From Congressman Adam Smith / Social Security
Dear Scott,
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 is a critical program that must be preserved and protected. It was originally designed to guarantee all retirees in our nation a basic, minimum income, and the need for such a social safety net is just as great today as it was then.
We need to recognize that we face a serious challenge, not a crisis as President Bush claims. For the program to continue to provide its promised benefits, however, some changes will be required. Social Security is a "pay-as-you-go system." Put simply, today's workers pay taxes to cover the money paid to today's beneficiaries. The current structure is dependent upon each generation paying into the system to support future generations. According to current estimates, in 2018 the yearly revenues generated through payroll taxes will not be enough to pay the benefits owed that same year.
Since 1983, Social Security revenues have exceeded benefits every year, creating a surplus. Unfortunately, these surpluses will be of no help in solving the problem because all of the surplus money generated in past years has been spent on other federal programs. By 2018 the government, having borrowed all of the Social Security Surplus money, will technically owe Social Security that money back plus interest, but the government doesn't have the money. Any such payments would simply have to come out of the hide of the rest of the budget, a budget already overburdened by debt. It is true that the trust fund will have IOUs in the form of Treasury bills that can be "cashed out," but that would require borrowing money from the federal budget to repay these loans, thus further exploding our national debt.
Therefore, something should be done. Dealing with Social Security's long-term solvency problem 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. President Bush's proposal that allows wage earners to divert a portion of their payroll taxes to fund private retirement accounts actually makes the problem worse.
I oppose President Bush's plan for three main reasons. First, it would greatly increase the amount of money our government would have to borrow from outside sources, mostly foreign governments like Japan and China who already buy a good portion of the treasury bills we sell to finance our debt. The increased borrowing happens because President Bush's plan requires the diversion of Social Security Trust Fund dollars into the private accounts. Under current law, the government borrows the yearly Social Security surplus to reduce the overall federal debt. With much of this money going into private accounts, the government would be forced to borrow even more money from outside sources to finance our growing federal debt. It is estimated that the President's plan would require nearly $2 trillion in such increased borrowing.
Second, the plan would reduce the amount of money to be paid into Social Security by diverting that money to private accounts, and significantly speeding up the time when Social Security would start running a yearly deficit. In fact, according to the Social Security Administration, implementation of private accounts through a carve out of payroll taxes will result in annual cash-flow deficits beginning in 2012, six years earlier than under current projections. Simply paying benefits from other parts of the Federal budget will not be easy given our massive debt and yearly deficit. If under current estimates there will be problems in 2018, it can only be worse if those problems appear six years earlier.
Finally, the last reason I oppose President Bush's plan is because the diversion of funds to private accounts would require dramatic benefit cuts by anywhere from fifty to eighty percent, particularly for younger workers who open these accounts. These cuts to traditional benefits would be so great that any gains from private accounts would unlikely make up for these dramatic losses.
If we wish to give Americans more private investment options, we can do so without taking the money out of Social Security. We could increase the amount individuals can put in Individual Retirement Accounts (IRAs), offer greater tax incentives for 401(k) plans, or take any number of actions that would not harm Social Security. In fact, 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 as well as making long-term care insurance tax deductible. I also believe we should provide incentives for low- and middle-income workers to save and invest.
Social Security can be preserved by choosing any number of options to reduce benefits or increase revenue. If done now, these changes would not have to be dramatic to ensure the long-term solvency of Social Security. The President's plan of private accounts takes a challenge and makes it a crisis. It would cause our debt to increase by trillions of dollars, speed up the date of the program's insolvency, and require massive cuts in benefits. Social Security must remain a guaranteed benefit, and I believe Congress should reject President Bush's approach and get to work on a real plan to solve the real problems Social Security now faces.
Please know that I will continue to fight to make Social Security funds safe for current and future workers and I will be sure to keep your thoughts in mind as I evaluate proposals.
Please don't hesitate to contact me with any future questions or comments.
Adam Smith
Member of Congress
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 is a critical program that must be preserved and protected. It was originally designed to guarantee all retirees in our nation a basic, minimum income, and the need for such a social safety net is just as great today as it was then.
We need to recognize that we face a serious challenge, not a crisis as President Bush claims. For the program to continue to provide its promised benefits, however, some changes will be required. Social Security is a "pay-as-you-go system." Put simply, today's workers pay taxes to cover the money paid to today's beneficiaries. The current structure is dependent upon each generation paying into the system to support future generations. According to current estimates, in 2018 the yearly revenues generated through payroll taxes will not be enough to pay the benefits owed that same year.
Since 1983, Social Security revenues have exceeded benefits every year, creating a surplus. Unfortunately, these surpluses will be of no help in solving the problem because all of the surplus money generated in past years has been spent on other federal programs. By 2018 the government, having borrowed all of the Social Security Surplus money, will technically owe Social Security that money back plus interest, but the government doesn't have the money. Any such payments would simply have to come out of the hide of the rest of the budget, a budget already overburdened by debt. It is true that the trust fund will have IOUs in the form of Treasury bills that can be "cashed out," but that would require borrowing money from the federal budget to repay these loans, thus further exploding our national debt.
Therefore, something should be done. Dealing with Social Security's long-term solvency problem 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. President Bush's proposal that allows wage earners to divert a portion of their payroll taxes to fund private retirement accounts actually makes the problem worse.
I oppose President Bush's plan for three main reasons. First, it would greatly increase the amount of money our government would have to borrow from outside sources, mostly foreign governments like Japan and China who already buy a good portion of the treasury bills we sell to finance our debt. The increased borrowing happens because President Bush's plan requires the diversion of Social Security Trust Fund dollars into the private accounts. Under current law, the government borrows the yearly Social Security surplus to reduce the overall federal debt. With much of this money going into private accounts, the government would be forced to borrow even more money from outside sources to finance our growing federal debt. It is estimated that the President's plan would require nearly $2 trillion in such increased borrowing.
Second, the plan would reduce the amount of money to be paid into Social Security by diverting that money to private accounts, and significantly speeding up the time when Social Security would start running a yearly deficit. In fact, according to the Social Security Administration, implementation of private accounts through a carve out of payroll taxes will result in annual cash-flow deficits beginning in 2012, six years earlier than under current projections. Simply paying benefits from other parts of the Federal budget will not be easy given our massive debt and yearly deficit. If under current estimates there will be problems in 2018, it can only be worse if those problems appear six years earlier.
Finally, the last reason I oppose President Bush's plan is because the diversion of funds to private accounts would require dramatic benefit cuts by anywhere from fifty to eighty percent, particularly for younger workers who open these accounts. These cuts to traditional benefits would be so great that any gains from private accounts would unlikely make up for these dramatic losses.
If we wish to give Americans more private investment options, we can do so without taking the money out of Social Security. We could increase the amount individuals can put in Individual Retirement Accounts (IRAs), offer greater tax incentives for 401(k) plans, or take any number of actions that would not harm Social Security. In fact, 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 as well as making long-term care insurance tax deductible. I also believe we should provide incentives for low- and middle-income workers to save and invest.
Social Security can be preserved by choosing any number of options to reduce benefits or increase revenue. If done now, these changes would not have to be dramatic to ensure the long-term solvency of Social Security. The President's plan of private accounts takes a challenge and makes it a crisis. It would cause our debt to increase by trillions of dollars, speed up the date of the program's insolvency, and require massive cuts in benefits. Social Security must remain a guaranteed benefit, and I believe Congress should reject President Bush's approach and get to work on a real plan to solve the real problems Social Security now faces.
Please know that I will continue to fight to make Social Security funds safe for current and future workers and I will be sure to keep your thoughts in mind as I evaluate proposals.
Please don't hesitate to contact me with any future questions or comments.
Adam Smith
Member of Congress
posted by T. Scott Brineman at 9:39 AM
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