From Congressman Adam Smith
Thank you for contacting me regarding Social Security reform and privatization. I appreciate hearing your thoughts on this complicated issue that affects all Americans.
Social Security reform is, and deserves to be, one of the top legislative priorities for the 109th Congress. For over 60 years, Social Security has provided guaranteed retirement income for millions of Americans. Although the program is fundamentally sound today, it needs some significant changes to ensure it remains solvent for future generations.
Like you, I oppose the privatization of Social Security through a carve-out of payroll taxes. I believe this idea fundamentally undermines the insurance aspect of the program and it does nothing to restore long-term solvency. Let me take this opportunity to provide you with some background information and explain how I came to this decision.
Under the current system, the Congressional Budget Office projects that beginning in the year 2018, expenses will begin to be larger than revenue. Initially, many people believed that the income surpluses that Social Security has typically run in recent years would cover that difference. However, the problem is that there is no money in the Social Security trust fund. All the surplus money has been used to this point to cover other government expenses due to our annual deficits. In 2018, this surplus will cease to exist. If we don't take action on Social Security reform, the results will be disastrous for future generations who are counting on this income in their retirement years.
A common component in many of the proposed solutions is to allow workers currently paying taxes into the Social Security Trust Fund (SSTF) to pay less of those taxes and keep that money to invest in personal retirement accounts. Workers would be able to divert a portion of their Social Security payroll taxes to a personal account, which would likely be invested in stocks and bonds. However, without cutting benefits, all this plan does is speed up the point at which the SSTF will start running a deficit since workers would be paying less money into the fund and beneficiaries would be taking the same amount of money out. To continue to pay existing benefits to current retirees, the government would have to absorb "transition costs," which are estimated between one and two trillion dollars over the next decade.To help offset the large "transition costs," a number of different options have been discussed. First, raise payroll taxes. Second, cut Social Security benefits to reduce costs. Third, continue to give the expected benefits and therefore, continue to run larger annual deficit. Fourth, let the program expire and turn entirely to an individual account model. Fifth, figure out some way to save the remaining surpluses and invest them so some interest will be earned to help offset some of the increased costs. This last option, alone, will not solve the problem initially, so it must be combined with one or more of the other solutions.
I oppose private accounts that are created through a carve-out of current payroll taxes. It is not necessary to lengthen the program's solvency. In fact, it could even worsen the financial status of the program and cause our federal budget to go further into debt. In addition, the creation of private accounts fundamentally undermines the program's insurance mechanism and do not fulfill the current system's social objectives, which include redistribution and the provision of benefits to survivors, dependents, and the disabled. There are already programs in place for individuals to invest in the stock market to increase their retirement security. Social Security should remain a guaranteed benefit that retirees can count on. Social Security does not, nor was it intended to, work like an investment made in the stock market or any private account. Social Security is an insurance program to guarantee that workers who retire will not be destitute in their old age. Moreover, replacing Social Security with personal accounts would erode the social insurance aspects of the system that favor low-wage earners, survivors, and the disabled. Lastly, private accounts pose a disproportionate burden on today's younger workers to save for their own retirement while simultaneously paying taxes to support current retirees.
However, I do not agree with the notion that there is no problem. I recognize there is a long-term solvency problem and dealing with Social Security reform now will be much easier while we have the time and flexibility to consider numerous options rather than waiting until later when our options for reform are limited. If we wait, we run the risk that the costs of Social Security will eat away at other parts of the federal budget and possibly lead to reducing and/or eliminating other important federal initiatives. We need to make changes in the program for the sake of fiscal discipline and long-term solvency; however, I do not believe the creation of private accounts is the right solution.
Most of the Social Security reform legislation introduced this year will combine elements of all the possibilities I mentioned. Please know that as specific legislation is introduced, I will carefully evaluate each proposal and support the bill I think is best for my constituents. I encourage you to continue offering your input on this issue to help guide me through this decision-making process.I strongly believe that whatever solution we do use must keep the overall structure of the system as a safety net and that Social Security must remain a guaranteed benefit that recipients can count on.
In addition, I strongly support initiatives to encourage individuals to save and create wealth outside the Social Security system to improve retirement security. During the 108th Congressional Session, I supported the increased IRA limits and 401 (k) limits. I also support making long-term care insurance tax deductible. We should give people the tools to take responsibility for themselves and to have a stake in their retirement security.
Please know that I will continue to fight to make Social Security funds safe for the future and ensure that Social Security has a guaranteed benefit that recipients can depend on.
Again, thank you for writing me on this key issue. Please feel free to contact me with any questions or concerns.
Adam Smith
Member of Congress
Social Security reform is, and deserves to be, one of the top legislative priorities for the 109th Congress. For over 60 years, Social Security has provided guaranteed retirement income for millions of Americans. Although the program is fundamentally sound today, it needs some significant changes to ensure it remains solvent for future generations.
Like you, I oppose the privatization of Social Security through a carve-out of payroll taxes. I believe this idea fundamentally undermines the insurance aspect of the program and it does nothing to restore long-term solvency. Let me take this opportunity to provide you with some background information and explain how I came to this decision.
Under the current system, the Congressional Budget Office projects that beginning in the year 2018, expenses will begin to be larger than revenue. Initially, many people believed that the income surpluses that Social Security has typically run in recent years would cover that difference. However, the problem is that there is no money in the Social Security trust fund. All the surplus money has been used to this point to cover other government expenses due to our annual deficits. In 2018, this surplus will cease to exist. If we don't take action on Social Security reform, the results will be disastrous for future generations who are counting on this income in their retirement years.
A common component in many of the proposed solutions is to allow workers currently paying taxes into the Social Security Trust Fund (SSTF) to pay less of those taxes and keep that money to invest in personal retirement accounts. Workers would be able to divert a portion of their Social Security payroll taxes to a personal account, which would likely be invested in stocks and bonds. However, without cutting benefits, all this plan does is speed up the point at which the SSTF will start running a deficit since workers would be paying less money into the fund and beneficiaries would be taking the same amount of money out. To continue to pay existing benefits to current retirees, the government would have to absorb "transition costs," which are estimated between one and two trillion dollars over the next decade.To help offset the large "transition costs," a number of different options have been discussed. First, raise payroll taxes. Second, cut Social Security benefits to reduce costs. Third, continue to give the expected benefits and therefore, continue to run larger annual deficit. Fourth, let the program expire and turn entirely to an individual account model. Fifth, figure out some way to save the remaining surpluses and invest them so some interest will be earned to help offset some of the increased costs. This last option, alone, will not solve the problem initially, so it must be combined with one or more of the other solutions.
I oppose private accounts that are created through a carve-out of current payroll taxes. It is not necessary to lengthen the program's solvency. In fact, it could even worsen the financial status of the program and cause our federal budget to go further into debt. In addition, the creation of private accounts fundamentally undermines the program's insurance mechanism and do not fulfill the current system's social objectives, which include redistribution and the provision of benefits to survivors, dependents, and the disabled. There are already programs in place for individuals to invest in the stock market to increase their retirement security. Social Security should remain a guaranteed benefit that retirees can count on. Social Security does not, nor was it intended to, work like an investment made in the stock market or any private account. Social Security is an insurance program to guarantee that workers who retire will not be destitute in their old age. Moreover, replacing Social Security with personal accounts would erode the social insurance aspects of the system that favor low-wage earners, survivors, and the disabled. Lastly, private accounts pose a disproportionate burden on today's younger workers to save for their own retirement while simultaneously paying taxes to support current retirees.
However, I do not agree with the notion that there is no problem. I recognize there is a long-term solvency problem and dealing with Social Security reform now will be much easier while we have the time and flexibility to consider numerous options rather than waiting until later when our options for reform are limited. If we wait, we run the risk that the costs of Social Security will eat away at other parts of the federal budget and possibly lead to reducing and/or eliminating other important federal initiatives. We need to make changes in the program for the sake of fiscal discipline and long-term solvency; however, I do not believe the creation of private accounts is the right solution.
Most of the Social Security reform legislation introduced this year will combine elements of all the possibilities I mentioned. Please know that as specific legislation is introduced, I will carefully evaluate each proposal and support the bill I think is best for my constituents. I encourage you to continue offering your input on this issue to help guide me through this decision-making process.I strongly believe that whatever solution we do use must keep the overall structure of the system as a safety net and that Social Security must remain a guaranteed benefit that recipients can count on.
In addition, I strongly support initiatives to encourage individuals to save and create wealth outside the Social Security system to improve retirement security. During the 108th Congressional Session, I supported the increased IRA limits and 401 (k) limits. I also support making long-term care insurance tax deductible. We should give people the tools to take responsibility for themselves and to have a stake in their retirement security.
Please know that I will continue to fight to make Social Security funds safe for the future and ensure that Social Security has a guaranteed benefit that recipients can depend on.
Again, thank you for writing me on this key issue. Please feel free to contact me with any questions or concerns.
Adam Smith
Member of Congress
posted by T. Scott Brineman at 8:51 AM
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