Hearing of the House Ways and Means Committee: Fiscal Year 2006 Budget

HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE

SUBJECT: FISCAL YEAR 2006 BUDGET

CHAIRED BY: REPRESENTATIVE BILL THOMAS (R-CA)

WITNESS: JOHN SNOW, SECRETARY OF THE TREASURY LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.

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Mr. DOGGETT. Thank you, Mr. Chairman. Thank you, Secretary. Mr. Secretary, the figures that I have here suggest that, over the next decade, Social Security will actually generate a surplus of about $2.6 trillion. Does that sound about right?

Mr. SNOW. Yes. The system--

Mr. DOGGETT. Do I understand that the budget that you are so proud of, and the Administration's proud of here this morning, proposes to borrow every penny of that $2.6 trillion from the Social Security trust fund and use it for non-Social Security purposes?

Mr. SNOW. Well, the obligations in Social Security, Congressman, as I have said over and over, will be honored. Every penny--

Mr. DOGGETT. Yes, sir, you are going to honor them, but you are going to borrow from Social Security and use it for non-Social Security purposes. Correct? $2.6 trillion worth of borrowing?

Mr. SNOW. That is correct. They will be backed by the IOUs and obligations of the United States Government.

Mr. DOGGETT. I appreciate the fact that they will be honored and backed up, even though you are going to borrow from them for purposes that people did not pay into Social Security. You are raiding the trust fund. Let me ask you about the accuracy of one other thing. Last Friday, the Washington Post, under an article entitled, "Benefit Cuts Would Offset Contributions, White House Explains the Proposal Further," there was an indication by the White House that there would be an offset, dollar-for-dollar reductions in Social Security statutory guaranteed benefits, for the new personal investment accounts. That is, every dollar that goes into personal investment accounts, there will be a dollar-for-dollar cut in the guaranteed benefits. I have not seen any correction requested from the White House to that story since last Friday. Are you demanding a correction of it this morning?

Mr. SNOW. Congressman, I have been traveling so I did not see the story.

Mr. DOGGETT. Yes, sir. Well, you do not disagree that, under the general principles, you said that, although there is a crisis, the President does not have a plan to address the crisis, but under the principles that he has announced, the plan is that, every time you take a dollar out of your Social Security for these investment plans, you are going to have a reduction in your guaranteed statutory benefits?

Mr. SNOW. On the other side--

Mr. DOGGETT. You may have some gain, you may have some loss; it is up to the market.

Mr. SNOW. You are going to have an account.

Mr. DOGGETT. Let me ask you about advice that you have received from Mr. McCrery, who has already questioned, Mr. Shaw, as reported in that same Friday issue of the Post, a suggestion, according to the Post, that Mr. McCrery thinks the President's plan, and I guess he assumes the President has one, must be changed in a fundamental way, and that we need to scrap the idea of funding the private accounts with money earmarked from the Social Security trust fund. Why is the Administration rejecting the advice of Mr. McCrery and Mr. Shaw on this important point?

Mr. SNOW. I do not think that the coverage that you read properly characterized the comments of the very distinguished Member from Louisiana.

Mr. DOGGETT. You think I mischaracterized the comments? Let me just read it to you...

Mr. SNOW. No. No. I said, I do not think the newspaper coverage that you are citing properly and authentically covered the comments that the--

Mr. DOGGETT. Well, it was not just one. I mean, it was repeated in a number of papers, that they thought the idea of funding accounts with money earmarked for Social Security from the trust fund was not a good idea. You think it is?

Mr. SNOW. Oh, yes. Yes. Absolutely. But you say the President does not have a plan. On the--

Mr. DOGGETT. No, sir. You said that earlier this morning. I am just repeating your words.

Mr. SNOW. The President has put forth quite a detailed plan on how the personal accounts would operate.

Mr. DOGGETT. Well, Mr. Secretary, the record will speak for itself, but you told this Committee a few minutes ago the President does not have a plan. I know he has some principles, and those principles are based on the fact that you all think the Social Security system is about to go bankrupt. Is that because the Social Security system cannot fully fund all of its future obligations?

Mr. SNOW. That is precisely what bankruptcy means.

Mr. DOGGETT. If you use that definition, don't you have bankruptcy in many private pension plans of major corporations in America?

Mr. SNOW. Congressman, no. I would not say that.

Mr. DOGGETT. Well, don't you have many private pension plans, I mean the Pension Benefit Guaranty folks put out a report; many private pension plans that are not fully funded to meet all of their future obligations?

Mr. SNOW. There are some that are not fully funded. But there is a major difference between not being fully funded and being bankrupt.

Mr. DOGGETT. Yes, sir, there surely is.

Mr. Secretary, the House Republican Study Committee has said that your approach is too timid at just 4 percentage points of Social Security, and you ought to go to 6 percentage points in almost all of the employees contributions to Social Security. Why aren't you doing that?

Chairman THOMAS. The gentleman's time has expired. That will be a written answer submitted by the Administration. The other gentleman from Texas wish to inquire?

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Questions Submitted by Representative Doggett

Question: The House Republican Study Committee has said that the Administration's approach is too timid by allowing worker's to invest 4 percent of their pay in private accounts and that it ought to go to 6 percent, which would be almost all of the employee's contribution to Social Security. Why isn't the Administration proposing that?

Response:

The Administration settled on a 4 percent contribution rate as sufficient and appropriate. A major advantage of PRAs is that they ensure that pre-funding of retirement incomes occurs in personal accounts rather than the Social Security Trust Fund. The Administration believes that any attempt to pre-fund retirement incomes in the Trust Fund encourages excessive spending in the non-Social Security budget, which has the effect of making the pre-funding illusory. The accounts proposed by the Administration are sufficiently large as to make real pre-funding of retirement incomes possible, and to build substantial nest eggs for millions of American workers.

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