Nick Smith

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, last night we heard a new President talk about some of the priorities of this country and some of the potential problems with the economy which could eventually affect jobs, not only the number of jobs, but the kind of incomes that are offered for those jobs. To me the important thing is not whether or not we have a tax cut. To me I think the most important thing we can do to strengthen the economy is to hold down the increase in Federal Government spending. We have seen a Federal Government over the years that has ballooned in size, and the political situation is that when Members of Congress, both the House and the Senate, come up with new programs, new spending, take home pork-barrel projects, they end up on television, the front page of papers and it is announced on the radio; and it probably increases their chances of being reelected. Mr. Speaker, the problem is having a government growing bigger and bigger, which is bad for the economy when we take more and more money out of worker's pockets and send it to Washington; but the problem is also taking away the empowerment from individuals and sending it to Washington, so Washington ends up with more rules and more governing of your lives and how you live it and take care of your family. I see that moving the question of how big should government be to the top of my personal list. Now the question is: In a situation now where we have more money coming into government than is currently used or is currently anticipated of being used over the next 10 years, what do we do with those extra dollars. What happened last year is we increased discretionary spending by approximately 8 percent. The three bills that we finished in December had an increase of almost 14 percent. So government and the tendency for government to get bigger and bigger and control more and more of our lives is very real. Mr. Speaker, I want to talk about this chart that I have beside me that relates to a lot of talk these days about debt, about paying down the debt. There are three parts to the $5.7 trillion of total public debt in this country. And the three elements that make up the total of $5.7 trillion are: The debt held by the public, $3.4 trillion. This is the Treasury paper that is loaned out, that is borrowing money for government needs; and so I call it the Wall Street debt. The other debt is the debt to approximately 119 trust funds, that is about $1.2 trillion; and the debt to the Social Security trust fund, and that is now $1.1 trillion. So when people talk, when Washington talks about paying down the public debt, they are talking about borrowing money from Social Security trust funds and the other trust funds and using those dollars to pay down the debt held by the public. Let me briefly go through that again. There is extra money coming into Social Security right now, approximately $150 billion that Social Security taxes will bring in more than is required to send out immediately for Social Security benefits. So what do you do with that $150 billion. Mr. Speaker, we have said look, we are going to take those dollars and write out an IOU and we are going to use that to pay down the so-called Wall Street debt, the debt held by the public. But over the years, what is anticipated is the total debt, the total debt, the total public debt subject to the debt limit under law is not going to go down. All we do is increase the size of the debt to Social Security, increase the size of the debt to the other 118 trust funds that we have, the largest being civil service, veterans, et cetera, and we decrease the amount of debt held by the public. There are some 20- and 30-year bills out here that would be very difficult to bid up and pay down so we are saying now you can only go so far in paying down the public debt. Mr. Speaker, the question is what do we do with the extra surplus dollars coming out of the Federal Government. The danger is if we leave this money, if you will, on the counter, available for politicians to spend, the tendency is to spend that extra money. Mr. Speaker, let me give one example of our trying, our effort. In 1997, with the caps on spending that we set in 1997 and we passed into law, passed by this House, passed by the Senate, signed by the President, that we were going to limit how much discretionary funding we spent over the next 5 years; if we had stuck to those spending caps through those years, that level of spending that is going to exist for the next 10 years that were talked about last night, that we talk about in the 10-year budget, that we talk about in the 10-year savings, if we had stuck to those caps that we set for ourselves instead of violating those caps, we would have spending over the next 10 years that is $1.7 trillion less than what we anticipate for spending because of the new spending levels and the giant increases in spending every year. That could double the tax cut. One way to help make sure that Washington does not spend that money is to say look, let us set some of this money aside to do nothing except pay down part of that debt held by the public. So even though we borrow some money from Social Security and the other trust funds, at least we do not expand government spending, we use it to pay down the debt held by the public. Mr. Speaker, the other way is to get some of that money out of town. You would do that by a tax reduction. So can we have the kind of tax reduction that is going to increase fairness, a kind of tax reduction that is going to stimulate the economy during this downswing or at least leveling off of the economy? The answer is absolutely, yes. There are two ways that we can be significant in helping for this economic recovery in the short term. One is lowering interest rates. Alan Greenspan and the Feds can do that by issuing a rule on what the discount rate is for interest. That lowers interest for everybody. The other way is government can start reducing the bidding up of available dollars. In other words, paying down the Federal debt to leave more money available for everybody else. So as you decrease the demand for that money, then interest rates are also going to tend to go down. Let me show my colleagues this next chart. This is what has happened to the total public debt. The public debt is defined in law as the total debt, public debt, subject to the debt limit that includes what we are borrowing from the trust funds in addition to the Treasury paper, the Treasury notes that we are issuing. As my colleagues see, we did very well from 1940 to about 1982. In 1982, the debt of this country just expanded by leaps and bounds. And how bad is going into public debt? The reason the debt was increased is because, politically, it is easier to increase borrowing than it is to go out and raise taxes. So to expand government, a decision was made to increase borrowing. So we substantially increase the borrowing, making it tough for our kids and our grandkids because someday, somehow, somewhere, future generations are going to have to pay back this debt, whether it is an obligation to Social Security, whether it is an obligation to Medicare, or whether it is an obligation to the Treasury bills where government has borrowed money. The next chart sort of starts relating to a particular interest of mine, and that is Social Security. What do we do about the problem of Social Security when the baby boomers retire. They start retiring 8 years from now, and they go out of the, if you will, the mode of paying in their FICA taxes to support Social Security; and they become recipients as they retire. Social Security is going to start, if you will, going broke, start having to have less dollars coming in in taxes than is needed to pay benefits. It is estimated by Greenspan and others that the unfunded liability of Social Security right now is $9 trillion; that we would have to come up with $9 trillion today to put it in a savings account earning an interest rate of at least 2.2 percent to accommodate keeping our promise to future retirees. So if we simply continue to borrow Social Security dollars and other trust fund dollars to pay down the debt held by the public, this represents the debt held by the public when the baby boomers retire, and we start needing that money to pay benefits again, then we substantially increase our borrowing to start paying back some of the money. So it is just a temporary downswing and then a giant increase in the debt that will be required if we continue to borrow money in the future. Back to this chart. So if my colleagues can visualize, if my colleagues can visualize a projection of the increase in debt up till this year, what we are looking at if we borrow money from Social Security and write out an IOU and then pay back the debt, we would have a downswing. But then it would go dramatically upward to increase the debt of the country. I am a farmer from Michigan. It has always been the tradition for farmers to try to pay off some of the mortgage, to pay it down so that their kids could have a little better chance. In this body, we are not doing our job. We are increasing the debt. We are increasing the obligation to our kids and our grandkids. Then let me go over this last chart. The President last night suggested maybe some private investment. A lot of people have said, well, gosh, how can one talk about equity investments when the stock market is so volatile right now? What about the downswings? This chart that I made up represents what has happened to stock investments in the last 100 years. Some downswings, definitely downswings, up, down, up, down, up, down. But with a long-term investment, there has never been a 12-year period where stocks did not have a positive return. So if one is going to put some of that money into some kind of an equity investment, then the only way it is reasonable, is if one starts talking to younger workers of America, number one; number two, you say one can have the option. One can have some of this money if one puts it into an IRA type investment for one's retirement. There is going to be limits on where one can invest that money. It is not going to be a situation where some snake-oil salesman can say, look, put your money with me, and then we will double with it. It is going to be limited investments, such as 401(k)s, such as the Thrift Savings accounts that Federal Government employees have. Probably there is also going to be an obligation that half of it or 40 percent or a certain amount goes into bonds or interest-bearing accounts. So only part of that investment can go into growth funds or equity investments. I think the important thing to realize is the comparison of the average of 6.7 percent a year return on equities as compared to what you are going to get from Social Security. Right now, if one is an average Social Security recipient retiree, one is getting back 1.7 percent return on the money that one and one's employer paid into Social Security. So then the logical question is, can we do better than a 1.7 percent return? The answer of course is, if one has checked one's CDs or checked most any savings account or checked the school loans that are tax free, there are a lot of ways that we can do much better than a 1.7 percent return that one is going to get from Social Security. I have got a chart that I will show my colleagues a little bit later; that the average retiree starting next year is going to have to live 22 years after they retire simply to break even on the money that they have sent into Social Security. Social Security is not a good investment. Ben Snyder is a page helping me put up these charts. Ben is from Northwestern Pennsylvania. We have a page program. Everybody should know and maybe start applying for a page job. It is very interesting. I think we have got about 80 total pages. They come during their junior year in high school, and they work like heck. They get up, I think, at 5:30 in the morning to accommodate both going to school and working as a page in the United States Congress. This pie chart represents how we are now spending money. The largest piece of pie, if that is visible, roughly 20 percent, is what is being paid out in Social Security. Social Security is the largest Federal Government expenditure and it is growing. Medicare is growing faster. If we go ahead with prescription drug coverage to add to the cost of Medicare, then we are looking at a Medicare expense that could very easily equal the cost of Social Security within the next 50 years. We argue in this Chamber a good part of the year over discretionary spending. There are 13 appropriation bills. Twelve of those appropriation bills represent 19 percent. The 13th appropriation bill is defense. Defense, by itself, represents 17 percent. In both cases that is still smaller than what is being paid out in Social Security. So how do we fix the problem when we know eventually that we are going to run out of tax money coming in for Social Security? One possible recourse is to increase taxes on workers. One possibility is to reduce benefits. I do not think either one of those options is acceptable and should not even be considered. When Franklin Delano Roosevelt created the Social Security program over 6 decades ago, he wanted it to be sort of a part of a three-legged stool, where there would be private pensions, personal savings, plus Social Security. So instead of people going over the hill after the Great Depression to the poor house, the Congress passed a law saying, look, we are going to have forced savings and we are going to take some money out of taxpayers' paychecks while they are working to ensure that they have a little Social Security when they retire. That is the program that we have been operating under since 1934. Right now, Social Security is a system stretched to its limits. There are 78 million baby boomers who begin retiring 7 years from now. They go out of the paying-in mode and into the recipient or taking-money- out-of-Social Security mode. Social Security spending exceeds tax revenues starting in 2015. Social Security trust funds go broke technically in 2037. We are going to have a new trustee's report soon, and that might even go up to 2040. The question is, with all of this money, the $1.1 trillion so far, and by that year it will be another $4 trillion, how does government pay back this money? Maybe there are three options, maybe four: we can increase taxes again on workers or on the general public; we can cut other benefit programs or cut Social Security benefits; we can dramatically increase borrowing to put this country further in debt and put our kids and our grandkids at greater jeopardy and also risk economic development in this country with that kind of negative savings; we can start looking at a fix for the program now. And that is what we should be doing. I was encouraged that President Clinton said, ``Let us put Social Security first,'' but he did not come up with a bill. I was encouraged last night that this President said, ``Let us give a priority to Social Security.'' But what I wonder and am concerned with regarding this commission is does that just put off the question into the future. I would hope we could move aggressively ahead. We have Democrat Senators, like Senator Moynihan, Senator Kerry, Democrats in the House, like the gentleman from Texas (Mr. Stenholm), and a lot of Republicans that have come up with proposals on how we can keep Social Security solvent. But, Mr. Speaker, here is what everybody should remember: that the longer we put off the decision on fixing Social Security, the more dramatic and drastic those changes are going to have to be. So the quicker we do it, the better. So let us move ahead. If it is a commission, hopefully we can move quickly. Insolvency is certain. We know how many people there are, and we know when they are going to retire: 62, 65 and, in some cases, 67. We know that people will live longer in retirement. I chaired the Social Security task force, a bipartisan task force, made up of Republicans and Democrats. We ended up, after hearing all of the testimony, agreeing on 18 different parts of the solution that both Republicans and Democrats could agree to. But on the part of living longer, I wanted to mention what some of the medical profession were suggesting in terms of our longevity, our long life-span. They suggest that within 20 to 25 years, anybody that wants to live to be 100 years old will have that option. Within 30 to 35 years, anybody that wants to live to be 120 years old could very well have that option. What does that do to an individual's personal savings now? Is there going to be enough money in their savings accounts to accommodate any kind of a decent retirement if they are to live that extra 20 years or 30 years over the average today? And what is it going to do to programs that industry has that have guaranteed a fixed income on retirement? It is going to be tremendously expensive. What is it going to do to Social Security and Medicare? A tremendous imposition, a tremendous danger of asking American taxpayers to dig deeper into their pockets in the future to accommodate that growing senior population. The last point. Taxes will not cover benefits starting in 2015, and the shortfalls will add up to $120 trillion between 2015 and 2075; $120 trillion more is going to be required over and above what is coming in from the payroll tax. One hundred twenty trillion dollars in the future dollars is the same way as expressing the current $9 trillion unfunded liability that we need today to put into an investment account to return at least a 2.2 percent interest rate to accommodate future retirees. Here is part of the problem: there are fewer workers. It is a program that was designed in 1934 to be a pay-as-you-go program. Like a chain letter, it depended on expansion. It depended on more and more workers paying in part of their payroll tax to accommodate retirees. In 1940, for example, we had 38 workers paying in their Social Security tax for every retiree. In 1940, 38 workers paying in their Social Security tax for every retiree. Today, it is down to three workers, working with that increased tax and paying in their Social Security tax to accommodate every one retiree. The estimate is that by 2025 there will be just two workers. Because people are living longer, because the birthrate went down substantially after the baby boomers, and the life-span is dramatically increasing, there are fewer workers. So we have fewer workers and more retirees, which makes it tough on those two guys left that are going to end up having to pay that kind of tax, especially if we do not start planning now for the long-term solvency of Social Security. This represents the long-term solvency up until 1975. Because we increased taxes on Social Security substantially in 1983, the so-called Greenspan Commission in 1983 got together as a commission, what we are talking about now, and they decided to do two things: reduce benefits and increase taxes. They increased taxes so dramatically that there has been a huge surplus since that time coming in from Social Security taxes over and above what was needed for paying out benefits. And let us remind ourselves that it is a pay-as-you-go program. Most of that money comes in at the end of the month; and within the next week, most of the money is sent out in terms of paying benefits for existing retirees. So a huge imposition. The red part of this chart represents the $120 trillion that Social Security is going to be short of paying benefits over and above what is coming in in Social Security taxes. So I should make my point, Mr. Speaker, and the point is let us not waste this short-term opportunity that we have to make some use of this money to start getting a better return on that money coming in. There is no Social Security account with our name on it. I have made maybe between 200, 250 speeches around the United States and a lot of people think somehow that there is an entitlement there, that there is an account with their name on it which they are entitled to. This is a quote from the President's Office of Management and Budget and it says: ``These trust fund balances are available to finance future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. They are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.'' That is the problem. A lot of people, say, ``Well, we have a trust fund that is going to take care of us until 2035, maybe 2040 when the trustee's report comes out. The question is where does the money come from? The money is gone. Over the last 40 years we have taken the extra Social Security surplus and spent it on other programs, which have almost become entitlements. So it increases the size of government and perpetuates itself because on almost every new spending that is developed there now becomes an interest group, a special interest group, that starts doing everything they can to lobby Congress to continue that spending. And if we continue it the second year, then there is a feeling, well, we are entitled to it. So a strong public political pressure to continue that spending. That is one of the problems that we have seen in this country, is that government has continued to grow. The public debt now, as I mentioned earlier, is $3.4 trillion. So what we hear is the suggestion that if we pay down this $3.4 trillion it will accommodate the $120 trillion over the next 75 years, or the $46.6 trillion over the next 55, 56 years. The fact is that that little block of money, or the interest savings, worse yet, the interest savings that we save from paying off this $3.4 trillion is going to somehow accommodate the shortfall that we are facing in Social Security. Some have suggested economic growth will help take care of the Social Security problem. Not so. Because there is a direct relation between the wages we make and the taxes we pay in, in relation to the benefits we will ultimately receive, short-term economic growth and increased wages means that in the short run there is extra money coming into the Social Security Trust Fund; but in the long run, when eventually that person retires, their entitlement for benefits is going to be significantly larger. We increase benefits not based on inflation increases but based on wage inflation. So at some point it ends up catching up with us and simply costing more. Let me just read through this chart. 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. Growth makes the numbers look better currently now, but leaves a larger hole to fill later. And the administration has used these short-term advantages, I think, over the last 8 years, to do nothing. Very disappointing. What I have decided, Mr. Speaker, I have decided that it is going to take the bully pulpit of the President; it is going to take that information going out to America so more and more people know the seriousness of the Social Security problem. Medicare is also going broke, but right now we are talking about adding a prescription drug coverage to Medicare. There is no question a lot of people need that prescription drug benefit. But, again, it is like a cargo ship that is already overloaded that we know if we are not careful it is going to sink, and yet we are adding more cargo to that ship. I hope we are very, very careful in the way we design any kind of a prescription drug program or any kind of benefit expansion, whether it is Social Security or Medicare or any of the other benefits. We should not be allowed to do that in any way that simply says that we will borrow more money later or we will tax the younger generation later when we need it or we will pretend that we are going to cut other benefits. My guess is that we do not have the intestinal fortitude to cut Social Security benefits or Medicare benefits significantly or any other government expenditures to accommodate the need in the future. The biggest risk is doing nothing at all. Social Security has a total unfunded liability of over $9 trillion. The Social Security trust fund contains nothing but IOUs and 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 30 percent. That is just in the next 30 or 40 years. Here is the average return on what you get on Social Security. Over the last 25 years, the average return on equities, for example, combined with some kind of investment in interest income, such as bonds or other securities, has been 6.7 percent over the last 100 years. It has been approximately 7 percent over the last 25 years. The real return of Social Security is less than 2 percent, or 1.7 percent for most workers, it shows a negative return for some, compared to over 7 percent for the market. Some minority groups and some people that are put in unhealthy environments in their working lives end up dying earlier, so they end up paying into Social Security but never getting anything back really. For example, a young black male, because their life expectancy is earlier than even when they start drawing benefits, is going to have a negative return on average for what they and their employer are putting into Social Security. The average again is 1.7 percent and the market for the last 25 years has given a return of 7 percent. Even those who oppose PRAs, personal retirement accounts, agree that they offer more retirement security. This is a letter written by Senator Barbara Boxer and Dianne Feinstein and Senator Ted Kennedy to then President Clinton. They said, ``Millions of our constituents will receive higher retirement benefits from their current public pensions than they would under Social Security.'' What we did in 1934 is we left it an option to local government and to State government whether they wanted to participate in the Social Security program or whether they wanted to have their own payroll deduction with their own investments. The U.S. trails other countries in terms of coming up with some programs that are owned by the worker, that they have control over. Let me just point out, Mr. Speaker, that the Supreme Court on two decisions now has said that there is no entitlement to Social Security. Social Security is a tax on one hand that Congress has passed and the President has signed and the benefit package is simply another benefit package that is not related and otherwise no obligation on the part of government. So government can change any time they want to. When we ran into problems in 1977, when we ran into problems in 1983, in both of those situations government made the decision to lower benefits and increase taxes. I see that as a danger but I see it as a plus if we can have a personal retirement savings account that is in the control of the individual where politicians cannot, if you will, mess around with them in future years. I see an absolute in our Social Security Task Force that I chaired. We had different vendors come in suggesting that they could guarantee a return much higher than the 1.7 percent that Social Security has, a guaranteed return with part of the investment in equities. With that guarantee you have a little less risk but like in our thrift savings account for the Federal Government, our thrift savings account gives individual Federal employees the option of putting some of the money in index stocks or index bonds or Treasury paper. And so you have some choice but it is limited to more safe investments. If we have a Social Security account, I visualize that as having similar characteristics where you would have a limit on where you could invest that money and a requirement that a certain percentage go into securities that would be interest-bearing and absolute. Look at what can be paid at your local bank on a CD or a government savings bond or any kind of investments that are available out there and very secure in terms of interest, none of which are as low as the 1.7 percent. This just says that in the 18 years since Chile offered the PRAs, 95 percent of the Chilean workers have created accounts. They have their own passbook. Their average rate of return has been 11.3 percent a year. British workers chose PRAs with 10 percent returns. I was over in Europe representing what our country's public pension program was, and I was surprised to learn that so many countries around the world are so much further ahead in the private investments that give a much greater retirement benefit package than our current Social Security plan does in this country. For this chart we came up with a dollar amount of $58,475. If the total family income were this $58,000, the return on a PRA is even better. We broke it down into 20 years, 30 years and 40 years, with a decision of whether or not to invest 2 percent of the money, 6 percent of the money or 10 percent of the money. You can see if you go all the way on purple, invest it in a working career for 40 years, you end up putting 10 percent of your money in for 40 years, it ends up being $1,389,000. This is the magic of compound interest. It is another demonstration that you cannot just go in and out of the market. It has got to be more of a long term. There has never been any period in American history, even around the greatest recession and depression, any 15-year period anyplace you want to put it on the map that has not shown a positive return in equities. For example, if you have 40 percent of your money in investment accounts and not more than 60 percent in equities and you left that money in for 35 years, guess how bad the market would have to drop for you to be worse off than Social Security. The stock market would have to drop 100 percent. That is, of course, never going to happen. It is never going to go to zero. That is because even the 40 percent that are in investment funds are going to end up giving you more than you are going to end up with Social Security. This is my legislation for Social Security, and I am just going to briefly go through the highlights of the bill. When I first came to Congress in 1993, I wrote my first Social Security bill. I have written three Social Security bills now in each of the last three sessions. They have all been scored to keep Social Security solvent. I have spent a lot of time because I think it is a very, very important program, and I think the consequences of doing nothing, of continuing to put this off, are going to tremendously jeopardize future retirees and going to put a huge burden on future workers. The bill that I introduced, the Solvency Act for 2000, allows workers to invest a portion of their Social Security taxes in their own personal retirement savings account, the PRSAs that start at 2.5 percent of wages and gradually over the next 50 years increase that amount. We do not touch, nor does any proposal that has been introduced in Congress, touch any part of Social Security that is designed as an insurance program for disability and survivors. Nobody is talking about doing anything with that program. That would continue totally to be a Federal Government program to ensure against disability on the job and the need of survivors if something happened to that particular worker. My bill does not increase taxes. It repeals the Social Security earnings test for someone 62 years old. It gives workers the choice to retire as early as 59\1/2\ years old, and as late as 70. In my proposal, which interestingly I use the word actuarially sound, it does not cost any more to tell a person, Look, if you want to put off your benefits after age 65, we will increase future benefits 8 percent a year in what you otherwise would have gotten from Social Security for every year that you put off retiring. If you wanted to put off the whole 5 years, you could have a 40 percent increase in benefits. It is actuarially balanced simply because your life expectancy, some people might die at 69 or 70, on the average it is not going to cost any more if we allow people to put off their retirement. More and more seniors are in good health and are willing to continue working and that should be a flexible program of choice that is available. My bill that I introduced this last session takes a portion of the on-budget surplus over the next 10 years. It takes $800 billion over and above the Social Security surplus. So we go into the, if you will, on-budget surplus, some of the surplus that we are talking about. Remember now, this is a pay-as-you-go program. The money comes in, most of it goes out by the end of the week that it comes in, so how do you change that to allow some real investments, some personal investments? That is the cost of transition. To accommodate that cost of transition, to put the money in accounts that are going to give a better return than Social Security does by far, then you need some extra money. Part of that is going to be the Social Security surplus money, but in addition, it is going to take money from the general fund surplus. So when you hear Washington talk about paying down the debt in the next 10 years, again the debt they are talking about is not the total debt. The debt they are talking about is the Treasury bills, the Treasury paper debt. Here again, the only way that is going to be paid down is if you take the Social Security surplus dollars, write an IOU and use that money to pay down the other debt. By definition, that means that if you are using that money to pay down the Treasury bill debt, you are not using that money to accommodate a transition so that we can have a Social Security program that is going to be solved forever. I resist and I urge my colleagues and the White House to not suggest that we are going to pay down the debt held by the public over the next 10 years, because by definition that means that we are not going to solve Social Security. My bill uses the capital market investment to increase the Social Security rate of return, and it is interesting, when I wrote this it was 1.8 percent, today it is 1.7 percent, that workers are now receiving from Social Security. Over time, PRSAs grow and the Social Security fixed benefit is reduced. It indexes future benefit increases to the cost of living increases instead of wage growth. Future benefits would be indexed and increased to a COLA that represents inflation rather than the higher increase due to inflation. That goes a long way in solving the problem. This is another way of representing that Social Security is a bad investment. To get back what you and your employer put in, or what you put in if you are a private business, in 1940 you had to stay alive 2 months after you retired to get everything back you had put in. By 1960, you had to stay alive 2 years to get everything back. Today when you retire, you have to live 23 years after you retire to break even getting the money back that you and your employer put into Social Security. Not a good investment. We can do better. This represents what this government has done on tax increases when we have gotten into trouble, Mr. Speaker, in past years. In 1940, the Social Security rate was 2 percent. The employer paid 1 percent, the employee paid 1 percent on the first $3,000. The maximum payment for both employee and employer was $60. In 1960, we raised the rate to 6 percent. We raised the base to $4,800 for a maximum payment, employer and employee, of $288. In 1980, we jumped it to 10.16 percent of the first $26,000. And, of course, after the 1983 changes, we are up to 12.4 percent on the first $78,000. That is about a $10,000 a year payment going into Social Security. The danger is, is what is going to happen in this line and in this line if we do not do anything to fix Social Security and if we put it off, then the likelihood is, is that we are going to put the imposition of more taxes on the American worker to accommodate those existing retirees. With those tax increases, here is the situation that we have found ourselves in. Now 78 percent of families pay more in the payroll tax than they do in the income tax. So part of the discussion on a tax cut, how do we accommodate a break for those individuals that pay more in the FICA tax, the payroll withholding tax, than they do in the income tax? My suggestion is that we tell these workers that if they want, it is their choice, but if they want, they can take a part of their Social Security tax and invest it in an IRA, to ultimately increase their retirement benefits. So I would like to see that part of this tax package that starts that opportunity with the limitation on safe investments, with a requirement that a certain amount go into interest-bearing accounts. There are six principles of saving Social Security: Protect current and future beneficiaries; allow freedom of choice; preserve the safety net; make Americans better off, not worse off; and create a fully funded system; and no tax increases. Again, if I come back to my concern of the danger of increasing spending and almost demanding that this body is faced with the kind of lobbyists and special interest pressure to continue that expanded spending, expanding the spending of the Federal Government is the greatest negative, the greatest potential to making our economy worse, than almost anything else we can do. When we talk about this tax increase, we talk about a situation where this tax increase does not even offset the projected 1993 tax increase. The tax reduction, the tax cut, that President Bush is talking about that our Committee on Ways and Means is taking up tomorrow does not offset those past tax increases. I think the question we should ask ourselves is, how high should taxes be in the United States? How high should taxes be? And then when we make that decision, we say, look, we do not want them too high. That is going to discourage entrepreneurs. It is going to discourage somebody from going out and getting a second job if they want to do better for their family because government takes more and more of it away. Then after we set that limit, let us discipline ourselves to set priorities on how to spend that amount of money. There is an unlimited need. We are going to hear Republicans and Democrats suggest that we should not have tax cuts because there are all those needs out there for more government spending. I think this is dangerous. I think we should not let ourselves fall into the trap of trying to fix every problem there is from Washington and simply asking all taxpayers to pay a greater tax on what they might earn. How would Members react, Mr. Speaker, if they were thinking of starting a new business that would employ workers and give them a good salary if government told them if they are a success we are going to take half of the money that they make and if they fail then tough luck, they do not have any money to send their kids to piano lessons and do not have the money to have a decent vacation? If we increase taxes too high, it is a negative on the economy. If we let the debt grow too much, then it becomes the kind of negative savings that we are seeing in this country. By the way, this country has a lower savings rate than any other industrial country in the world. Finishing up, personal retirement accounts, they do not come out of Social Security. They would simply come out of the additional funds that are now coming into government, the so-called surplus. They become part of Social Security retirement benefits. A worker will own his or her own retirement account and it is limited to safe investments that will earn more than the 1.7 percent that we now see as an average return coming back in. Social Security personal retirement accounts offer more retirement security. For example, if John Doe makes $36,000 a year, in Social Security he can expect $1,280 a month in a personal retirement account compared to what has happened in the last 100 years with no more than 60 percent in equities. He would have $6,514 per month retirement from his PRAs. As I mentioned, States and local governments had the option of going into the Social Security program or doing their own investments. Galveston County, Texas, decided they wanted to do their own investment so they are not paying into Social Security. Just a comparison in Galveston, death benefits $253 in Social Security, $7,500 under the Galveston plan. Social Security benefits for disability, $1,280; Galveston plan, $2,749. Social Security payments $1,280 a month compared to the Galveston plan now paying $4,790 a month. I just simply demonstrate this to say that we can do better than the 1.7 percent return we are now getting on Social Security. San Diego did the same thing. Mr. Speaker, I would conclude by urging this body to hold the limit on spending. Again, we have tried to set caps on spending. We did that last in 1997 with the 1997 caps on spending. If we would have had the discipline to hold down spending, to do what we said we were going to do when we passed those 1997 caps, the baseline, what is projected for increased spending over the years, that is roughly inflation plus 1 percent, the projected spending if we would have stuck with those caps that we set for ourselves, would be $1.7 trillion less than is now projected under the new baseline. So we could have doubled the tax cut. So the danger and the question is, how do we keep government from continuing to grow at the rate that it has been growing? How do we make sure we pay down the total debt of this country, including the debt that is owed to the trust funds, Social Security, Medicare and the other trust funds, to make sure we keep Medicare and Social Security solvent? It is a huge challenge. Mr. Speaker, I appreciate the time; and I urge the President, I urge my colleagues, to move aggressively to solving Social Security and developing ways that we can discipline ourselves. A lot of this has to come from the White House. Discipline the Federal Government from continuing to increase spending like we have in the past.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, tonight the President of the United States will come before this Chamber in joint session, and I suspect he is going to talk about three areas that should be important to all of us. One is what do we do with taxes and how much should they be lowered, and should we continue a wartime tax rate in this time of peace that is now bringing in an estimated $5.6 trillion of surpluses over the next 10 years, and probably that is going to be much higher; and, is it reasonable to say that surpluses are really overtaxation. The next question I think that he will also address is Social Security and the importance of keeping Social Security solvent. If we were to have a perfect world, or, if you will, a perfect Congress, we would probably not have a tax cut and we would start a program keeping Social Security solvent. But the danger in this body and over in the Senate is, if the money is laying there, all this extra surplus money coming in, if it is sort of laying there on the counter, if you will, Congress tends to increase spending. The President will also talk about the importance of continuing to pay down the debt. And, if you will join me on this chart for just a second for what is the debt of this country, the total public debt as defined in law is made up of three areas where government is borrowing. One is the debt held by the public, the Wall Street debt, the Treasury bills that are issued on a regular basis. That is approximately $3.4 trillion. On the top we see the pink area, and the pink area is about $1.1 trillion of money that has been borrowed from extra Social Security taxes coming in, so what government has been doing for the last 40 years is taking this extra surplus from Social Security and spending it on other programs. At least now we have decided to, even though we are not doing anything to fix Social Security and keep it solvent, at least we are not going to spend that money, we have decided. The other area is about $1.2 trillion that is the other 116 trust funds of Federal Government. So what we are doing, if we do not fix Social Security and do not use some of that money to invest better than the job we are doing right now with Social Security, we are lending it to the government, government writes an IOU and says, you cannot cash this in, but we will write you an IOU from the money we are borrowing from Social Security, we are taking the actual cash dollars and using it to pay down the debt held by the public. So over time, the debt held by the public will go down, but the amount that we owe the Social Security Trust Fund and the other trust funds will go up, to keep the total debt of this country about even and not have the total go down. Madam Speaker, this represents what has happened to the public debt, all three of the previous charts. If my colleagues will join me on this chart, we will see that the public debt of this country has remained relatively low up until the last 20 years, and now it is skyrocketing. What that means to me is that whether it is the debt held by the public or what we owe the Social Security Trust Fund or what we owe the other trust funds, somehow, some place, some time, government is going to have to come up with the money to pay that loan back. So that is the challenge for us. Where do we come up with that money? How do we come up with that money? If all we do is shuffle boxes around and use the surpluses coming in from Social Security and the other trust funds to pay down the debt held by the public, the debt will go way down low; but when the baby boomers start retiring, then we have to come up with the extra money needed to pay Social Security benefits, and the debt will soar. So again, if we are looking at the previous chart, the debt of this country has been going up tremendously, and now, if we use a little bit of the money of the Social Security surplus to pay down the debt, the debt will actually go down, but then again on the chart we just looked at, we just reviewed, it will again soar. The challenge before this body is what do we do with the surplus money coming in? Madam Speaker, listen to the increased spending dilemma that has faced this Congress. In 1997, we set budget caps. If we had stuck to those budget caps that we set in 1997, the increased spending over the next 10 years would have been $1.7 trillion less than it is today. Because of that increased spending, because of the propensity of this Chamber and the Senate and the White House to spend more money, we have increased spending more over the next 10 years because of what we have done in the last 5 than what the President is suggesting as a tax cut. Some of the tax cut will help get some of the money out of town so we will not spend it. That is our goal.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I rise today to join with my colleagues in honoring the legacy of Dale Earnhardt. The death of Dale Earnhardt is heartbreaking for millions of racing fans around the world. My district is home to the Michigan International Speedway which is located in Brooklyn, MI, and I speak for thousands of my constituents in expressing my deepest sympathy to Dale's wife Teresa, his mother Martha, and his children--Kerry, Dale, Jr., Kelley, and Taylor Nicole. In countries all over the world, the name of the man referred to as ``The Intimidator'' is known. To some in the United States, he represented what this country was all about. He came from the barest of essentials in his hometown of Kannapolis, NC, and grew up doing what his dad did--race cars. He came from having almost nothing to having most everything he could ever want. He was proof of the American dream. But as we all know, Dale was more than just a racing legend. He was an individual respected by all who ever came in contact with him--a role model who inspired thousands of young Americans. Athletes in other sports would be wise to follow Dale's model of what a champion is supposed to be. Our society needs more role models like Dale Earnhardt and while the racing community will never fill the void left by the loss of Dale Earnhardt his legacy will be carried on by the thousands of Americans he inspired over the years.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I am a farmer from Michigan, and I know that you are as well in your State of Florida. Agriculture today and the plight of farmers is one of the serious issues before Congress. Another serious issue that is sort of the overriding consideration of where we go in the next several months is how high should taxes be in this country and how should government spend that tax money that comes down here to Washington as we decide on the priorities for spending. This first chart is a pie chart that shows the different pieces of pie, or the percentage of spending this year that goes into several categories. Social Security takes 20 percent of all Federal spending. Social Security is the largest expenditure that we have in the Federal Government. Of course, the people at risk are the young people today that are going to be threatened with huge increases in taxes or reduced benefits in Social Security benefits. Out of the approximately $2 trillion that we will be spending this year, 2001, 20 percent goes to Social Security. The next highest is 12 appropriation bills. Twelve of the appropriation bills all together, what we spend a half a year arguing on, spending for so-called discretionary spending, discretionary meaning what Congress has some discretion over, is 19 percent of the budget. The other 13th appropriation bill is defense, and that takes 17 percent. But here is Social Security now taking much more than even defense spending, with Medicare at 11 percent. Medicare is even growing because we are talking now of how do we add some prescription drug coverage to Medicare. So we are looking at the challenge of the Federal Government's expenditure and the Federal Government getting bigger. That means more imposition on individual rights. It is giving more empowerment to Congress and the White House, and it is taking away authority and authorization and power from individuals. So the first question it seems to me should be, how high should taxes be? Mr. Speaker, I would ask our listening audience to give us a guess in their own mind of how many cents out of every dollar they earn goes for taxes at the local, State, and national level, what percentage of what you earn goes in taxes. Well, if you are an average American taxpayer, a little over 41 percent goes in taxes, 41 cents out of every dollar you earn. When the seniors graduate next year or when they finish college or high school and go into the job market, on average they are going to be shelling out 41 cents of every dollar they earn in taxes, taking the first 4 months out of every year proportionately to pay taxes. And, of course, everybody is now considering their Federal tax bill. They are looking at the taxes. If they have some investment in some mutual funds, they are getting notices on their 1099s that they have a capital gains tax to pay, even though the value of that mutual fund might have gone down in this past year. So the question then becomes, how do we have tax fairness? It would be my suggestion that we make every possible effort to reduce taxes from that 41 percent down to at least 35 percent. That is what made this country great is the fact that you are going to get some reward for your efforts to save and invest to try to maybe get a second job or a second part-time job so you can take care of your family. Well, we now have a tax system that says, look, not only are we going to tax you at the same rate if you get a second job, we are going to tax you at a higher rate if you start earning more money. I think there is a lot to do on tax fairness. I think there is a lot to do on tax simplification. But I want to spend a little time talking about where we go on finances, and part of that question is how large should the Government debt be in this country. Right now the debt today is $5.69 trillion, almost $5.7 trillion of debt. I am a farmer, as I mentioned, and our tradition on the farm has been to try to pay off some of that mortgage to leave your kids with a little better chance. But what we are doing in this country right now, in this body, and the Senate and the White House is borrowing all of this money and we are going to leave it up to our kids and our grandkids to pay back. Without reform, Social Security leaves our kids a legacy of debt larger than we have today. Right now, of the $5.7 trillion, $3.4 trillion is so-called Treasury debt, Treasury bonds, Treasury paper. It is so-called the debt to the public, the public borrowing. The rest of the debt is debt that we borrow from the trust fund. Roughly $1.1 trillion comes from the Social Security trust fund that the Government has borrowed that extra money coming in from Social Security taxes and spent it on other programs. Yesterday we passed a bill to make sure that we do not do that this year. And then there is $1.2 trillion that is from all of the other 119 trust funds. And so, most of what we are doing with the extra money coming in from the trust funds, we are writing out an IOU and we are using those dollars to pay down the public debt. But when the baby-boomers start retiring around 2008, then we are looking at a situation where there is not going to be enough money coming in from Social Security taxes to pay benefits. So what do we do? Well, what Washington has done in the past is increase taxes. I think it is important that we deal with Social Security now so that we do not rely on tax increases in the future. And that is why we have this curve. As we pay down the debt held by the public, eventually we are going to have to start borrowing again to pay Social Security benefits and Medicare benefits, and that is going to leave our kids with that huge debt load. The temporary debt reduction plan does little more than borrow the Social Security surplus to repay the debt held by the public; and when the baby-boomers retire. Social Security surpluses disappear and Federal debt again soars. Again on the debt, for the whole load of hay, we see now that this is roughly the division of that $5.7 trillion of debt. But over time, if we keep borrowing money from the Social Security trust fund and Medicare trust fund and other trust funds and use that money to pay down the debt held by the public, then the debt held by the public continues to diminish, but the Social Security trust fund debt and the Medicare trust fund debt are still there. There is not enough money there to pay the benefits that are going to be required after the baby- boomers retire. That is demonstrated in this chart. In the top left, we see a momentary surplus in Social Security taxes coming in. Right now your Social Security taxes are 12.4 percent of essentially everything you make. But when the baby-boomers retire and go out of the pay-in mode to recipients of Social Security, then the problem really hits us from twofold, a tremendous increase in the number of retirees that are going to be taking Social Security benefits and a reduced number of workers that are paying in their taxes to cover the cost of that program and starting. Starting around 2012, there is going to be an insufficient amount of Social Security taxes coming in, so we are going to have to come up with money from someplace else. What we have done on several occasions that I think should make every American very concerned is that we have either increased taxes and/or reduced benefits. We did that in 1977. We did it again in 1983 when we revised the Social Security system. This red, by the way, represents $9 trillion of unfunded liability. That is why I think it is so important and I have urged this administration and, of course, I encouraged for the last 8 years the previous administration to move ahead with some changes in Social Security that will keep Social Security solvent. I mean, if we take a trillion dollars out of this total $5.6 trillion that we are now guessing is going to be there over the next 10 years and we use that trillion to start some real returns on some of that money, we can save Social Security and keep it solvent for the next 75 years. If we put it off, that means that we are going to have to be even more drastic in the future to make these changes. In other words, the longer we put off the solution to Social Security, the more drastic those changes are going to have to be. I mentioned $9 trillion in today's dollars. The unfunded liability means that we would have to put $9 trillion into a savings account today to earn enough money in interest to pay benefits to add to what is going to come in in Social Security taxes to keep Social Security solvent for the next 75 years. When Franklin D. Roosevelt created the Social Security program over 6 decades ago, he wanted it to feature a private sector component to build retirement incomes. Social Security was supposed to be one leg of a three-legged stool. I have some of those old brochures that I have looked up in the archives where it says, look, Social Security is one-third of what should be everybody's effort to have a secure retirement, one-third from Social Security, one-third from your individual savings and investment, and one-third from some kind of a pension plan that he encouraged everybody to partake in. But right now we have almost 22 percent of our Social Security recipients that depend on Social Security for 90 percent or more of their total retirement income. So if there is one message in all of this talk about Social Security, if there is one message we can drive home: it is the importance of saving now for your retirement. Let me tell you another reason. I chaired the Social Security Task Force here in Congress for the last couple of years in the Committee on the Budget, and the Social Security Task Force brought in futurist experts on health and on medicine, and their guess was that within 20 years, anybody that wanted to live to be 100 years old would have that option, and their estimate was that within 40 years anybody that wanted to live to be 120 years old would have that option. I mean, what does that mean in all of our individual lives? What does that mean for our kids? What does that mean in terms of the importance of making the changes now to keep Social Security solvent in the future? The personal retirement accounts that a lot of people have talked about and some people have said to me, well, now is not the time to talk about individually owned accounts because look what the stock market has done over the last 12 years. The fact is that an average person retiring from Social Security 5 years from now is going to get a 1.1 percent return on the money that was paid in that they paid in and their employer paid in. Right now the average is 1.7 percent. But as taxes go up, the percentage and the likelihood that you are going to get that money back is going to diminish. And so, the question is, can we do better than getting a 1.1 percent or even a 1.7 percent return on some of that money? The other danger is, so, if we can put it into individual accounts where workers of America own that account and own that money so that when the problems in Washington make Members of Congress and the Senate and the President feel that other spending is more important, that we do not again cut Social Security benefits. So there is some security in having this in individual accounts. And we can put it in safe investments. We brought in experts into our Social Security Task Force that said, look, we can guarantee a 4.2 percent return and guarantee that you will have at least a 4.2 percent return on the way we are going, we can invest your money. Some other insurance companies have higher rates. Some others have lower rates. But the fact is that a CD at your bank, other investments that are secure, can do a lot better than that 1.1 to 1.7 percent return. The fact is that the Supreme Court, on two decisions now, has said that there is no entitlement to Social Security. On two decisions the Supreme Court says Social Security taxes are simply another tax. Social Security benefits are simply another law that Congress has passed, and the President has signed to have a certain benefit structure and, therefore, there is no entitlement or no necessary connection between the two. I think that should make us nervous, also. Social Security is a system stretched to its limits. Seventy-eight million baby-boomers will begin to retire in 2008. Of course, the baby- boomers after World War II, the soldiers came home and there was a tremendous increase in birth rate and at that time, of course, we had that huge increase in population. We had problems in building our schools and building up our education system and the kind of services necessary to deal with that expanding population, and Social Security worked very well as an expanded workforce, paid in those taxes, and those taxes immediately go out to pay the benefits of existing retirees. Social Security spending exceeds tax revenues starting technically in 2015, and that is when the problems really hit us. If there was a Social Security trust fund, then the Social Security trust fund would keep Social Security solvent until 2034 or 2035. But let me spend just a couple of minutes on what the Social Security trust fund is. You pay in currently 12.4 percent of the first roughly $80,000 you earn in Social Security taxes. For the last almost 6 years now, there has been quite a huge surplus on the taxes coming in as opposed to what was needed to pay benefits. Again it is a pay-as-you-go program. Taxes come in and by the end of the week, they are sent out in benefits almost. We are dealing with a situation where the government then writes an IOU, but you cannot cash in that IOU. It is nonnegotiable. They write the IOU, and say we are borrowing this money; and for the last 42 years, government has been spending any surplus that came in from Social Security on other government spending. Starting last year, for the first time, and I introduced a bill in the spring of 1999 that said we would have a rescission or we would cut all spending if we started digging into the Social Security surplus, that ended up with the lockbox bill of the gentleman from California (Mr. Herger). We passed that again just yesterday, a lockbox bill that says we are not going to use the Social Security surplus for any spending. But now there are a bunch of IOUs in a steel file box down there that technically says the government has borrowed this money. The question then becomes, when Social Security needs the money, how is it going to pay it back? It is going to do one of three things. To come up with that money to pay it back for benefits, it is either going to reduce the cost of Social Security, in other words, lower benefits so there is not so much to pay back or they are going to reduce other spending or they simply borrow more money. You remember that earlier chart, how we are going to leave our kids this huge debt. That is because to pay Social Security benefits, we are going to have to borrow those huge amounts of dollars. By huge, I mean over the next 75 years, borrowing or somehow coming up with $120 trillion. Remember, our total budget this year is $2 trillion. Over the next 75 years, coming up with $120 trillion in excess of what is coming in in Social Security taxes to pay the benefits that are currently promised. You can see now it is a huge problem. Nobody knows quite how to solve this problem. So we keep putting it off. The danger of this legislative body, of course, is until a crisis is almost on us, we do not react in solving some of the tough problems. That is why it is so important, Mr. Speaker, that the American people understand how dramatic, how challenging the problem is of keeping Social Security solvent. Insolvency is certain. We know how many people there are and when they are going to retire. It is not some kind of economic projection. The actuaries over in the Social Security Administration know absolutely how many people there are. Their estimate of how long people are going to live is very, very accurate; and we know how much they are going to pay in and how much they are going to take out in Social Security. Payroll taxes will not cover benefits starting in 2015, and the shortfalls will add up to $120 trillion between 2015 and 2075. This other chart shows the paying-in problem. This is the demographics, the changing makeup of our population. Back in 1940, there were approximately 30 people working paying in their Social Security tax for every retiree. Today, there are just three people working paying in their Social Security tax for every one retiree. And over on your right, you see by 2025, the estimate is that at that time there are only going to be two people working for each retiree. Two people working for each retiree. A huge challenge, a huge potential to increase those taxes on those two workers. As you increase taxes, of course, you discourage economic development. There is no Social Security with your name on it. As I give speeches around the country, a lot of people think that there is somehow an account that is in their name that entitles them to Social Security benefits. This is a quote from the Office of Management and Budget of the United States Government. They say: ``These trust fund balances are available to finance future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. They are the claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public or reducing benefits or other expenditures.'' I thought I would throw that quote in, Mr. Speaker, to reaffirm the point that I was just trying to make earlier, that having the Social Security trust fund and pretending that somehow that is the solution out there is fooling ourselves. It is fooling the American people. The public debt versus Social Security shortfall. Some have suggested that if we paid back the debt held by the public, now $3.4 trillion, somehow that savings on interest is going to accommodate the $46.6 trillion shortfall between now and 2057, over the next 56 years. This chart is simply to represent that that $3.4 trillion debt and roughly the 5 percent interest on that debt is not going to accommodate the huge shortfall in Social Security. Some people have suggested, look, if we can keep the economy going strong, that will help solve our Social Security problems. It helps solve the Social Security problems in the short run, but because there is a direct relationship in the Social Security benefits you receive to the wages that you pay in, in the long term it does not help the problem, because the more you earn and the more you pay in, eventually the higher the benefits you are going to be entitled to. And spelling this out, 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. Growth makes the numbers look better now but leaves a larger hole to fill later. Any administration has got to realize that saying that we are going to pay down the public debt to save Social Security is not going to do the job. Helping me is a page by the name of Martha Stebbins. Martha is from New Hampshire. I was up in New Hampshire, Martha, and bought some maple syrup last summer. It is very good, but we make maple syrup in Michigan, too, that is pretty good. In fact, we make some maple syrup on my farm. Back to business. The biggest risk is doing nothing at all. Social Security has a total unfunded liability of over $9 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. Neither one should be an option of this Congress or the Senate or the President. How about investing the money? How big a risk is it? The diminishing returns of your Social Security investment. Right now, this chart represents what you might get back in terms of Social Security benefits based on what you and your employer paid in, or if you are self- employed, what you paid in. 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 market on the average over the last 100 years. If you look at just the last 10 years, then we are looking at returns that exceed 14 percent. It is a negative return, by the way, for minorities. So if a young black male today because they have a shorter life span, they spend their life paying into Social Security, but then die and might get a $200 death benefit, but they essentially lose all their money. If some of this money was in their own account, then it would go to their heirs and it would not be simply kept by the Federal Government saying, well, this helps balance out everything else. On average, as I mentioned, it is 1.7 percent with a market return of over 7 percent. This is a chart, I thought to demonstrate this point, the fact that it is not a good investment, it is not a good idea, and again let me make sure that everybody understands, Mr. Speaker, that in all of the proposals to solve Social Security, none of those proposals touch the disability and survivor benefits. So that portion of the Social Security that goes for disability, if you get hurt on the job, then you get some benefits the rest of your life, or if you die and your spouse or your kids need help, none of the proposals nor the three bills that I have introduced over the last 8 years, none of the proposals dig into that survivor disability portion of the package. But to get back all of the money that you and your employer have paid in is going to take anybody that retires in the next several years, it is going to take 23 to 26 years that you are going to have to live after retirement to break even, to get back the money you and your employer put in. Because taxes have gone up so dramatically, that is why this graph has gone up and you are going to have to spend more time and live longer after you retire to break even. Of course, if you happened to retire in 1940, it took 2 months to get back everything you put in. In 1960, 2 years. Today it takes 23 years. You have got to live 23 years after you retire to break even and get the money back that you and your employer paid in in Social Security taxes. This chart represents how we have increased taxes over the years. So people that say, well, you know, politicians that have to run for reelection would not dare to increase taxes again because already 75 percent of working Americans pay more in the Social Security tax than they do in the income tax. Seventy-five percent to 78 percent of Americans today pay more in Social Security tax, 78 percent if it is the total FICA tax, than they do in income tax. And it is a very regressive way to tax. Yet this country has substantially increased that tax. In 1940, we had a 2 percent rate. That meant the employer paid 1 percent and the worker paid 1 percent on the first $3,000. The maximum for the year for both employee and employer were at $60 a year. By 1960, we raised the rate to 6 percent, raised the base to $4,800; and the maximum was $288 a year. In 1980, we raised the rate to 10.16 percent on a base that was increased to $25,900. So the maximum went up to $2,630 a year. Today we have a 12.4 percent tax, 6.2 for the employee and 6.2 for the employer on, since it is indexed is now up to $79,000, on the first $79,000, so the maximum total is about $10,000 a year. This is our history of every time government has got into trouble where they needed more money than was provided by the revenues and the benefits that have been expanded, of course, over the years, then we ended up increasing taxes. And twice, in 1977 and in 1984, we also reduced benefits. This is what I was mentioning in the FICA tax. So the FICA tax, 12.4 is Social Security; and the rest of the 15-odd is Medicare. So a total of a little over 15 percent goes in your payroll tax. Right now 78 percent of American working families pay more in the payroll deduction in the FICA tax than they do in income tax. What I am trying to do with that chart is shout that it would be very unfair to again raise those taxes. But if we do not deal with Social Security now and we say, look, we are just going to use the Social Security surplus to pay down the debt held by the public, that $3.4 trillion to accommodate the $50 or $60 trillion shortfall in Social Security and pretend that somehow that is going to fix Social Security, I think it is not fair to ourselves to say that and I think it is not fair to the American people to think that that is going to be a possibility. These are the six principles of my Social Security bill that I have been introducing. I was chairman of the Senate finance committee in the State of Michigan before I came here, and there were a couple of considerations and concerns I had before I came to Congress, and that was the low savings rate in the United States. We have a lower savings rate than any of the other G-7 countries. Our savings rate is about 5 percent of what we earn. In Japan, for example, it is about 19 percent. In Korea, it has been as high as 35 percent of what they earn. We used to in this country save about 15 percent. Back in the 1940s and 1950s we were saving almost 15 percent of what we earned. But now our savings rate has tremendously gone down. Part of it maybe is the advertisements of ``Fly now, pay later.'' ``Come in and get a new car and get $200 immediate cash to buy Christmas presents,'' or something. So we have encouraged debt. So there is a danger not only of the Federal Government mounting this kind of debt, but there is a problem with individual Americans relying more and more on those credit cards or other credit systems to borrow and borrow more money. That does a couple things. Number one, it disrupts economic expansion, because savings and investment mean that that investment is what companies use to do the research, to buy the kind of state-of-art equipment and machinery that can accommodate international competition. It was important to me when I came to Congress that I try to do the kind of things to encourage savings, and one of those things was allowing some of this large Social Security tax to be invested and to be in the name of individuals. So that is when I started writing the bills. So, number one, my Social Security proposals protect current and future beneficiaries, allow freedom of choice. In other words, if you do not want to go with any kind of a private investment plan that will be limited to safe investments by law and you want to stay in the current system, you can. It preserves the safety net, because we are not going to allow anybody to go without food or shelter in this country. It makes Americans better off, not worse off; and it creates a fully-funded system, and no tax increase. Personal retirement accounts offer more retirement security. If I have to take a drink of water, that probably means that I have talked almost long enough, and maybe the listening audience has listened long enough, so I am going to finish the last few slides. Personal retirement accounts offer more retirement security. If John Doe makes an average of $36,000 a year, he can expect monthly payments in Social Security of $1,280, or from a personal retirement account he can expect $6,514. When we passed the Social Security law back in 1934, we said that States and local governments could opt out of Social Security and develop their own pension retirement plan. Galveston, Texas, did just that. They decided not to go into Social Security, but to have their own retirement plan. Right now this chart compares what those individuals in Galveston County have as death and disability and retirement benefits as opposed to what they would have in Social Security. On the death benefits, Social Security, $253; the Galveston plan, $75,000 in death benefits. Social Security, $1,280; the Galveston plan, with their own investments, $2,749. Monthly retirement payments, $1,280, compared to Galveston retirees getting $4,790. San Diego did the same option. San Diego enjoys personal retirement accounts, PRAs, as well. A 30-year-old employee who earns a salary of $30,000 for 35 years and contributes 6 percent to his PRA would receive $3,000 per month in retirement. Under the current system he would contribute twice as much in Social Security, but only receive $1,077. The difference between San Diego's system of PRAs and Social Security is more than the difference in a check. It is also the difference in ownership, in knowing that politicians are not going to take that away from you. Even those who oppose PRAs agree they offer more retirement security. This is a letter from Senator Barbara Boxer and Dianne Feinstein and Ted Kennedy to President Clinton. In their letter they said, ``Millions of our constituents will receive higher retirement benefits from their current public pensions than they would under Social Security.'' So the question is, how can we make this more available to everybody, to, in effect, guarantee they are going to be better off and they are going to have an ownership of some of that retirement account? I represented the United States in describing our pension retirement system in an international forum in London a couple of years ago, and it is interesting the number of countries that are ahead of us in terms of allowing their workers to own personal retirement accounts. In the 18 years since Chile offered the PRAs, 95 percent of Chilean workers have created accounts. Their average rate of return has been 11.3 percent per year. Among others, Australia, Britain, Switzerland, all offer worker-PRAs. The British workers chose PRAs with 10 percent returns, and two out of three British workers enrolled in the second- tier social security system. They are allowed to have half of their social security taxes go into these personal retirement accounts, and they have been getting 10 percent-a-year return. Again, that compares to our Social Security return, currently at 1.7 percent. This is what has happened in equity investments over the last 100 years. It is a graph of the ups and downs of the returns on equities. Some bad years, in the early 1920s, during the Depression, 1929, a little depression. But, on average, if you leave your money in for over 12 years, in any time period, then you did not lose any money on equity investments. The average return over this time period was 6.7 percent. Again, we are looking at a system, such as all Federal employees know about the Thrift Savings Plan, so it is limited to safe investments. It is limited to your choice of how much you want to put in equities versus government Treasury bills versus bonds for corporations, fixed income bonds or variable interest rate income bonds. So you balance that in terms of minimizing risk, and in all cases the experts suggest that it is going to be very, very easy to do much, much better than the 1.1 to 1.7 percent return you are going to get on Social Security. Based on a family income of $58,475, the return on a personal retirement account is even better. We divided this into three different areas, if you invest 2 percent of your wages or 6 percent of your wages or 10 percent of your wages. If the average working life span is, what, if you go to work at 20, 25, and you retire at 65, 70, so on average I suspect we are working 40 years, paying in our Social Security taxes, so let me jump way over to the 40 years. If you were to work 40 years and invest 2 percent of your money, then you would end up with just a little over a quarter of a million dollars. If you invested 10 percent of your money, you would have $1.4 million over the 40 year-period. What we are looking at, if you just invested this money at 2 percent for the first 20 years, you would still have $55,000 after 20 years; or if you invested at 10 percent, you would have $274,000 over 10 years. Again, the fact is that long-term investments, even with the fluctuations for that 12-year or 15-year period, we have never had a 12- or 15-year period in the history of the stock market, of equities, where there has been a loss. Again, the average return on such an investment has been 6.7 percent. Okay, let me finish up just briefly with the Social Security bill that I have introduced. I am rewriting that bill now to make a couple changes that I think are important. The question is, some people argue, well, you cannot let individuals invest the money themselves. So what I have done in this legislation is I have limited the investment to safe investments, index stocks, index bonds, an index of mutual funds, or an index of some of the foreign stock investments funds. That is what we are doing in the Thrift Savings Plan also. My legislation allows workers to invest a portion of their Social Security taxes in their own personal retirement savings accounts that start at 2.5 percent of wages and gradually increase. So 2.5 percent out of the 12.4 percent that is going in Social Security taxes you would be allowed to have in your own account and invest it in your selection of maybe four, maybe five, limited so-called safe investments, and then I would leave it up to the Secretary of Treasury to add to that any other investment potential that he thought was safe and reasonable to add to this selection. My proposal does not increase taxes. It repeals the Social Security earnings test for everybody over 62 years old; it gives workers the choice to retire as early as 59.5 years old, and as late as 70. In my proposal, I made a suggestion that you could increase your benefits 8 percent a year for every year after 65 that you delayed taking those benefits. Mr. Speaker, it gives workers the choice to retire at 59\1/2\. It gives each spouse equal share of the PRSAs. If you are a stay-at-home mom, you get half of what your husband makes; or if you are a stay-at- home dad, half of what your wife makes would go in your individual PRSA account. So it is always divided equally between the two spouses. If one spouse makes more than the other spouse, they are added together and divided by two to represent how much would go into each account. It also increases widow and widower benefits up to 110 percent. That is partially to encourage retirees that might be a surviving widow or widower to live in the same home. You cannot do it now. One cannot live on half as much money as two. So this adds to the surviving spouse's benefit. It reinforces the safety net for low-income and disabled workers. It passes the Social Security Administration's 75-year solvency test. In other words, the actuaries over at Social Security have scored this and said this will keep Social Security solvent for at least 75 years. Actually, it would keep Social Security solvent forever, the way it is written. The bill takes a portion of on-budget surpluses over the next 10 years. That is what I would like to stress. This bill borrows $800 billion of surpluses other than the Social Security surpluses to make the transition. Since we are taking all the money essentially now that is coming in and paying out $400 billion a year in Social Security benefits, how do you come up with enough money to stop paying out? You are not going to stop paying out those benefits, so how do you make the transition? So the transition is made from borrowing some money from the general fund. Now that we have this surplus coming in, now is the time to take that step. So if we can take $1 trillion now from the other surpluses to fix Social Security, then we are going to have Social Security solvent; and it is not going to haunt our kids and grandkids later. It uses capital market investments to create Social Security's rate of return above the 1.7 percent workers are now receiving. Over time, PRSAs grow, and Social Security fixed benefits are reduced. It indexes future benefit increases to the cost-of-living increases instead of wage growth. In other words, part of the problem now with Social Security is that benefits go up faster than the economy. Benefits increase based on wage inflation, which is higher than the CPI inflation. So one of the things my bill does is it changes the index of how much wages are increased to inflation. So it covers the increased cost of everything we buy, but it does not go up faster than everything we buy, as is currently structured under the current Social Security law. Let me finish, Mr. Speaker, by simply saying that I think we are in luck with this new President we have. He suggested that we leave some of the money that taxpayers are paying in, now at an all-time high. We are paying more taxes now, at the 41 cents out of every dollar, than we have ever paid in the history of America in peacetime. There was one year during World War II that it was higher than what it is today. So the fact is that another way to say that we have a surplus is saying that we are overtaxing somebody, someplace, somehow. So let us make taxes more fair, but at the same time, this President has said it is important to continue to pay down the debt so our kids and our grandkids are not left with that huge mortgage on the way we have operated government. Thirdly, he said that we have to fix Social Security. So I am encouraged. I think the challenge before this body is not sweeping this problem of Social Security and Medicare solvency under the rug, to leave it for future Congresses or as future problems for taxpayers that will be our kids and our grandkids.

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, what is facing the United States Congress right now is a decision of where do we go to help make sure that the economy keeps growing. What do we do in terms of President Bush's suggestion on tax cuts? How far should we go on those tax reductions to achieve tax fairness? How do we make sure that what we do is going to help make the economy stronger in the long run? I would like to start with a chart that represents how the Federal Government spends money. This chart represents the spending of the Federal Government. And as we see from this pie, the largest expenditure is Social Security. So Social Security takes 20 percent of what the Federal Government spends. The next largest, of course, is the domestic discretionary budget. That is what this Congress, this body, the House and the Senate, with the White House, debate and argue on every year in 13 appropriation bills is the discretionary spending, in addition to defense. Defense spending is 17 percent; interest is 13 percent. That is why paying down the debt and continuing to do that is very important. Today, this House made a decision that we were not going to spend any of the surplus coming in from Social Security taxes or Medicare taxes. I think that is a good start. Our goal has got to be to try to reduce the increase in spending of the Federal Government because the question that everybody in this Chamber needs to ask, the question that America needs to ask is how high should taxes be. Is there a point where taxes are so high that it discourages some people from going out and working, starting a new business and hiring more people? Is it possible that taxes become so high that people do not go get that second job to try to do well for their family because government takes most of the money? Mr. Speaker, I ask everybody that might be listening to make an estimate of how many cents out of every dollar the average American taxpayer earns goes to pay for government. The answer is a little over 41 percent. Forty one cents out of every dollar that an individual earns goes for local, State, and Federal Government. And it would be my suggestion that we lower that. So I support President Bush's suggestion that we have greater tax fairness; that we leave a little more money in the pockets of those individuals that earn it. One of the challenges, probably two of the biggest challenges that face this Congress, that face this country in terms of government programs, is Social Security and Medicare. When Social Security started, Franklin Roosevelt said, coming out of the Depression, that we need some alternatives except going over the hill to the poor house. So we started a Social Security system. 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 and pension plans. One-third. Today, a lot of people depend, over 90 percent, on just their Social Security check. So it is understandable during this last Presidential election that some seniors became concerned when Vice President Gore suggested that they might be losing benefits if we hired this other Governor Bush to be our next President. I think the challenge much greater than that is not doing anything on Social Security. So I would encourage this administration to move ahead as aggressively as possible to try to make sure that we do not just talk about putting Social Security first but we move ahead to make the kind of changes that are not going to leave a huge debt for our kids and our grandkids and will make sure that Social Security is solvent, and to do that without cutting benefits and without increasing taxes on American workers. The Social Security system right now is stretched to its limit. Seventy-eight million baby boomers begin retiring in 2008. Social Security spending exceeds tax revenues starting around 2015, maybe a little sooner. And Social Security trust funds go broke in 2037, although the crisis arrives much sooner than technically when the trust fund goes broke. Let me try to give my impression of what the Social Security trust fund is. Starting in 1983, when we had the Greenspan commission to change Social Security to make sure it kept solvent for the next 75 years, we passed into law a bill that the experts said would keep Social Security solvent. And the action that was taken at that time was to dramatically increase the taxes that American workers paid and to reduce benefits. And that has happened several times throughout history. So I suggest that it is very important that we not delay or neglect making the changes in Social Security now so that it will keep solvent without lowering benefits or increasing taxes. Insolvency is certain, and that is because we know how many people there are and we know when they are going to retire. We know that people will live longer in retirement. We know how much they will pay in and how much they will take out, and payroll taxes will not cover benefits starting in 2015, and the shortfall will add up to $120 trillion between 2015 and 2075. The shortfall. In other words, there will be $120 trillion less coming in from the Social Security taxes than is needed to pay the benefits that are now promised. Right now Social Security gives a wage earner, on average, a 1.7 percent return on the money they and their employer put in. So in 10 years we are looking at a situation where retirees will be receiving someplace maybe even closer to a 1 percent return because of Social Security taxes continually increasing, and the suggestion of expanding benefits is ever on the minds of this body. So the challenge before us certainly is how are we going to keep Social Security solvent. What are the changes that can be made? How do we get better than a 1.1 percent return on that particular money? And of course we know that a CD at the local bank will do much better than that. The question before the United States, before the American people, is should some of this money go into the stock market. Should some of the money be put into bonds? And how risky is it if some of this money went into equities? And I think that is what I sort of want to discuss, what the history of equities is. First, let me say, to make it absolutely clear, that Social Security is not solvent. We can say it is going bankrupt or broke, but the fact is that there is going to be less money coming in than we need. So then we look at the Social Security trust fund and we say to the House and the Senate and the President, look, we borrowed this money for other spending for the last 40 years, now it is time to pay it back. So what does Congress do to pay back the money that it has borrowed? What does Congress do to pay back the funds in the so-called Social Security trust fund? Probably one of three things: they either say, look, so that we do not have to pay back so much, we are going to again lower benefits; or we reduce spending on other programs to come up with the money for Social Security; or we increase taxes. Those are the three options. If there was no such thing as a trust fund, but we have a law that says these are benefits, what would government do to come up with the money to keep its promise to pay those benefits? Same three things: we either reduce other spending, or we reduce the benefits going out to retirees, or we increase taxes on current American workers. So in reality we should not look to the trust fund as the savior of Social Security. What is happening is on two fronts with Social Security. It is a pay- as-you-go program. Since 1934, when we started Social Security, it was current workers paying in their taxes that went immediately out to current retirees. So a pay-as-you-go program, but what is happening is fewer and fewer workers in relation to the number of retirees. Our pay- as-you-go retirement system will not meet the challenge of demographic change. In 1940, there were 17 workers for every one retiree. By 2000, there were only 3 workers. Today, there are only three workers paying in their tax that immediately goes out to pay a retiree's benefits. And the estimate is that by 2025 there will be two workers paying in their Social Security tax. So a tremendous extra burden on those two workers, and the threat of increasing the tax on those two workers is even greater if we do not step up to the plate and make some changes now. So now is the time. We have surpluses coming in. We have a surplus this year of $236 billion. We have a total surplus in next year, the budget that we are now working on, of $281 billion. The following year the surplus is $303 billion, and we have heard $5.6 trillion surplus over the next 10 years. So I suggest, Mr. Speaker, I suggest that we take some of that surplus now and we fix Social Security and we fix it in such a way that it can stay solvent, that our kids are not burdened with the threat and the probability of those higher taxes. This chart represents the short-term good times over on the top left in blue, and then when we hit 2012, with less money coming in than is needed to pay benefits. We have a huge challenge of future deficits. And, like I mentioned, in today's dollars it is an unfunded liability of $9 trillion. If we take it in tomorrow's dollars, as we need the extra money over the years, in those future years up till 2075, it is going to take $120 trillion. But if we can fix the problem today with a couple trillion dollars of that surplus and start getting a better return on the money that is invested, then we can keep Social Security solvent. A lot of people I talk to around the country on Social Security have the feeling that somehow there is a Social Security account with their name on it. I quote from the Office of Management and Budget. ``These trust fund balances are available to finance future benefit payments and other trust fund expenditures but only in a bookkeeping sense.'' They are claims on the Treasury that when redeemed will have to be financed, like I said, either raising taxes, borrowing from the public, or reducing benefits or reducing some other expenditures. It is interesting to note that the Supreme Court, now on two decisions, has said there is no entitlement to Social Security, that simply because you paid in taxes all of your working life and your employer paid in those taxes, there is no entitlement to Social Security, it is simply another tax that Government has imposed on workers of America, and the benefits are simply additional legislation that can benefit retirees. So no promise that you are going to get any benefits. So I think there is some good justification for putting some of that money in accounts of individuals, to put it into the safe kind of investments where we can guarantee that it will earn more than what Social Security will pay under the current program, where we can guarantee, if you will, that individuals that decide that they want to stay with the old system will have that option, or they can have the option to have the kind of, what in Federal Government we call a thrift savings account where there are limited, if you will, safe investments that everybody that works for the Federal Government can choose the different investments that they think will give them the maximum return on their investment. Now is a difficult time to maybe convince some people that they should have part of that investment in equities, in the stock market. Yet, if we just look at last month, last month there was almost a 3\1/ 2\ percent increase in the money invested in the stock market. Since the 1890s, there has never been a 12-year period where there has been a loss of money invested in equities in the stock market. I want to make mention of the public debt versus Social Security shortfall. Right now we are talking about paying down the debt held by the public. We have a debt in this country of $5.7 trillion. Of that 5.7 trillion, about 3.4 trillion is what I call the Wall Street debt, or the debt that is lent out by the Treasury in Treasury paper, Treasury bills, U.S. Government bonds. That totals 3.4 trillion. But over the next 75 years, we are looking at a Social Security shortfall in today's dollars, not in tomorrow's dollars, of $46 trillion. So it is just in that time period we are looking at $46 trillion needed up until 2057. Economic growth will not fix Social Security. Some people have suggested, well, if we can make the economy strong enough, if we can keep growing like we have been, that will help Social Security. Not so, because of the fact that Social Security benefits are indexed to wage growth, in other words, they are indexed to how strong the economy is. So the stronger the economy is, the higher the wages. The higher the wages, the more benefits that are paid out. When the economy grows, workers pay more in taxes but also will earn more in benefits when they retire. So, in the short-term, a strong economy helps out the problem because individual workers are paying more money in, but when they retire, because there is a direct relationship between what the benefits they are going to get and the money that they paid in in taxes, in the long- run, it is not going to solve the problem. Growth makes the numbers look better now but leaves a larger hole to fill later. I think the past administration did a lot for us when President Clinton said, we have got to put Social Security first. At least it brought it to the consciousness of the American people that it was important. I am disappointed that we have not done anything on Social Security for the 8 years that I have been in Congress. I urge this administration to move ahead with the Social Security proposal that will keep Social Security solvent, because the biggest risk is doing nothing at all. Social Security has a total unfunded liability of $9 trillion. The Social Security trust fund contains nothing but IOU's. 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. Neither one, Mr. Speaker, is acceptable to the American people. So again, it is important we move ahead with solving Social Security. This chart that I made represents the diminishing return of your Social Security 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 return in the marketplace for any period over a 15-year period. Social Security's real rate of return, this is Black History Month, minorities, because a young black worker dies at an earlier age, receives a negative return on the money that they pay into Social Security. We need changes there. If they are average, then they get about a 1.7 percent return. But that is going down to just a little over one percent within the next 15 years. And the market is showing a return of 7 percent. So are there some safe investments? Insurance companies testified before the Social Security Task Force that I chaired for the last couple years and said we can guarantee a return because we are selling it to the public now. We can guarantee you a return of 4.8 percent, or different companies have different percentages. So it seems reasonable that if we are comparing a system that has a return of around 1 percent to something that we could invest the money in CDs or Government bonds or many other investments that would have a guaranteed return much greater than that, then at least part of the option that American people would choose would say, well, what is going to make me better off when I retire? And, obviously, as we are going to show in a minute, it is going to be some of those private investments. And the private investments are not only a greater return, but it is the security of knowing it is your money, not having politicians in the future reach into that pot and say, well, times are tough in America. We are going to have to reduce benefits or we are going to have to increase taxes on American workers. This is a chart I made up on the years that it is going to take to get back your Social Security tax. If you happen to retire in 1940, then it took 2 months to get back everything that you and your employer paid into Social Security. By 1980, it took 4 years to get it back. Look what it takes to get it back today. Today you have got to live 23 years after you retire to break even to get back the money you and your employer paid into Social Security. I have been trying to preach that increasing payroll taxes again is not the answer. And everybody in this Chamber agrees. They said, right, we cannot increase taxes on those American workers. Too many American workers already pay more in the Social Security tax, the FICA tax, the payroll deduction than they do in the income tax. However, that is not the history in this country. Even though past Congresses have said the same kind of promises, what we have done over the years is continue to increase the tax on Social Security. In 1940, the tax was one percent on the employee, one percent on the employer for the first $3,000. That made a maximum tax every year of $60 per worker. By 1960, it got up to a 6 percent rate, and the base went up also to $4,800 for a total annual tax maximum of $288. By 1980, the tax got up to 10.16 percent and the base was increased also to $25,900. That made an annual tax a maximum of $2,631. Today we have increased the tax to 12.4 percent. We did that in the 1984 legislation. And we increased the base and indexed it to inflation. So this year it is approximately $80,000 that you pay the 12.4 percent on, or approximately this year $10,000 for those workers that make that $79,000 a year. So, again, I suggest that it is not out of reach, that if push comes to shove, if we keep putting off the solution to this problem, we are going to end up with some people saying, well, there is no other way, we need more revenues, let us increase taxes on our kids and grandkids and great-grandkids so that we have enough money to pay benefits. What is interesting is that we think the senior population is strong politically today. When the baby boomers start retiring in 2008, we are going to have such a huge retirement population and they are living longer and the political power of that retired population is apt to demand that their benefits be increased, not reduced; and so, the only alternative, if we do not fix it today, is the threat of tremendously increasing taxes on our kids. In an earlier chart, I showed that taxes would have to increase up to 50 percent, an increase in taxes of 50 percent, if we are going to continue to pay those benefits if we do not do anything to try to fix Social Security. Seventy-eight percent of families now pay more in the payroll tax than they do in the income tax. The six principles of saving Social Security. One, protect current and future beneficiaries. Two, allow freedom of choice. So you can either stay in the current system or you can have flexibility if you are sure you can get more than that 1.1 percent return on the money that is going in. Should part of that, at least part of that, be allowed for you as individual workers to have it in your own name, in your own account, and preserve the safety net. Look, this is a country where we are not going to allow anybody to go hungry or to go without clothing or without lodging. So we do have a safety net to make sure in essentially every proposal that has been introduced in Congress on fixing Social Security, and most of those have some private investment aspect, in every case, there is a safety net. We make Americans better off, not worse off. We create a fully- funded system and no tax increases. Personal retirement accounts. They do not come out of Social Security. They become part of your Social Security retirement benefits. I suggest that, if it is necessary to reach into the surplus over and beyond the surplus that is coming in from Social Security, to make sure that we save Social Security, now is the time to do that, that we use some of these surpluses to make sure that we keep the program solvent and we do that by getting a better return on the investment than the 1.1 to 1.7 percent the average retiree is going to make. A worker will own his or her own retirement account, and it is going to be limited to safe investments that will earn more than this says, 1.9 percent paid by Social Security. 1.9 percent is the high rate of return that you can make on your Social Security investment. And as we saw by that other chart, a lot of individuals have a negative return from what they put into Social Security. Personal retirement accounts offer more retirement security. If John Doe makes an average of $36,000 a year, he can expect monthly payments in Social Security of $1,280. If it is in a PRA, a personal retirement account, the way they have performed for the last 50 years, then it would be $6,514. Choosing personal accounts. When we passed the Social Security law, we left the discretion that State and county government employees could have an option of being in Social Security or in a retirement pension plan of their own with their own investments. Galveston County, Texas chose that option, to not pay into Social Security but to pay, in the same percentage, into their own pension retirement plan. Employees of Galveston County, Texas, are now making $75,000 in death benefits compared to Social Security's $253 in death benefits. The retirees from the Galveston plan have disability benefits of $2,749. Social Security would pay $1,280. The retirement benefits, Galveston County plan, $4,790 per month, compared to Social Security's $1,280 a month. I am showing these because some parts of the country have opted to go into some kind of private investment plans. Many of the State governments have private investment plans. Half of the people in the United States now have some investments in equities, in 401(k)s or other retirement efforts. San Diego enjoys PRAs as well. A 30-year-old employee who earns a salary of $30,000 for 35 years and contributes 6 percent to his PRA would receive $3,000 a month in retirement. Under the current system, he or she would contribute twice as much but receive only $1,077 from Social Security. I thought this was interesting: even those who oppose PRAs agree that they offer more retirement security. This is a quote from a letter that Senators Barbara Boxer and Dianne Feinstein and Ted Kennedy sent to President Clinton. They said, ``Millions of our constituents will receive higher retirement benefits from their current public pensions than they would under Social Security.'' That is the truth. The U.S. trails other countries in saving its retirement system. In the 18 years since Chile offered PRAs, 95 percent of Chilean workers have created accounts. Their average rate of return has been 11.3 percent per year. Among others, Australia, Britain and Switzerland offer workers PRAs. Many of the industrial countries of the world and many of the developing countries are now ahead of the United States in allowing individuals to have their own passbook that increases every year to give greater assurance in their retirement. British workers choose PRAs. Ten percent returns on British workers. Two out of three British workers are enrolled in the second-tier Social Security system and now are getting a 10 percent return. The pool of PRAs in Britain exceeds nearly $1.4 trillion, larger than their entire economy. This is the real rate of return in stocks from 1901 to 1999. So you see the ups and downs. But the fact is if you keep it longer term, if you keep it in for over 12 years, then there is not a loss. The average gain has been 6.7 percent. Again I compare that to the current 1.7 percent in Social Security, soon to be 1.1 percent return, with some parts of our population actually getting shortchanged and getting a negative return. This is the rate of return for the last 100 years, 6.7 percent. Based on a family income of $58,475, the return on a PRA of course is better. I separated this to putting in 2 percent of your salary or 6 percent of your salary or 10 percent of your salary. Of course Social Security is 12.4 percent of your salary. If it was just for 20 years and you put it in at the 6 percent level, it would equal $165,000 at the end of 20 years. At the end of 30 years, at 10 percent it would be over $800,000. In 40 years, and I guess that is how long most of us are probably planning to work, that is 25 to 65, if you were investing this money over 40 years, even at the low 2 percent rate, it would still equal over a quarter of a million, almost a million if you put in 6 percent of your salary; and if you were tithing and putting in 10 percent of your salary into an average indexed investment, it would be worth almost $1.4 million at the end of that time period, $1,389,000. I have introduced a Social Security bill since I first got here. When I was in the Michigan legislature, I was chairman of the Senate tax committee, and I was concerned to see that our productivity in comparison to other countries was going down. But what concerned me even more is our rate of savings compared to other countries was embarrassing. The United States that used to save 12 to 15 percent of every dollar they made back in the 1940s and 1950s now end up with an average savings rate in this country of about 4 percent. That compares to countries like Japan where they are saving about 19 percent and Korea where they are saving about 35 percent of every dollar they make. And because saving and investment is so important to the economic strength of our country, because that is where companies get money to do the research, to buy the tools and machines that are going to increase productivity, increase efficiency and therefore increase wages, it is important that somehow we encourage increased savings. We have done this over the last several years, because what we have done in the United States Congress is we have said, look, we are going to have an IRA that encourages through our tax system more savings. If President Bush has his way, we are going to increase the allowable amount that individuals can save and still have a tax break. We developed the Roth IRA that says if you save the money now, when you take it out in 20, 30, 40 years, whatever that increased value is, you do not have to pay tax on it. So increasing savings is key. One way to increase savings, of course, in this country is to encourage people to invest in their own personal retirement savings account. My proposal does not increase taxes. It repeals the Social Security earnings limit. It gives workers the choice to retire as early as 59\1/2\ years old and as late as 70. In my proposal if you delayed retirement between 65 and 70, you could receive an additional 8 percent increase in your retirement benefits for every year that you delayed retirement. What is interesting is that it is actuarially sound. It does not cost any money to do that, so we should be encouraging people to put off that retirement if they know that they can have that much extra return on their retirement benefits. It gives each spouse equal shares of PRSAs and increases widow and widower benefits to 110 percent. Right now if one spouse works and makes good income and the other does not, there are provisions where the lower-income spouse if there is not enough to equal at least 50 percent of the higher-income spouse's Social Security benefits, that 50 percent will be promised as a minimum benefit for that second spouse. What this does, in terms of the personal retirement savings account, if just one spouse is working, let us say it is the husband and the wife is staying home for the time being with the kids, everything that spouse makes will be divided in half, half going into the name of the stay-at-home mom and half going into the man's name or if the man stays home, just vice versa. It passes the Social Security Administration's 75-year solvency test and protects the trust fund with special lockbox provisions. That is what we did in this Chamber today. The lockbox simply says that we are not going to do what has been done for almost the last 42 years and, that is, when you have a surplus from Social Security, use that money for other government spending. So it is a good start. What we also did in that legislation today is we said, we are not going to spend any of the Medicare trust fund. Social Security and Medicare are the two big trust funds. There are approximately 116 trust funds of the Federal Government. What we have been doing is we have been, if you will, overcharging those particular people that are paying into those trust funds so that there is a surplus into the trust fund. So when we say in the past year, for example, that there was a surplus, there was no surplus except for the surplus coming into the trust fund. This next year, in 2002, we will have a surplus over and above the trust funds. And so it seems to me that another, almost a synonym, another definition for surplus is overtaxation, is we are overtaxing somebody, and that is why there is more coming in than we know what to do with. The danger, of course, is that this body finds it to their political advantage, most Members find it to their political advantage to come up with new programs, to take home pork-barrel projects where they get their picture cutting a ribbon on the new library or the new jogging trail or whatever. So the tendency has been over the years to increase spending. That is the challenge: How do we discipline ourselves to hold the line on increased spending? I am encouraged by what I have seen this new President do in terms of his aggressive enthusiasm to search out and find out where the weaknesses are in Federal spending, to find out where the abuse is, where the fraud is, where the inefficiencies are. It is extremely important we do that. We have got a very inefficient Federal Government. If we divide $1.9 trillion out by every Member of this Congress, it still is such a huge amount of dollars that it is difficult to keep track of. The Social Security Solvency Act for 2000 takes a portion of the on- budget surpluses over the next 10 years; it uses capital market investments to increase the Social Security rate of return above the 1.8 percent workers are now receiving and over time PRSAs grow and the Social Security fixed benefit is reduced. It indexes future benefit increases to the cost-of-living increases instead of wage growth. There are only two ways to fix Social Security, either bring in more revenues or you reduce the amount going out. What we are suggesting is one way to bring in more revenues is real investments. It could be a CD at your local bank, or it could be a United States savings bond. Or it could be the kind of investments that are indexed to maximize safety over the long run in those investments. Everybody should start thinking, is there a way that I could invest money better than what the government is doing in terms of what they give me back in Social Security? Can I get a better rate of return on some of that money that would exceed the 1.1 percent return that we are expecting in the future on Social Security benefits? I think the answer is yes. Mr. Speaker, I am encouraged and excited about a President that is suggesting that we hold the line on spending, a President that is suggesting that we pay down the debt, a President that is suggesting giving back some of this surplus and letting it stay in the pockets of the people that earned it.

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, I would like to spend a couple minutes talking about the challenges that this body faces over the next several weeks and months. We are talking about a tax cut. We are talking about what is the status of the economy in the United States, where will we go with unemployment, what can we do as a body in Congress to help make sure that the economy of the United States continues. We were talking about economic expansion in the neighborhood of 1.8 percent a year for economic expansion. Now we are talking about maybe 2.8 percent a year economic expansion, even with the slowdown. The technology that we have acquired over the last several years is a result of our investment in research. If there is one thing that I would suggest that we do in this body to help make sure that we have a strong economy, it is capital investment. I divide capital investment in two areas. One is physical capital, where we make sure that we put the effort into research to develop the state-of-the-art equipment and technology and techniques that can maximize our productivity. The other is investment in human capital so that we have a better education system. Now we are challenged with a question of how much do we excite the economy by leaving more money in the pockets of those individuals that have earned that money. In other words, where do we cut taxes? How do we cut taxes? How do we do it in such a way that it is going to maximize the economic benefit of keeping a strong economy? I have a couple suggestions. One is that we do not look away, or in any way disregard the importance of paying down the Federal debt. Today the Federal debt is $5.7 trillion. The Government has borrowed $5.7 trillion either from Social Security and the other trust funds or has issued Treasury paper to lend money to the public. Out of that $5.7 trillion, and this is the whole load of hay, out of that $5.7 trillion, $3.6 trillion, that is, $3.6 trillion out of the $5.7 trillion, is debt held by the public. So over the last several years, whether it is this body or whether it is the White House, when they talk about paying down the public debt, they are talking about only paying down a portion of that debt that has been lent to the public, Treasury bills, what I call the Wall Street debt. As we pay down the debt, the question that we have to ask ourselves is, where is the money coming from to pay down that debt held by the public? And where it is coming from is the surplus coming into the trust fund. And the trust fund that has the greatest dollar amount of surplus or other taxation is the FICA tax. In that FICA tax, most of it is Social Security tax, 12.4 percent of the total 15-odd percent is Social Security tax. This year we will have $158 billion more coming in from the Social Security tax than is needed to pay benefits. But when we hit the year 2010 to 2012, there will be less Social Security tax money coming in than is required to meet the benefits just 10 years from now. So the question before this body, the question before America, is, what do we do with the extra surplus now to make sure that that money is more available when we need it 10 years from now? Some have suggested, look, let us start getting some real return on investment, let us invest that money and let us put it in the name of those individuals so that Government and politicians cannot mess around with it in later years. And that is important. Because what we have done in the past is, when we were short of money, we cut benefits or we increased taxes. I think Social Security reform continues to be a vital part of the decision of where we go in the budget process, how much we cut taxes, and how much we increase spending in government. Let me give my colleagues an example of the danger of not having a tax cut, not getting some of this money out of Washington. That danger is that this body and the body over on the other end of this building ends up increasing spending so much faster than inflation. The last three bills that we put together and passed last December increased spending almost 14 percent over what those three particular appropriation bills spent the year before. The challenge before us is holding down spending, deciding what percentage of our total income is reasonable in terms of paying taxes. Right now, if one is an American taxpayer, on the average, he spends 41 cents out of every dollar he makes to pay Government taxes at the local, State, and national level. I suggest that that amount is too much. Let us decide on the priority for the limit on taxes. And if that limit is less than what we are paying now, then let us decide on the best way to spend that money so that we keep social security solvent and Medicare solvent and give some priorities to important projects, like improving education.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, we are now considering the question of tax relief: What kind of tax relief should we have? How far should we go to stimulate the economy? It strikes me, Mr. Speaker, that we have heard a lot of bragging out of the White House for the last 7 years that the 1993 tax increase was part of the reason that we have had such a good economy. But now I see nobody, nobody on that side of the aisle or anyplace else, suggesting that we should have a tax increase now to stimulate the economy. It is ridiculous. The question is, how do we have some kind of tax cuts that are going to help keep this economy strong? One of the greatest contributors to the surplus or overtaxation is the Social Security tax. That is where most of the surplus has come from. The challenge is--how do we use that money, how do we save that money--because we are going to need it starting in 2010 when the baby boomers retire. The challenge is great. I urge the American people and this body to become familiar with the debate on how do we give the kind of tax cuts that are best going to lead to a strong economy and a strong America.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I thank the chairman. As chairman of the subcommittee on science that oversees what we do on earthquakes in the United States, I would like to sort of make two comments. Number one, we are going to do whatever we can in this country to relieve some of the suffering and some of the damage that has been caused by earthquakes in India, so certainly I support this resolution. But I would like to call to all my colleagues' attention, to the attention of the American people, that this is not isolated to some other country; something that might happen someplace else. We have had serious earthquakes in the United States and will continue to have very serious earthquakes. The Loma Prieta earthquake was an estimated $6 billion worth of property loss in addition to human life. And of course the Northridge in 1994 was an estimated $40 billion loss of property as well as a great deal of damage to our physical health and well-being in California. It is a challenge. We have passed a bill this past year which is probably the most aggressive effort in giving us a better time frame to determine what we can do in that short time period to reduce the damage to human and physical property.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, it is with great respect for his outstanding service to the community, that I ask my colleagues in Congress to recognize John Alexander Campau for receiving the Jackson County Small Business Person of the Year Award. John Campau is the ultimate entrepreneur. He took the risk, and accepted the challenge of running Comtronics. It is with great pleasure that I congratulate him on his past 12 seasons of service. Under his leadership, sales revenue has more than doubled. Comtronics has added 27 employees and almost 1,000 customers and has expanded into seven states. Gross profits have increased, net profits have increased, and net worth of the corporation has increased over 300 percent. Today, the company is larger, stronger, more diverse, and financially more sound than ever before in its 42-year history. As president and chief executive officer, John Campau rose to the occasion and exceeded all projections of growth. He has a life long history of being a leader and a 14-year track record of outstanding business success. John Campau is a true entrepreneur. He had a vision and a relentless passion to create and succeed. Not only has John been a industry leader, but more importantly he has continued a family tradition of being an active member of his community. Supporting community organizations such as the American Cancer Society, Hot Air Jubilee, Family Service and Children's Aid, Junior Achievement and the United Way, John understands the importance of giving back to his community. John Campau's devotion and determination to both Comtronics and his community is to be applauded and I am honored to join the Greater Jackson community in recognizing him and wishing continued success in his future endeavors.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, the fact that the first piece of legislation this new body is considering is a firefighting bill helps demonstrate the esteem with which the Congress holds the Nation's firefighters. This bill, which corrects an inequity in the mandatory retirement age for federal firefighters compared to their law enforcement counterparts, continues the good work of the last Congress in addressing issues of concern to the firefighting community. We owe a great debt to our firefighters--federal and municipal, paid and volunteer. The 1.2 million men and women of the fire services serve as our nation's domestic defenders, often placing themselves at great risk. And yet they continue to man the front lines for our communities against fires, accidents, and disasters. Increasingly, we are asking them to take on further responsibilities--to respond to terrorist attacks or to help stem environmental disasters, for example. It's important that as we ask them to take on more, we stay committed to insuring we support them as best we can. We made a lot of progress towards that end in the last session. We were able to secure $100 million in funding for a grant program that will help fire departments nationwide purchase equipment, train personnel, and promote fire safety. We increased our support for the Volunteer Fire Assistance Program and began a study of ways to better allocate radio frequencies to fire services. Madam Speaker, I'm pleased to support H.R. 93 as the next step in our efforts to address issues of concern to the fire community. And, as Chairman of the Subcommittee with oversight over the U.S. Fire Administration, I look forward to continuing to work to ensure our first responders get the support they deserve. Mr. LaTourette. Madam Speaker, I yield back the balance of my time.

Mr. SMITH of Michigan. Madam Speaker, we all should thank the gentleman from California (Mr. Gallegly) for bringing this to our attention. It moves the mandatory retirement age from 55 up to 57. The fact that this is the first piece of legislation this new body is considering I think helps demonstrate the esteem with which this Congress holds the Nation's firefighters, its first responders. This bill corrects an inequity. We owe, I think, a great debt to what are some of the heroes of this country. We have 1.2 million firefighters in this Nation. Over 90 percent are volunteers. That means they are out risking their lives to help us. They truly are the first responders. We made a lot of progress, I think, towards reinforcing the fact that this Congress supports firefighters. In this last session, we appropriated $100 million in grants to cost share with local communities to make sure that they have the equipment; that they have the personnel; that they have the capable training they need. Madam Speaker, I am pleased to support H.R. 93 as the next step in our efforts to address issues of concern to the fire community. As the chairman of the Subcommittee on Basic Research that oversees the National Fire Administration, I suggest to all my colleagues that it is important that we continue this kind of support. These are the men and women that go out and have baked goods sales to try to support and raise enough money to have the kind of equipment that is going to end up saving our lives and our property. So when my colleagues go back home, thank these individuals. This is a good bill. Let us move on with it, and I hope that we continue this effort of supporting our first responders.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Madam Speaker, I rise today to discuss an issue that is very important to America. That is, how do we reduce drug use among our young people. I will be joined tomorrow at a press conference by NASCAR race driver Ricky Craven and representatives from other government agencies to talk about a new program to reduce drug use among young people, with a $2.5 million grant from the Department of Justice for the Race Against Drugs. The Race Against Drugs is a nationwide drug prevention education program aimed at educating today's youth about the dangers of substance abuse. The program was developed in May of 1990, in partnership with the National Child Safety Council, the Department of Justice, the Center for Substance Abuse Prevention, and the Department of Health and Human Services, and 23 motor sport sanctioning organizations. As one of several who has been fighting for increasing funding for effective drug prevention programs targeted towards America's youth, we know that this year's grant represents by far the largest level of support the Race Against Drugs has received from the Federal Government. We will have a race car, race drivers and a new innovative means to reduce drug use among youths. Join us at this press conference tomorrow, January 31 at the Triangle at 12:30 p.m.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. To define the word ``subjective'', it originally started to figure out what was the intent of the voter. The good news, I think, is that we are going to end up with the whole country reviewing their election system. We are going to end up with consideration and reviews and hearings here in Congress of how can we assure that when individuals vote, that they are going to have their vote counted. Also, there is a law in Florida, like most States, that says there is a responsibility on the part of the voter: that that voter has to consider the solemnity of the occasion in deciding how careful they are in that vote. We cannot help but wonder, as we view some of the demonstrators out there, when did they decide that they voted wrong? If they decided when they were still in the booth, they had a chance to redo that vote. So in many occasions, it did not seem like the demonstrators started coming out and they were organized until after it was identified as a close election.

Mr. SMITH of Michigan. Four Democrat counties, mostly Democratic officials supervising these elections.

Mr. SMITH of Michigan. Mr. Speaker, I yield to the gentleman from Florida if the gentleman wanted to make a final comment.

Mr. SMITH of Michigan. I thank the gentleman for his comments. Mr. Speaker, I am going to spend a few minutes talking about social security. I was concerned during the presidential campaign that there was a lot of misinformation that went out. I am particularly concerned at some of what I would call demagoguing, as there were scare tactics frightening seniors that the other candidate might be ruining social security and disrupting its future, not only for the kind of benefits they might get, but for what kind of consequences might evolve to current workers in this country. It seemed appropriate to do a brief review of what social security is, how it works, what the problems are, the insolvency situation, and some of the ways that we can keep social security solvent over the long run. This first chart shows the future deficits after the year 2015. The little blue in the top left-hand corner shows the increased social security revenue, because taxes were increased in the 1993, the 1983 decision, and taxes were increased so high that it is bringing in more social security revenues than is needed to pay for current benefits. I think it is good to remind ourselves that social security is a pay- as-you-go program. Workers in America pay their taxes in. By the end of the week, those taxes are sent out in benefits to current retirees. So it is sort of like a Ponzi game. But the consequences of the future without doing this, if we put off this decision, if we do not make decisions, then we are faced with future deficits that, in the words of Alan Greenspan, equal an unfunded liability of $9 trillion. That compares to our current budget of $1.8 trillion a year. If we were to come up with that $9 trillion, it would have to be invested in a savings account having a real return of at least 6.7 percent interest, a real return over inflation of 6.7 percent interest, to accommodate this red portion. The red portion represents how much additional money will be needed in addition to the social security taxes coming in for those particular years. I think it is important that we dwell on the fact that payroll taxes have just kept rising over the past. In the year 2000, we had a 15.3 payroll tax. As we see, in 1950, we started around 3\1/2\ percent. The consequences of not doing anything are either going to mean a tax increase or benefit cuts or substantial increase in borrowing. The leading economists suggest that to borrow that $9 trillion today is going to represent, listen to this, $120 trillion in tomorrow's dollars that we are going to need to come up with in addition to social security tax revenues. So let us not put this load on our kids and our grandkids, or even on young workers today. Social security began in 1935, and when Franklin Delano 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, in all of the literature, as I have researched the archives, it was to be one leg of a three-legged stool, so that you would also have personal savings accounts and private pension plans to go along with the social security benefits. It is interesting, going into the archives, Mr. Speaker, that when these decisions were made in 1935, the Senate, on two votes, voted that an option should be there to allow individuals to have their own private investments that could be invested by them, could only be used for retirement, like as a substitute for a government-run program. But in conference committee, the decision was made to make it totally a pay-as-you-go government program. Because of some of the problems we are running into in terms of fewer workers trying to pay their tax in to accommodate more and more retirees, Social Security has been deemed insolvent, and there will not be enough money there to keep Social Security going in the future without some changes, unless we do something. It is a system that is stretched to its limit. Mr. Speaker, 78 million baby boomers begin retiring in 2008. The baby boomers are that gang of youngsters born right after World War II. Social Security spending exceeds tax revenues starting in 2015. So we run out of this huge tax increase that we put on American workers in 1983. And starting in 2015, we are going to have to come up with more money from someplace; and that is the real crux of the problem. Where do we get that money? That is the problem of Social Security. How do you come up with that additional money? Social Security trust funds technically go broke in 2037, but the trust funds are a ledger. They are a bunch of IOUs that says Government owes Social Security this $800 billion, that is what the IOU amounts to today. But the question still is, where do we come up with that money once there is less tax revenues coming. You have three choices. The three choices to come up with that money, and it makes no difference whether there is a trust fund or whether this Congress simply keeps its commitment to keep Social Security going. Number one, and the one that is very dangerous in terms of its impact on the economy and workers, is yet again, we increase taxes on the workers. Number two, we reduce benefits or other government spending. Number three, is you borrow that $120 trillion from the public. So our debt of this country goes up substantially. And according to the economist, that kind of borrowing would be so disruptive to this economy that it would seriously be a negative impact on the kind of wage that Americans earn. I think it is important to point out that insolvency is certain. It is not some guys with green eye shades out there making rough estimates. We know how many Americans there are, and we know when they are going to retire. We know that people will live longer in retirement. We know how much they are going to pay in, and we know how much they will take out. Payroll taxes will not cover benefits starting in 2015 and the shortfalls will add up to $120 trillion between 2015 and 2075. I might say Barry is helping me. Barry Pump is helping me from the State of Iowa. The coming Social Security crisis or pay-as-you-go retirement system will not meet the challenge of the democratic change. I talked a little bit about the reduced number of workers. This sort of depicts where we are going in terms of the number of workers that are asked to reach into their pockets and pay out their Social Security tax to accommodate every single retiree. Back in 1940, we had 38 workers that we could divide the costs up between and among; and those 38 workers, back in 1940, paid in their taxes to accommodate each one retiree. Today, it is down to three workers. Within the next 25 years, the estimate is that it will be down to two workers paying in their Social Security tax for every one retiree. That means yet again, without some modifications to the program, we are going to end up substantially increasing taxes or cutting other spending or substantially increasing borrowing; and that is why I think it is so important that one aspect of the changes that need to be made is to get a better return on the money that is being sent in by workers and taxpayers today. The average retiree gets 1.9 percent back on the money in taxes that they and their employer send in; 1.9 percent real return they can get. And we can do better than that on a CD account. The question then becomes how do you make the transition? There is no Social Security account with your name on it. As I have made speeches around the country and in Michigan, there are a lot of people that think somehow there is an entitlement, somehow there is an account with their name on it, and it is adding up benefits and there is some kind of investment where they are assured of a return. This is a quotation from the Office of Management and Budget, the President's own Office of Management and Budget, and I quote them, ``these trust fund balances are available to finance future benefit payments and other trust fund expenditures, but, but only in a bookkeeping sense their claims on the Treasury that when redeemed will have to be financed by raising taxes, borrowing from the public or reducing benefits or other expenditures.'' It is interesting also, and I might comment that the Supreme Court now on two decisions has said that there is no entitlement to Social Security benefits. That the taxes you pay in are not related to in any way to some kind of a guarantee that you will receive benefits. Taxes are simply a tax that the United States Congress and the President have decided to tax workers. Benefits are simply a benefit for retirees that Congress and the President have decided to give senior citizens. There is another misconception that economic growth is somehow going to help Social Security. Not so. Social Security benefits are indexed to wage growth. Wage growth goes up faster than inflation, so benefits for retirees are going up faster than inflation. I have introduced three Social Security bills now that have been scored by the Social Security Administration to keep Social Security solvent. I was named chairman of a bipartisan task force on Social Security. And so for the last 3 years, we have been looking into and studying what needs to be done with Social Security. What are the problems? What are the consequences? And how do we correct it? In my bill, one way to slow down the increase for higher income retirees is do away with wage inflation and change it to simple inflation based on economic inflation. When the economy grows, workers pay more in taxes but will also earn more in benefits when they retire, because what you pay in taxes, what your earnings are directly related to what you are going to get in benefits. You add to that wage inflation instead of traditional inflation, and we see benefits going up more than what is going to be paid in in the short run simply because of more people having a job and more people having higher incomes. So in the long run, a stronger economy does not solve the Social Security problem. You end up with a hole later on, and that is what this says. Growth makes the numbers look better now, but leaves a larger hole to fill later. The administration has used these short-term advantages, an excuse to do nothing. Obviously, everybody that has looked at this last campaign between Governor Bush and Vice President Gore understands that there was a huge scare factor with seniors, that seniors can be frightened, and the reason is because a large number of those seniors depend on Social Security for most of their income. When anybody starts talking about any changes, they do get nervous. I just hope that the demagoguing in this campaign has not done away or dramatically reduced the chance of this Congress next year and the President next year, whoever it is, to move ahead with Social Security reform; because the longer we put it off, the more drastic the solutions. The longer we put this off the more drastic solutions. Let me just tell you the first bill I introduced when I came to Congress in 1993 was with very modest changes to make sure that we started getting some better return on the tax money sent in. Of course, you remember the chart of current surpluses, we have had all of these surpluses. Those surpluses have been squandered for the last 40 years because this body and the past Presidents have decided to use the extra money coming in from Social Security to spend on other programs. We have stopped that, by the way. It is a little gimmicky, but the Republicans came up with this idea that they called a Social Security lockbox. It was good because the public liked the idea of us stopping spending the extra tax money coming in from Social Security. Now, until we find a way to best use that money to keep Social Security solvent, it is being used to pay down that part of the debt held by the public, and so the total debt of this country is not going down; what we are doing is using the Social Security surplus, sort of like using one credit card to pay off another credit card. We are using the Social Security surplus to pay down that part of the Federal debt held by the public. It should be made very clear, because there were a lot of comments on this during this recent election by a lot of people that led the American people to believe that we were paying down the debt of the United States Congress. The total debt subject to the debt limit is not going down because of the fact that we are using the surplus from Social Security and the other trust funds to pay down the debt held by the public. Public debt versus the Social Security shortfall. Vice President Gore suggested that we pay down the debt held by the public. The total debt held by the public is a little over $5.6 trillion, that part that is held by Wall Street, what Treasury bills, Treasury bonds, the debt held by the public is $3.4 trillion. The Vice President suggested if we pay down this debt, we can use the savings on interest to accommodate the demands of Social Security over the next 54 years. This is the amount of money that is going to be the shortfall over the next 54 years in Social Security, $46.6 trillion, and so to pay down this debt of $3.4 trillion, the accommodation of that $260 billion that we save in interest every year is not going to accommodate that kind of shortfall. Let us do it. It is a good start. Let us get the public debt paid down. Let us start paying down the total debt of this country. This is another way to depict what was just talked about. Over the next 10 years, there is going to be $7.8 trillion coming into Social Security; $5.4 trillion are going to be used up in paying benefits. And that leaves a surplus of $2.4 trillion. And so what Governor Bush has suggested, what I am suggesting is that we take some of this surplus to start the personal retirement savings account. I would stress these are the kinds of accounts that are limited. You can only invest the money in certain safe investments, and you can only use it for retirement. It is not like it has been suggested that everybody is going to have the chance to be, if you will, convinced by the snake oil salesman from someplace to invest their money because it has high returns. Your investments are going to be limited, such as the thrift savings account for the Federal Government employees to some extent like the 401(k)s that a lot of our citizens have. But, again, now is the time that we need to start a transition to get a real return. I am sure we can work with Democrats and Republicans if the decision is made not to demagogue this in the next election. Which brings me down to my conclusion, that the best time, the most opportune time to solve Social Security is going to be next year, the first year of a 4- year Presidential incumbency and the first year of a 2-year term for every Member of this particular House. As you see on this chart, we end up with a savings. If we were to pay down the debt held by the public, we end up with a savings of $260 billion a year. If we keep that $260 billion and instead of using it to pay interest on the debt held by the public, we apply it to Social Security. This bottom blue represents how much of the total Social Security benefits will be accommodated by that interest savings. You still end up with a shortfall of $35 trillion. The biggest risk, I am convinced, is doing nothing at all. Social Security has a total funded liability of over $9 trillion that I mentioned; that $9 trillion of unfunded liability today can be expressed in terms of $120 trillion in tomorrow's dollars. In the next 75 years' dollars, that is going to be--that amount is going to be short of what is needed to pay benefits over and above what comes in in Social Security taxes. 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. Neither of those options is acceptable. Certainly a tax increase should not be acceptable. But let me briefly review, Mr. Speaker, what we have done on increasing the Social Security taxes over the last 60 years. In 1940, the Social Security tax was 2 percent; 1 percent for the employee, 1 percent for the employer. It was on the first $3,000 of income, maximum tax. Employee and employer combined was $60. In 1960, we increased the tax to 6 percent, increased the base to $4,800. Again $288 a year was the total of employee-employer taxes on Social Security. 1980, it went up to 10.16 percent on $25,900. Today after the 1993 changes, it has now developed into a 12.4 percent tax on the first $76,200 of payroll. What do we do? That brings it to almost $9,500 per year. If we let this go, then we are asking so much of young workers, of our kids and our grandkids, to pay this exceptional tax. I am a farmer from Michigan. I grew up with the idea that one tries to pay off the farm mortgage to leave one's kids a little better chance. But this body, this body and this Congress gets so, I think, wrapped up in the importance of spending today that we think taking money from them and leaving them an extra high mortgage justifies the kind of standard of living that we want and the kind of things that this body and the body down at the other end of the Capitol, the Senate, and the President want to spend money on. That is what we are arguing about now on finishing off this year's budget, can we reduce the increase in spending. Personal retirement accounts, let me talk about what would one do if one had some individual investments. What is compound interest? Compound interest means that, if one can invest one's money, one gets extra interest on it. It makes that fund larger. Then the interest on that extra amount of money that can grow, it can make an average worker a rich retiree. If John Doe makes an average of $36,000 a year, and they are allowed to invest 4 percent of their Social Security tax in a private account, then instead of getting the $1,280 a year from Social Security, they would be receiving $6,514 a month from that kind of a personal retirement account. When they passed the Social Security law in 1934, they said it is an option whether counties and States want to opt into the Social Security system or have their own retirement program. Galveston County, Texas opted to have their own personal investment. Let just take a look at what is happening there. Death benefits under Social Security, $253; in Galveston, $75,000. Disability benefits, $1,280 under Social Security; the Galveston plan, $2,749. The retirement benefits, Social Security, $1,280, same as disability. The Galveston plan for retirement is $4,790 a month. Private investments and the magic of compound interest have to be part of what is going to keep this system solvent. Personal retirement accounts, they do not come out of social security, they become part of one's Social Security retirement benefits. A worker will own his or her retirement account. It is limited to safe investments. It certainly can earn more than the 1.9 percent interest that an average retiree today is getting from Social Security. That is going to be much lower in the future. San Diego is another area that has opted out of Social Security into a personal retirement account system. A 30-year-old employee there who earns a salary of $30,000 for 35 years and contributes 6 percent into his PRA would receive $3,000 per month in retirement; and, under the current system, he would contribute twice as much, but receive only $1,077 from Social Security. Let me conclude by quickly running through these and making a comment. The U.S. trails other countries in saving its retirement system. Other socialized countries are moving into the private personal retirement accounts faster than the United States. I represented the United States at a worldwide meeting on Social Security over in London 3 years ago. I was so surprised to see so many of the other countries that were so far ahead of us in getting such a much larger return and having success in keeping their public retirement pension solvent. In the 18 years since Chile offered the PRAs, 95 percent of Chilean workers have received accounts. Their average rate of return has been 11.3 percent per year. Other countries, Australia, Britain, Switzerland all offer workers their own personal retirement accounts. The British workers chose PRAs overwhelmingly for their top tier. So even from England, the socialized country, they moved into their own personal retirement accounts. There are several ways we can do this. Some of the Democrats have expressed concern that the stock market is too risky. But one can decide what the balance is, whether it is 30 or 40 percent into bonds and 60 or 70 percent into equities. One can limit the equities to indexed stocks, indexed global funds, an index that is going to be across the board. Over the years, the average for any 30-year period, if one starts working at age 20 and finished working at age 50, for a 30-year period, for the last 100 years, the average return on equity investments is 6.7 percent. This is just sort of repeating myself a little bit. But based on a family income of $58,400 some, the return on a PRA is even better. If one invests 2 percent, as the blue; if one invests 6 percent, as the pink; and the purple is if one had invested 10 percent of one's income. But over 30 years, one would end up with almost $1 million. But over 40 years, it would be $1,000,389 if one worked for 40 years paying in 10 percent, being allowed to take 10 percent into one's private investments. If I have one final message, certainly it would be that everybody has to make a greater effort, savings and investing; that Social Security cannot be one's total retirement account. In our Social Security tax force, we had testimony that, within the next 25 years, people would have the option of living to be 100 years old if they wanted to. That not only offers a tremendous challenge to government run programs and their future solvency, but it emphasizes the need to move out of a fixed benefit program, at least partially, at least to some extent, and have a fixed contribution. But it also says that every individual today needs to make a more aggressive effort to save and invest. That is why this Chamber has decided to encourage savings and investment.

Mr. SMITH of Michigan. Mr. Speaker, I yield to the gentleman from Georgia (Mr. Kingston) to finish off his comments. Vote Counting Procedures in Florida in the Presidential Election

Mr. SMITH of Michigan. Reclaiming my time, Mr. Speaker, it is interesting that I was getting my plane ticket to come back to Washington, and to get the plane ticket, I gave my ID at the counter. She saw I was a Congressman. She asked if I was a Republican or Democrat. The young lady said, ``These Democrats are crybabies.'' But it is more than that. I think it is a serious situation, as we start questioning the electoral process. We are now on the third count of these ballots. With these ballots, my County Clerk said if we handle them, run them through the voting machine so many times, they start falling out in those little keypunch holes. They are almost indiscernible and impossible to read. When we saw on the television cameras people holding them up to the light, trying to discern what was the intent of the voter, I think if we do this in one locality not only is it unfair to the rest of the counties in the State of Florida, but certainly it is unfair to all of the voters in the United States. Some people were kept from the voting booth because of weather. Should they have another opportunity? I guess I am concerned that this does not become a sore loser situation that is going to continue to take their contest to the courts. Once we get the courts involved, it is going to be very difficult. I yield to the gentleman from Florida (Mr. Stearns).

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I was just on an interview with the Wall Street Journal asking me what I thought would happen after the election of the President, and which person might move ahead to make sure that we save social security. Working on this problem of keeping social security solvent, and having introduced four bills on social security, I made my comment that the greatest risk is doing nothing at all and simply saying, look, we are going to keep your benefits coming. Do not worry about it. Because the greatest problem is that if we keep putting off a solution, then what we are doing is ensuring that our kids and our grandkids are going to have an enormous tax burden to keep social security solvent. Social security has a total unfunded liability, according to Alan Greenspan of the Federal Reserve, of $9 trillion. That means we have to put $9 trillion in right now and have that start drawing a real return of at least 6.7 percent interest to keep social security solvent over the next 5 years. The social security trust fund contains nothing but IOUs on a ledger down in Maryland where every time the government borrows that money, either to pay back debt or expand social programs, just another figure is written on that ledger. The challenge is coming up with the money to keep paying the benefits for social security that we have promised the American people. To keep paying promised Social Security benefits, if we do nothing, the payroll tax is going to have to be increased by nearly 50 percent or benefits will have to be cut by 30 percent. This is the problem. We have surpluses coming in after the big tax increase in 1983. Those surpluses are going to run out. We are going to have to start coming up with additional funds from someplace starting in 2015. That red portion on the bottom left of that chart is the taxes that our kids are going to have to pay in addition to current taxes, $9 trillion today in tomorrow's dollars, it is $120 trillion over the next 75 years. This is what we have done on tax increases so far. That is why the evidence is there that probably if we keep putting it off, we are simply going to increase taxes on our kids and American workers even again. In 1940, it was 1 percent for the employee and the employer for a maximum of $60 a year; 1960, 3 percent on employee/employer total of 6, on the first $4,800 to be $288. Today, in the year 2000, since the 1983 tax increases, it is 12.4 percent on the first $76,200 for a total of $9,440 a year for each worker. And that is part of the problem. We have gone from 38 workers for each 1 retiree in 1940; today we have three workers paying in their Social Security tax immediately sent out in benefits. And the estimate is that in 25 years, it is just going to be two workers working. Mr. Speaker, it has to be changed. I think that Governor Bush has been willing to step up to the plate saying look, we cannot just talk about it. We have to do something about it. He has been criticized by Vice President Gore. And Vice President Gore's plan is to take the interest savings on the debt held by the public, the interest savings on the debt held by the public, the debt held by the public right now is $3.4 trillion. The interest savings are $260 billion a year. It is not going to accommodate the $46 trillion that we are going to need between now and 2054. It is just another way of examining the Vice President's suggestion that we use the blue part, or $260 billion a year, to accommodate the $46 trillion that is going to be needed in addition to Social Security taxes. It still leaves a $35 trillion deficit. I just urge everyone, as they size up their candidates, try to pick the candidate that is willing to step forward on this issue. Next year is our best chance to solve Social Security. Let us do it.

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, the gentlewoman from Wisconsin (Ms. Baldwin) talked to me going out the hall here maybe 3 weeks ago and I said, Shall we introduce the bill to last another 6 months? The gentlewoman from Wisconsin said, No, let's do it at least till June. This is somewhat of a frustration for us, I think, because there have been some that thought by only temporarily extending chapter 12 bankruptcy, which is vital for farmers that happen to be down on their luck, if we leave that out and only do it temporarily, somehow it is going to encourage the passage of the full bankruptcy package. I would hope something could happen on that package. Tomorrow morning the Senate is voting on cloture. The odds are that the bill will go to the President. Then the President has got to make a decision. But somehow there have got to be changes, that people that borrow money are not burdened by yet higher interest rates, because it is too easy to go into bankruptcy. Likewise, talking to the gentleman from New York (Mr. Nadler), it is reasonable to conclude that some of those lenders probably are more eager to loan because they usually can go into the assets of that individual and end up making money at whatever interest rate they might be charging. Chapter 12 of the bankruptcy code is a very special provision available to America's family farmers in times of hardship. It allows family farms to reorganize their assets rather than liquidate them under the bankruptcy code. Without chapter 12, Mr. Speaker, many farmers would be forced to sell their farming equipment, which would mean that the farmer no longer has the plow and the planter and the disc and the cultivator and the milking machines that they need to make money on the farm. So without chapter 12, to file under chapter 11 or 13, it is a particular hardship on this kind of family farm business. It is limited to family farmers, because under the provisions of this law, it specifically limits these chapter 12 provisions to a definition of the family farmer; and it eliminates many of the barriers that family farmers face when they seek to reorganize under chapter 11 or chapter 13. Some have thought, as I mentioned, that continuing this as a temporary would somehow motivate the passage of the full bill. However, this is my fourth bill that has temporarily extended the chapter 12 bankruptcy for farmers that has passed through this Chamber. So I am not sure it is the motivator that some would hope. In terms of amending this bill to add the judges, I objected to that simply because I do not want provisions in the bill that some Senators have indicated that they disagree with to slow down and reduce by any way the assurance that this bill is going to pass into law. Let me say again, this relief is narrowly tailored to family farmers. Family farmers are those with debts less than $1.5 million, with 80 percent of their assets consisting of farm assets and 50 percent of their income coming from farm income. This ensures that it is only family farmers that qualify for these provisions. Again, hopefully sometime we are going to be able to make this permanent. Mr. Speaker, Chapter 12 of the bankruptcy code is a special provision available to America's family farmers in times of hardship. It allows family farms to reorganize their assets rather than liquidate them under our bankruptcy code. Without Chapter 12, Mr. Speaker, many farmers would be forced to sell off their farming equipment, which would mean that the farmer could no longer reorganize and farm in order to pay debtors. Chapter 12 eliminates many of the barriers that family farmers face when seeking to reorganize under either Chapter 11 or Chapter 13 of the bankruptcy code. Unlike these others, however, Chapter 12 expired last June and needs to be renewed. Leaders in both the House and the Senate have hoped a total bankruptcy reform bill would become law with provisions to make chapter 12 permanent. My bill, H.R. 5540, would extend it, retroactively, through May of 2001. My preference and what this Congress should pass, is to make Chapter 12 permanent. Some have thought that continuing Chapter 12 as a temporary provision would somehow encourage Congress and the President to pass the complete bankruptcy reform package into law. However, we have now passed four of my bills for temporary extension out of this chamber. So Chapter 12 as a motivator has failed. This relief is narrowly tailored to family farmers. Family farmers are those with debt less than $1.5 million, with 80% of their assets consisting of farm assets and 50% of their income from farm income. This ensures that it is only family farmers that qualify for these provisions. Again, hopefully, we'll be able to enact Chapter 12 permanently when we pass much needed bankruptcy overhaul legislation. But we need to make sure that Chapter 12 is available to our constituents in the interim and it's vital that we pass this legislation before Congress adjourns.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, I thank the gentleman for yielding, because I have served with Bill for the last 7 years on the Committee on Agriculture, and I would like to just try to portray his diligence, enthusiasm and dedication to trying to make sure that the farmers not only in Nebraska survive, but the farmers all through the United States. We underwent a rewrite of the Federal agricultural policy. We are going to miss Bill Barrett next year as we start the next 5-year rewrite. He has been a leader, of course, as chairman of one of the major subcommittees within the Committee on Agriculture; and I, as well as many of my colleagues in this Chamber, are going to miss Bill and Elsie. We hope they will come back and visit often. He has contributed enormously to the success of this Chamber, this body, and the committees on which he has served. I thank the gentleman for yielding.

Mr. SMITH of Michigan

Mr. SMITH of Michigan. Mr. Speaker, happy Halloween. This is probably as close as I am going to get to my grandchildren tonight, and they are sort of demonstrating their Halloween outfits. My daughter, Elizabeth, and her husband, Fred, are the mom and dad to Salena and James, and then everybody else comes from Brad and Diane, and Brad and Diane live with me on the farm. Brad is an attorney in Ann Arbor, but a farm guy at heart, and these guys are all 4-Hers. Just to prove to my wife that I can do this, this is Henry and George and Emily and Clair and Francis and Nick, and Alexander is missing from this picture. I start with this picture because, Mr. Speaker, I am going to make some comments tonight about Social Security. If there is a generation at risk, if we continue to fail to make the changes necessary to keep Social Security and Medicare solvent, this is the generation at risk. The next chart I am going to show is why they are at risk, because it represents what we have done on tax increases on Social Security in the past. In 1940, the rate was 2 percent, 1 percent for the employee and 1 percent for the employer. The base was $3,000, so the total tax per year for employee and employer was $60. By 1960, it got up to 6 percent of the first $4,800 for the total tax, employer and employee, $144 each, $288 combined. By 1980, we again increased taxes, and we were doing this as the number of workers per retiree kept going down. In 1940, we had 38 workers paying in their Social Security tax, 38 of them, to cover the benefits of one retiree. Today, as our tax rate has gone to 12.4 percent of the first $76,000 for a total of $9,448, we have three workers paying in that large tax to cover the benefits of every one retiree, and the guess is that within 20 years to 25 years, we will be down to two workers. Mr. Speaker, I am concerned about my grandkids and everybody's grandkids, in terms of the kind of tax they are going to be asked to pay if this country continues to give them the burden of a greater debt, a greater mortgage. I am a farmer from Michigan; and on the farm, we always had a goal of trying to pay down the mortgage so that our kids had a little better chance of having a good life, of having some income, as compared to their parents and their grandparents. This Chamber, this body, the Senate and the President has started borrowing money, because somehow we feel that we are so important in this generation that we can borrow more and more money. The debt of this country is now $5.6 trillion that we are justified in borrowing this additional money to satisfy what we consider very important needs of this existing generation, if you will; and we leave our kids with that larger mortgage, that larger debt. I think that is bad policy, what we have started doing of not using the Social Security surplus money coming in. After the 1983 taxes that drove this up to 12.4 percent and indexed the base rate, which is now $76,000 going with inflation, for a short period of time, there is more money coming in than is used for benefits; and what has been happening for the last 40 years is Congress has been spending that extra money on other government programs. So the money sort of disappears. We started 3 years ago, it was a bill I originally introduced, that said we have to have a recision. We cannot spend the Social Security surplus. With the bill of the gentleman from California (Mr. Herger) last year, we passed what was called a lockbox. And the lockbox simply said we are not going to use any of the Social Security surplus for any government programs, and it is going to be used for Social Security or to pay down the debt held by the public. That is what we did last year. It got popular support, so the President went along with it. This year we came up with another policy tool and said, look, the American people will support us if we say that we are going to take 90 percent of the surplus. Look, times are good now. There is extra money rolling in. And the danger is, of course, that this Chamber decides to spend it on government programs, rather than paying down the debt. We decided in our Republican Caucus about 4 weeks ago that we were going to draw the line in the sand on spending and say at least 90 percent of that surplus is going to be used to pay down the debt held by the public, and that is what we are arguing about now is what to do with the other 10 percent. That is significant, because it still is going to increase spending substantially. Speaking of Halloween, I personally feel that we sort of got tricked by the President last night when he vetoed the Treasury Postal bill and Legislative Service branch bill. He vetoed it because he wanted something in the legislation that we are now debating that this Congress was not sure that they wanted to give him, so he decided to veto that bill. Mr. Speaker, it sets us farther behind. I think it was a disservice to the communication, to the cooperation between the Congress and the White House, and I think probably it is going to end up that we are going to have that much greater difficulty coming to a bipartisan agreement on these appropriation bills in the next couple of weeks. Social Security has been a debate with both Governor Bush and Vice President Gore. We have heard on the campaign trail what do we do about Social Security. And the Vice President has criticized Governor Bush for wanting to take some of this money and put it into privately owned retirement accounts that could be invested in safe investments. The criticism was that the Governor was taking a trillion dollars away from Social Security to pay benefits and he was trying to use it for both setting of personal retirement accounts and trying to pay benefits with it at the same time. I thought it would be good to review just what is happening over the next 10 years with Social Security revenues. Revenues coming in to Social Security over the next 10 years are going to be $7.8 trillion. The costs of benefits over this next 10-year period are going to be $5.4 trillion; that leaves a surplus or an extra amount of $2.4 trillion. Governor George Bush was suggesting that we take $1 trillion down here at the bottom green, $1 trillion out of that $2.4 trillion and use it for, if you will, transition, starting to set up these personally owned accounts for individuals that if they die it goes into their own estate. Unlike Social Security today, if you pay in all of your life and you die before you go into retirement, you do not get anything. This other chart sort of represents the problem, some of the rewards that some people would have if they were to invest with the magic of compound interest. This chart shows that a family that has $58,475, and that was figured an average for an area of Michigan, that if they put that into an investment and invested, the blue would be 2 percent of their income, the pink would be 6 percent of the income, purple would be 10 percent of their income. If they just invested it for 20 years with the magic of compound interest, in 20 years they would be at 2 percent. It would be worth $55,000; and this is at 2 percent of the investing, 2 percent of their earnings. If they invested 10 percent, it would be worth $274,000 in 20 years. But most of us start working at 18, 20, 22, and we work for 40 years until we are 62 or 65 maybe even. So if you were to leave money for 40 years, which is the far right-hand bar charts, and you were to do it for 2 percent of your income, you would accrue $278,000, if it was 6 percent of your income. Remember, Social Security taxes are 12.4 percent of everything you earn. If you were to do it for the 6 percent, it would be $833,000; or if you would invest 10 percent of that income and leave the 2.4 percent for the disability insurance part of the Social Security, if you were allowed to invest that, you would end up with a $1,389,000. At 5 percent interest, you could have $70,000 a year and not even go into the principal. Social Security started with, of course, Franklin Delano Roosevelt in 1935. When President Roosevelt created the Social Security program, he wanted it to feature a private sector component to build retirement income. And Social Security was supposed to be one leg of a three- legged stool to support retirees. The other two legs were to be personal savings and private pension plans. It is interesting researching the archives and the debate in the House and the Senate. The Senate on two different votes in 1935 said that private investment savings, that could only be used for retirement purposes, but owned by the individual should be an option to a government-run program. When the House and the Senate went into conference, the House prevailed, and we ended up with a total government-run program. And now, because of the demographics, because people are living longer life spans, when we started Social Security the average life span was 62\1/2\ years. That meant that most people paid into Social Security all their life, but did not get anything out of it. The system worked very well then. But now, people are living longer and, at the same time, the birth rate has decreased substantially after the baby boomers, and so we ended up with fewer workers for more retirees, which makes the pay-as- you-go program not workable anymore. Social Security is now insolvent as scored by the Social Security actuaries. So the problem facing this Congress is how do we come up with the extra dollars to pay the benefits? I think we have made a commitment to retirees. We take their money while they are working and the implied commitment is that they are going to get something when they retire. However, when this was challenged to the Supreme Court, when government refused payment at one time, the Supreme Court on two different occasions now has ruled that there is no entitlement for Social Security. That Social Security is simply a tax that Washington has imposed on workers and any benefits are simply another law that is passed to give some benefits, but there is no relationship, no entitlement. So the argument for at least some of that money being in private- owned accounts where Washington cannot reduce benefits, or yet again increase taxes, I think has a great deal of merit, above and beyond the fact that we can get a lot better return on our investment with some of those investments. Let me just briefly show the predicament that Social Security is in. Seventy-eight million baby boomers begin retiring in 2008. They are now paying in at maximum earning. These are big earners paying in a heavy tax on that higher base and they are going to go out of the paying-in mode and start taking out. Because benefits are directly related to what we paid in and what we earned, their benefits are going to be higher than average. So the actuaries are now predicting that we are going to be short of money and not having enough money by 2015. Social Security trust funds go broke in 2037, although the crisis arrives much sooner. The crisis arrives in 2015 when there is less money coming in in taxes than there is needed to pay benefits. So the question is for Social Security, how do we come up with that extra money? It is not just speculation from people with green eyeshades on, economists making some predictions. It is an absolute. Insolvency is certain. We know how many people there are. 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 payroll taxes will not cover benefits starting in 2015. The shortfall will add up to $120 trillion between 2015 and 2075. $120 trillion. To put that in some kind of perspective, our current budget that we are just passing for this year is $1.9 trillion. The $120 trillion is in tomorrow's dollars. The way Alan Greenspan, Chairman of the Federal Reserve, expressed it is the unfunded liability is $9 trillion. In other words we would need $9 trillion today to come up with the tomorrow dollars that are going to be the inflated dollars to cover the $120 trillion needed over and above what is coming in in Social Security taxes. So, Mr. Speaker, we know there is a huge problem, and yet we have avoided dealing with it because there is a fear by maybe both sides of the aisle, maybe by the President, that they would be criticized for making some changes in Social Security. And that is obvious. As we listen to the campaigners for the Congress, for the Senate, for the presidency, they want to criticize the other person's Social Security plan. They want to scare people. And it is easy to scare people, because we have almost one-third of our retirees today that depend on Social Security for 90 percent or more of their income. So we can understand, Mr. Speaker, why and how it is easy to demagogue this issue of Social Security. As I mentioned before, this chart shows the number of workers per each one retiree. In 1940, there were 38 workers paying in their Social Security tax to cover the benefits of each one retiree. Today, there are three. By 2025, there is going to be two. So an extra burden, an extra tax on my grandkids, on everybody's kids and grandkids, and on young workers today if we do not face up to the problem. This represents the short-term surplus in the blue, and that is because we dramatically increased the Social Security taxes in 1983. We also reduced benefits when Congress dealt with the program in 1983 and we did that in 1977 also. In 1977, when push came to shove on needing additional money, we reduced benefits and increased taxes. It seems to me that those have got to be part of the criteria of everybody's proposal, they are of Governor Bush's. No tax increases. No cuts in benefits for existing retirees or near-term retirees. And we could have it optional to allow other workers to either stay in the old program or have the opportunity to have some of that money in their name that could be invested in a limited number of safe accounts such as the Thrift Savings Plan, such as the 401(k)s, but even with more restrictions because it could only be used for retirement. The red represents the $120 trillion I talked about or the $9 trillion unfunded liability today that would have to go in a savings account earning a real return of 6.7 percent. Some have suggested economic growth. In fact I read in Investors Business Daily yesterday the suggestion if economic growth continues, it is going to help solve the problem of Social Security. Not so. Here is what happens with economic growth. As wages increase and the economy expand, because of the fact that we index Social Security benefits to wage inflation, which is substantially higher than normal inflation, Social Security goes up faster than normal inflation. My proposal, in one of the three Social Security bills that I have introduced, the last one and the one before that, over the last 5 years it changes the wage inflation to traditional economic inflation so benefits grow with inflation instead of at the faster rate of wage inflation. When the economy grows, workers pay more in taxes, but also they will earn more in benefits when they retire. Growth makes the numbers look better now, but leaves a larger hole to fill in later. So when we have more employment, and the unemployment is at record lows right now, more people are working, more people are paying in their Social Security taxes. The higher wage earners are, because taxes are directly related to earnings, the higher wage earners are even paying in higher taxes. But because Social Security is indexed to wage inflation, everybody is going to get a higher benefit. Those higher wage earners, because Social Security benefits are also directly related to the wages and the Social Security taxes we pay in, in the future are going to get the higher benefits. So even though it helps in the short run, ultimately benefits have to pay out to accommodate those higher wages. So a strong economy does not cure the Social Security problem. Mr. Speaker, I just wanted to mention that the administration has used these short-term advantages as an excuse to do nothing. I think we have missed a real opportunity in the last 8 years not to move ahead with Social Security. I thought we were close, and in this Chamber I stood up and cheered and clapped when President Clinton said he was going to put Social Security first and we were going to do something about solving the Social Security problem. There is no Social Security account with our name on it. A lot of people think that somehow the money they pay in is into their own private account. These trust fund balances are available to finance future benefit payments and other trust fund expenditures, but only in a bookkeeping sense. They are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or reducing some other expenditures. What we have done in the past is increased taxes. So that is why I am concerned that it could develop into almost generational warfare if we start asking our future workers to start contributing a 50 percent increase in their current taxes. The economic predictors are suggesting that within the next 40 years, without changes in the programs, even if we do not add extra benefits such as prescription drugs or whatever, simply to cover the existing program promises of Social Security, Medicare and Medicaid, it is going to take a 47 percent payroll tax. So payroll taxes would have to go to 47 percent to cover Social Security needs and the Medicare and Medicaid. I think of what would we do today if we were workers paying that kind of tax in addition to an income tax to finance the other operations and functions of Federal Government. I think there would be a rebellion. That is what we have got to start looking at is how do we start paying down the debt, how do we start making corrections while we have a surplus coming in so that we do not run into this huge problem in the future. The longer we put off the solution to fix Social Security, the more drastic the changes are going to have to be. I know that for a fact. I introduced my first bill when I came to Congress in 1993, my second bill and every term since. So I have introduced four Social Security bills. The last three were scored by the Social Security Administration that, in their determination, that these bills kept Social Security solvent for the next 75 years. I was appointed as chairman of the Committee on the Budget's bipartisan task force on Social Security. So we brought in experts from, not only this country, but around the world to discuss what the problems of Social Security were, how they work, what was the internal operation of Social Security, what was the real problem of Social Security, what were some of the ways that we might fix Social Security. The Vice President has suggested one way to fix Social Security would be to pay down the debt and use the interest savings to help pay for benefits, and that would keep Social Security solvent over the next 57 years. So he is suggesting, over the next 57 years, there is a shortfall of $46.6 trillion that will be needed in addition to the money coming in from the Social Security tax to cover the benefits that we say we are going to cover. He is suggesting, by paying down this $3.4 trillion debt and using that interest, it will keep Social Security solvent. That is, well I hate to say it, but that is fuzzy math. That is not going to work. Here is another chart, trying to portray this in a different way. The interest that we are paying on the debt held by the public is $260 billion a year. So there is some reasonableness to add another IOU to the trust fund or to use this money, instead of paying it on interest, to dedicate it to Social Security. But if we dedicate that $260 billion to Social Security, then we are still left with a shortfall of $35 trillion. So the Vice President's program is not going to accommodate the needs to keep Social Security solvent over the next 57 years. Again, the problem is how do we come up with the money when we run out of tax money and tax revenues coming in? The biggest risk is doing nothing at all. Social Security has a total unfunded liability, as I mentioned, of $9 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. Neither one of those options I think is reasonable. That is why we have got to get a better return on the investment of the dollars that are now being sent in in the way of taxes. Social Security lockbox, we passed it out of this Chamber. It says we are not going to spend any of the Social Security surplus. For the last 40 years, we have spending the Social Security surplus money for other government programs. We put a stop to that with a lockbox. We passed it out of this Chamber. Now it is lagging in the other Chamber. I am sure if the President of that Chamber, the Vice President of the United States, would say, look, let us move this bill out, it would go out. I am sure the President would sign it into law. Then it would be an absolute lockbox. The diminishing returns of one's Social Security investment. The average retiree now gets 1.9 percent back on the money that they and their employer send in on Social Security. That is over and above the 2.4 percent that are needed for the disability insurance. The disability insurance is really an insurance program. It is proper that that strictly be a total Federal Government operation. One pays in one's 2.4 percent to cover the insurance that says, look, if one gets hurt or disabled, then one is going to get these kind of benefits out of the Social Security Administration. So there is no proposals in Congress or in the Senate that suggest that we reach in in any way to that part of the disability insurance program. So when I suggest that 1.9 percent return, I am talking about the rest of one's Social Security contribution taxes that one and one's employer puts in. On the average, we get 1.9 percent, the middle bar. But over here, we see some people get a negative return. As it happens, minorities, for example, are one group that gets a lower return on their particular investments. The average return of the marketplace, by the way, is running 7 percent. So the question is, can we do better than the 1.9 percent real return? I think even CDs are paying much better than that now. So how do we make the transition? If we were to have some private investment, what would that do to the economy of this country? The estimate is that, if we would allow 2 percent out of the 12.4 percent of one's Social Security tax to be invested, maybe 60 percent in equities, 40 percent in indexed equities, 40 percent in indexed bonds, within 15 years, there would be an extra additional $3 trillion invested. What happens to these investments? It goes into companies and businesses to allow them to buy the state-of-the-art equipment, to allow them to do the research to make sure that they are producing the kind of products that people around the world want to buy and the kind of technology that is going to allow us in the United States to produce them more efficiently than any other country. I mean, that is what we have been doing. I chair the Subcommittee on Basic Research in the Committee on Science. Research is vital. But for the private sector to have the impetus to do that kind of research and develop that kind of equipment that keeps us productive, efficient, and competitive means that they have got to have that investment. So savings and investment is key. That is why I first became interested in Social Security. I was chairman of the Michigan Senate Finance Committee, and I wrote my first Social Security bill actually while I was in the Michigan Senate because of the fact that our savings and investment in the United States are one of the lowest in the industrialized world. If we expect that we are going to continue to motivate and have the money for these businesses to do the research and the development, then we have got to have that kind of savings and investment. We give some encouragement by saying to the average worker in this country we are going to allow one to invest part of that tax money. It is going to be in one's name. It is going to be limited, safe investments. One can only use it for retirement. But it means that there is going to be more savings and investment, which is going to spur our economy. This graph, this bar chart is another way of describing that Social Security is a bad investment for the American worker. It only took 2 months in 1940. But in 1960, one had to live 2 years after retirement to get back all of the money to break even, to get back all the money one and one's employer put in. By 1980, one has to live 4 years after he retired. By 1995, one has to live 16 years after one retired. So that is living 4 years after one retired in 1980, living 16 years after one retired in 1995, living 23 years after one retired in 2005, just to break even. It is a bad investment on Social Security. Can we do better on that investment? Can we have a system that allows an average income worker to make some of those investments, to benefit from the magic of compound interest and become a wealthy retiree? The answer is yes, we can do that. Here is another problem. We kept upping the taxes on the American workers to the point where 78 percent of American workers today pay more in the Social Security tax than they do in the income tax. And that is a very regressive tax. The six principles of saving Social Security: Protect current and future beneficiaries. Allow freedom of choice. Freedom of choice means you can either take the option of having some of that money in your own name and having the Government say, okay, you can invest it in an indexed stock or an indexed bond or an indexed global fund but safe investments, as determined by the Social Security Administration or by Congress, when they pass the law. It preserves the safety net. It never touches the disability insurance portion. Makes Americans better off, not worse off. And creates a fully funded system and no tax increases and no reduction in benefits for existing or near-term retirees. Personal retirement accounts. They do not come out of Social Security. They stay in the system. Some have suggested that you can have these personal retirement accounts and invest them in some of these limited investments and for every $6 you make in your equity investments you would lose $5 in Social Security benefits. So it is a no-lose situation if you were to devise something like that. In my last piece of legislation, what we did is say that we are going to assume that you can get at least 3\1/2\ percent interest real return on your investment and, so, you would offset Social Security benefits. The other thing I do in my legislation to help keep the Social Security system solvent is I change it from wage inflation to normal economic inflation as far as indexing the increase in benefits. And the third thing I do, I slow down the increase in benefits for high income recipients of Social Security. It ends up being scored to keep Social Security solvent for the next 75 years with the extra return that can come in from these privately- owned personal retirement accounts. Personal retirement accounts. I think the important part is that a worker will own his own retirement account and it will not be subject to decisions made by the United States Congress or the President and it is limited to the safe investments and they can earn more than 1.9 percent paid now by Social Security. Here is an example of some of the personal retirement accounts. If John Doe makes an average of $36,000 a year, he could expect $1,280 a month from Social Security or $6,514 from his personal retirement account. Galveston, Texas. When we passed Social Security in 1935, there was an option for local and State to not go into the Social Security program and to set up their own personal retirement accounts. Galveston, Texas, ended up doing that. In Galveston, Texas, if you die, your death benefits in Galveston under their personal retirement investment plan is $75,000. Social Security would pay 253, the disability benefits for a month, and Social Security $1,280. The Galveston plan is $2,749. Retirement benefit per month $1,280, same as disability. The Galveston plan, on their personal retirement investments, the way they have come out with their investments, is $4,790 a month. I am trying to just show the advantages and the magic of compound interest compared to a Government-run programs, the pay as you go, that does not have any savings, that does not have any real investment. It does the same thing with their PRAs, personal retirement accounts. A 30-year-old employee who earns a salary of $30,000 for 35 years and contributes 6 percent to his PRA would receive $3,000 per month in retirement. Under the current system, he would contribute twice as much but receive only $1,077 from Social Security. The U.S. trails other countries. And I was concerned. I represented the United States in describing our Social Security our public pension system in a meeting in London 4 years ago, and I was impressed at the number of countries around the world that are much more advanced than we are in terms of getting some real return on that tax contribution for their senior citizens. In the 18 years since Chile offered PRAs, 95 percent of the Chilean workers have created accounts. Their average rate of return has been 11.3 percent per year. And, among others, Australia, Britain, Switzerland offer workers PRAs and they have gone into that system with a better rate of return. The British worker who chose PRAs is now averaging a 10-percent return. And two out of three British workers that are enrolled in the second tier they call it, allowing you to have some options with half of your Social Security taxes, have invested in that system and the British workers have enjoyed a 10-percent return on their pension investment. The pool of PRAs now in Britain is $1.4 trillion, larger than the rest of the economy of the whole of Europe. This chart demonstrates what has happened in equity investments over the last 100 years. And so, some have suggested the market is too risky to invest with the ups and downs. That is why I think it is important that you have indexed investments where you have part of the investment in equities and part of the investment in bonds and part of it would depend on the age that you start these private investments. The average for the last 100 years has been a real return of 6.7 percent. In the lowest years, in 1917 and 1918, still it was three and a half percent, well above the 1.9 percent return that you are getting from Social Security. But again, if you leave the money in an indexed type of investment, there has never been a period, even around the worst recessions of ever 1918 or 1929, there has never been any 30-year period where there was not a positive return on your investment greater than what can be made from Social Security. And again, the average of 6.7 percent real return. I want to conclude by suggesting that maybe we should be positive in our outlook. We have come a long way. We have made a decision to stop the spending of the Social Security surplus. That was good. When Republicans came in in 1995 after being in the minority in this chamber for I think almost 38 years, we came in very aggressively determined that we were going to balance the budget. When President Clinton came in in 1993, he and the Democrats decided to increase taxes, so an increase in Social Security tax, an increase in gas tax and other increases in taxes that ended up being one of the largest tax increases in history, 2 years later the American people decided that they were going to give the Republicans a chance in the majority, and what Republicans did is they did not spend that increased revenue. We caught heck from the Dems. They suggested that we were going to throw hungry children out in the street and there were going to be people without shelters as we suggested that there should be welfare reform. We sent that welfare reform bill twice to President Clinton and Vice President Gore. Both times they vetoed it. Then the public pressure built, so in the spring of 1996, we passed welfare reform. What was amazing about that, I think, is that it started putting people to work, and it started giving them respect for themselves. Instead of just a hand out, it was a hand up. We made a tremendous change in this country. We were fortunate, I think, to have economic growth. Now the question before us is how do we save Social Security, how do we save Medicare for future generations without putting our kids and our grandkids at risk in terms of the obligation of potentially higher taxes. The way we do it is start dealing with this problem today, start making the changes necessary, stopping the talk and the promises and going ahead with solving Social Security. Several bills have been introduced in this Chamber, several bills in the Senate. I am disappointed that the President has not presented legislation that could be scored as keeping Social Security solvent by the actuaries. And so the challenge for the next President is going to be to face up to some of these tough issues of keeping Social Security solvent. I am optimistic about the idea of at least some of that money being allowed to be used for personal retirement accounts, not only to have some ownership from those individual American workers but also to have some of the magic of compound interest so you can retire as an even richer retiree than you might have been an average worker. Of course, the third issue is the increased savings investment and its impact on economic expansion and development and making sure that this great country continues to be the greatest country in the world.