 percent. If we had government invest it and say, look, you cannot spend it anyplace else, but you have got to invest it, if we were to have individuals own it and say, look, government is going to say that you cannot take it out until you retire, government is going to limit the investment funds that you are allowed to invest in, in safe investments, the possibilities are that you could double, triple, quadruple and even more what you are getting now in terms of returns on the money you pay in for Social Security. This is another way of saying it in my little bar chart, that if you retired in 1940 when there were so many workers and the program was just starting, it took 2 months to get back everything you and your employer had paid in. If you retire in 2005, it is going to take you 23 years after retirement to break even. And as you see, in 2015 it goes up to 26 years that you are going to have to live after you retire to break even on the money that was sent in for Social Security. This chart shows what Congress and the President have done in the past to solve the Social Security problem, as there are more retirees and fewer workers. We have increased taxes, this chart does not show how we have reduced benefits, but what we did in 1983 is we increased the age that you receive the maximum benefits. So we are now indexing that age upward from 65, but it only goes up to 67 and then levels off again. Probably what we should do is somehow instead of indexing it to inflation, maybe index that retirement age for maximum benefits to the mortality tables. I chaired the bipartisan task force on Social Security, Democrats and Republicans. After we spent about a year, both Republicans and Democrats on that task force agreed that something has to be done and the sooner the better. We had testimony from futurists, medical futurists that suggested that within 20 years, anybody that wanted to live to be 100 years old would have that opportunity. Within 30 to 35 years, probably, with our medical technology, anybody that had the desire and the money could live to be 120 years old. So medical technology is making the life span greater. Just let me give Members a short comparison. When we started Social Security back in 1935, the average age of death was 62. That meant most people paid into Social Security most of their lives but died before they were eligible for those retirement benefits. Now the average age of death for a male is 78 and the average age of death for a female in America is about 81\1/ 2\, almost 82 years old. Very briefly, what we have done on tax increases, in 1940 our rate was 2 percent of the first $3,000. In 1960 we raised it threefold, 6 percent of the first $4,800. In 1980 we raised it to 10.16 percent of the first $25,900. In 2000 we raised it to 12.4 percent of the first $76,200. Now in 2004, because it is indexed for inflation, it is 12.4 percent of the first $87,900. The danger again is increasing taxes or reducing benefits. Let us deal with some structural changes to Social Security, and I am just going to get into what I think is reasonable as far as some suggestions. I think it is important that we have raised Social Security taxes so much that now 78 percent of working families in the United States pay more in the Social Security tax than they do the income tax. There are six principles of Social Security that I think are important: protect current and near-term retirees, allow freedom of choice, preserve the safety net, make Americans better off. On the principle of preserving the safety net, nobody's proposal for Social Security makes any change to the insurance part of that program, the disability part. If you get hurt on the job, you are going to be covered under Social Security for some payments. Nobody is suggesting any change in the government running that disability insurance part of the program. Make Americans better off and not worse off, and hopefully the economy in America better off; create a fully funded system; and no tax increases. Those are what I think should be our six guiding principles. The U.S. trails other countries saving its retirement system. In the 18 years since Chile offered personal retirement accounts, 95 percent of the Chilean workers have created accounts and their average rate of return has been 11.3 percent. Of course, there is Australia, Britain, Switzerland, other countries. Even England allows 50 percent of their FICA tax, so-called, to go into personal retirement accounts. Here are some of the highlights of my proposal. People choosing to participate in the voluntary account program would continue to receive benefits directly from the government. In other words, they have the option of going into a personal retirement savings account as part of the money that they pay in in Social Security taxes, or they can stay in the current system. Those benefits would be offset based on the amount of money deposited into their accounts, not on the amount of money earned in their accounts. In other words, if you earn more money, then you are better off than if you would be sticking with Social Security. If you can find a rate of return that is better than Social Security, you end up with higher retirement incomes. In our Social Security legislation that we passed back in 1934, we said that municipalities did not have to go into this program; they could devise their own program as long as they had required saving investments. That is what a lot of counties in the United States have done. Some Texas counties are now paying $40,000 a year in retirement benefits compared to a much lower rate in Social Security. Those benefits would be offset based on the amount of money in accounts. This means that workers could expect to earn more for their account than the offset. What we do in our legislation, because it is so absolute, because we can have some companies that will guarantee a better return than Social Security, we have guaranteed in my bill that your retirement income will be at least as high if you stayed in the Social Security system. We start out, into Social Security you pay 6.2 percent, your employer pays 6.2 percent. In reality it all comes out of the worker's pocket. But we are saying that out of that 12.4 percent, we are going to start letting you set aside 2.5 percent of your earnings in your own personal retirement savings account. And there are several provisions where we divide it. All worker accounts would be owned by the worker and invested through pools supervised by the government. Regulations would be instituted to prevent people from taking undue risks. I know this is all coming hard and strong, but if I give this special order maybe 100 times, people can tune in to pick up some of the leftover pieces. Until an account balance reaches $2,500 in their personal retirement account, we restrict what they can invest in. It would be limited to choosing one of three funds: an 80 percent bond, a 20 percent index stock or a 60/40 fund or a 40/60 fund. So what we are saying is until one reaches that minimum, that they are going to be limited on the kind of investments they can make. But we also say when one can buy an annuity account that will give them as much money as Social Security would in their retirement, then they can do anything they want to with their money. After the balance reaches $2,500, workers would have access to additional safe funds. The bill would increase contribution limits for IRAs, 401(k)s, and pension plans because we need to increase our savings in this country. The United States has one of the lowest savings rates in the world right now. That means it is tougher for our business and industry to come up with the funds that they use for research and growth and eventually jobs. It would create a 33 percent tax credit for the purchase of long-term care insurance up to $1,000, $2,000 for a couple. The long-term care insurance is one of the highest costs for Medicaid, a little bit different but still dealing with the huge problem of unfunded liabilities that we are facing with the Medicaid program. The Medicare program is the health care program for seniors. The Medicaid program is the health care program for low income. It would create a tax credit to make it easier for low-income seniors to live at home or with a family rather than going to retirement care. Low-income seniors would be eligible for $1,000 for expense related to living in their own home, and households caring for dependent parents would also be eligible for a $1,000 credit for expenses. Here is an issue that has bothered me in Social Security, and I call it ``fairness to women.'' Sometimes it would be the man that is the spouse, but in my proposal I say for married couples, account contributions would be pooled and then divided equally between husband and wife. In other words, if one spouse was making twice as much as the other spouse, they pool what they are making together in terms of what can go into their personally owned private investment account and divide it in two so each husband and wife would have the identical amount of money in their savings account. Certainly, it is going to simplify divorce settlements. It would increase surviving spouse benefits for up to 110 percent of the higher earning spouse's benefit. And stay-at-home mothers with kids under 5 would receive retirement credit. My wife has got me convinced, my daughters have me convinced that stay-at-home moms really work hard, and we should not discourage it. We should encourage it. So I am suggesting in my bill for a mom staying home with those young kids, they can get extra credit in terms of assigning an average earning for those later years of what they might have made if they had been in the working environment. So it averages their highest income for those years they stay at home with those young kids up to 5 years. Briefly, and let me wind this up pretty quickly, the Social Security Solvency Retirement Security Act has been scored by the Social Security actuaries to restore long-term solvency to Social Security. There would be no increases in the retirement age, changes in benefits for seniors or near seniors or changes in the Social Security COLA. The COLA is the cost of living index that is calculated every year to increase Social Security benefits. Solvency would be achieved by recouping a portion of the higher returns from workers' accounts and slowing the increase in benefits for the highest-earning retirees. Remember that chart back a while ago, if people have been watching this whole show, where the progressivity of the Social Security system ends up with receiving 5 percent if one is of very high income? I add one more bend point, is what I call it, what economists call it, and say if one is of very high income, it is going down to be 5 percent of that very high-income earning. What this does in effect is it slows down the increase in benefits, slows down the increase in benefits for very high-income retirees. That is where we make up some of the money. The bill would also call for a loan of $900 billion from the general fund to Social Security to help ease the transition. The loan would be repaid when the program regains solvency. My early bills that I introduced in 1993, 1995, 1997 in other sessions did not require that loan to help make the transition, and the transition is a problem because if we are going to have personal retirement savings accounts, somehow we have got to come up with that extra money because of the consideration that it is a pay-as-you-go. As soon as the money comes in, we are paying it out. And in 2017, the current estimate, that we are not going to have enough money to pay benefits. So starting in 2017, we need more money to continue those personal savings accounts. I think I am down to my last chart, Madam Speaker. The trust fund continues; so I do not deplete the trust fund. I leave at least half of the trust fund in place in case of contingencies, emergencies, or anything else. The Retirement Security Act would allow workers to create, on a voluntary basis, accounts funded from their payroll taxes. The accounts would start at 2.5 percent of income and would reach 8 percent of income by 2075, a very gradual process, but, again, the longer we put it out, the more drastic the solution it is going to be. So we need to do it quickly. We need to quit demagoging. If one is a Republican, do not demagogue the Democrats' suggestions. If one is a Democrat, do not demagogue the Republicans' suggestions on how to fix Social Security. If one is a voter in the United States, then I think they should be asking everybody running for office what is their solution to make sure that Social Security stays solvent? Are they going to simply borrow more money and let our grandkids pay for it? Are they going to increase taxes? Are they going to reduce benefits? What is their proposal? And do not let them give some fast talk and say, ``Boy, I am not going to let anybody touch your Social Security benefits.'' That is what has been done too long. Pin them down. What bills have they introduced? What bills are they signing on to and cosponsoring to make sure we save Social Security? The Retirement Social Security Act accounts start at 2.5 percent. They go up. Workers would own the money in their accounts. And that means right now if one dies at an early age, they might get burial expense but the money is not theirs; so that is how the Social Security system has gained some money with people that die before they are eligible for retirement benefits. In their personal retirement account the money is theirs. It goes to their heirs if they die before they reach age 65. Investments would be limited, widely diversified, and investment providers would be subject to government oversight. The government would supplement the accounts of low-income workers making less than $35,000 a year to ensure that they build up significant savings. Actually, I sort of stole this idea from President Clinton. That was one of his proposals that was just part of a proposal that we have an American savings account. But let us make sure, to the best we can, that every worker ends up better in their retirement, that the system helps the economy by having the kind of savings account that, rather than being spent by government for more government programs, ends up being invested in equities, in bonds, in stocks, in the kinds of investments and savings that are going to help our country. In conclusion let me just say that I was in Libya yesterday meeting with Colonel Khadafi. We have a system and a Constitution in the United States that provided that those people that work hard and save, that study and learn and use it, end up better off than those who do not, the kind of motivation that has helped us have the strongest economy in the world. It was interesting that Khadafi told us that what he thinks is they need less government in Libya, that if they work 4 hours, they get paid for 4 hours; if they work 8 hours, they should get paid for 8 hours, and if they do not like what their employer is doing, changes jobs, and they do not want somebody speaking for them. In fact, also, and I made a decision early on not to take special interest PAC money for my campaigns, he said we do not want political parties in Libya because with political parties they are both going to be trying to get a majority. To get a majority, they spend money. And the first thing one knows, countries like Egypt would be coming in, financing one political party. Somebody else might be coming in with a different interest, financing another political party. And they would be tending to push laws that were good for their interests and not good for the country of Libya. That is a very interesting change of mood for an individual that has supported terrorist regimes in the past in how he thinks the future of Libya should be restructured.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, I move that the House do now adjourn.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, let me commend the Committee on Rules and certainly the gentleman from Florida (Mr. Shaw) for initiating these kinds of needed changes. My suggestion is, let us start dealing with some of the real problems of Social Security and move this, allow this bill to proceed, because what is in this bill is fair and it is needed. I just want to take a couple of seconds to say how important I think it is to deal with the huge problem that we are going to be facing in Social Security. We have an unfunded liability now of $12 trillion in today's dollars. If we look at the dollars in future years that is going to be required to keep our promises in Social Security, then it is going to be over $25 trillion. It is something that is terribly disrespectful of current and future retirees to continue to put off the solution to Social Security. I would hope that we would continue this debate and discussion and look for ways that we can keep Social Security solvent. It has been a good program. Putting off the problem that we are facing and demagoguing in elections is not the solution.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Chairman, with regard to the original bill that came over from the Senate, the gentlewoman from Wisconsin (Ms. Baldwin) and I, have introduced, cosponsored, about six bills either to make the Chapter 12 permanent or to at least extend it. I would just like to tell my colleagues that in calling the bankruptcy judges that handled these farm cases, there has never been a farm case thrown out because the law expired. Sometimes it has been reacting late, but we have always made it retroactive in every case so those farmers that wanted to use the provisions of Chapter 12 have been able to do that. So I would like to make Chapter 12 permanent, but I would also like to make some of the corrections that incorporate some of my language in a larger bankruptcy bill. I hope we can do that. I think it is important for our financial institutions to have some of the additional concerns that are addressed in this bill. This bill will also at the same time expand the availability of loaned money, of available credit money, to more people. So I would hope we would pass the bill as provided by the Committee on Rules and send the bankruptcy bill in total over to the Senate and, hopefully, resolve it in conference for final passage.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I rise now to recognize an important celebration in my district and the individuals who are being recognized for their special contributions to the community. The Greater Jackson Area Chamber of Commerce, under the leadership of President Susan Milhoan, is hosting its annual awards dinner to honor its 95th year, in addition to the anniversary of the founding of the Republican Party in Jackson in 1854, and the founding of the City of Jackson 175 years ago. At this celebration, several men and women will be recognized with a variety of awards for personal achievement, character, and service to the community. The Athena Award recognizes women who demonstrate excellence in their profession, assist other women in realizing their leadership potential, and contribute their time and efforts to improving the community. Manya D. Otis, owner of Financial Sales and Seminars, is this year's winner, and her involvement in the community includes the Rotary Club, Disability Connections, and her church. This year's Small Business Person of the Year is Al Cavasin, owner of Great Northern Sentry Company. Since founding his business in 1991, Al has expanded the company from a humble three employees to five separate divisions. Al is an expert and author on security matters and holds seats on the Board of Directors of the National Council of Investigators and Security Specialists and the Michigan Council of Private Investigators. He is also President of the Michigan Contract Security Association. The 2004 Youth Citizen of the Year is Anthony Ramsey, Jr., a senior at Jackson High School. In addition to being an honor roll student and a member of the football and track teams, Anthony has made time to serve on the United Way Teen Advisory Panel, the Jackson Community Foundation Youth Advisory Committee, and volunteer at the Lily Missionary Church that he attends with his family. Finally, the Citizen of the Year award goes to Maclay ``Mac'' Gwinn. After retiring from Consumer's Energy 20 years ago, Mac has given his time and efforts to countless community organizations including the Alzheimer's Association, the Jackson County Historical Society, Big Brothers Big Sisters, and the Jackson Kiwanis Club. He is the Big Sisters Big Brothers Board President and he has his own ``little brother.'' Mac also helped form a support group for men who care for loved ones stricken with Alzheimer's disease. Other Distinguished Citizens of the Year include Nancy Seydell, Steve Volker, Lisa Lazaroff, Mary L. Miller, and Bob Richardson. I am very pleased to stand here today before my colleagues in the U.S. Congress to recognize these important milestones in the Jackson community as well as all of these great citizens. Each person is a wonderful role model who has expended a great deal of effort on behalf of the community in a selfless and humble manner. I challenge us all to strive to match their level of commitment and dedication.