FROM THE OFFICE OF PUBLIC AFFAIRS

April 4, 2005
JS-2356

Secretary John W. Snow
Prepared Remarks to the Tax Executives Institute
Washington, DC

Thank you so much for having me here, and for being so accommodating with my schedule. I know we've tried to make this work a few times, and I'm thrilled that today worked out… especially since we have so many important things to discuss. I want to share with you the Administration's progress on tax cut permanency, tax code reform and Social Security reform.

I'd like to start out with a quick look at our economy, because it's doing very well and I know that its success is closely tied to good tax policy.

Well-timed tax cuts, combined with sound monetary policy set by the Federal Reserve Board, have resulted in very good economic growth and, most importantly, continual job creation. The economy has created over three million jobs since May of 2003. And while job growth can never be fast enough for those looking for work, the steady pace of job creation has been an unmistakable sign of an economy that has recovered from very tough times, and is now expanding.

In addition to continued job growth, we've also seen new jobless claims decline and productivity continue to expand. GDP growth for 2004 was 3.9 percent. The unemployment rate is down to 5.2 percent - lower than the average rate of the 1970s, 1980s and 1990s. Inflation, interest rates, and mortgage rates remain at low levels. Homeownership rates are at record highs.

This is good news, but important work is still ahead. We need to work on keeping the path clear and solid for an economic future that is as good, or better, than the present. To do that, we've got to keep taxes low; we've got to make the President's tax cuts permanent so that families and small businesses can plan with confidence for their future. Beyond that, we've got to make fundamental, lasting improvements to our tax code. We've got to cut the deficit in half and enact an energy policy. And we've got to save Social Security; I'll get back to that topic shortly.

This country has a wonderfully dynamic, resilient and powerful economy. It is an economy that is ever-changing to keep up with developments in technology, international trade and world events. Unfortunately, our tax code has not kept up with the changing times.

While America remains known for its economic flexibility and dynamism, our tax code has grown larger, bulkier, more burdensome and lethargic with every passing year. No one knows that fact better than the people here in this room today.

The tax code is dreadfully murky in its complexity, but its size is clear and easy to see. More than a million words long, the Internal Revenue Code and regulations has more than doubled in terms of page-length over the past twenty years and today's "short" income tax form takes more than 11 hours to prepare - about the same as the "long form" did a decade ago.

The code is so filled with loopholes, exceptions and lengthy explanations that individuals and businesses spend more than six billion hours every year on paperwork and other tax headaches. Total compliance costs of the income tax are roughly $125 billion annually – about 13 cents for every dollar in income tax revenues collected.  Of this $125 billion, individuals have born the brunt, spending about $85 billion trying to comply with our maze of a tax code. In fact, the average American spends around 25 hours preparing their tax return.

Imagine what this great country could do if we could get a few billion hours back… and a few billion dollars in lower compliance costs as well. And that's why we're here today: to talk about how we can take those billions of hours and dollars away from the tax code nightmare and give them back to the terrific productivity and creativity of the American people.

As you know, the President has asked that a bipartisan panel work together to come up with some options for tax reform. He has asked that the fine people on that panel be guided by the goals of increased fairness, simplicity and ease of understanding, and economic growth and job creation. The President has also asserted that any reform proposal should carry on the good traditions of recognizing the importance of homeownership and charity in our society.

The panel has held six meetings so far… two here in Washington and one apiece in Tampa, Chicago, New Orleans and San Francisco. They are hearing expert testimony at each meeting, and receiving a wide range of critiques and ideas from all over the country. The Panel's executive director, Jeff Kupfer, is looking forward to being here tomorrow to give you more detail on the panel's activities. They're doing great work, and I am looking forward to receiving their recommendations by the end of July.

In the mean time, the nation is moving closer to achieving meaningful reform of our Social Security system.

The President's leadership on this issue is providing our country with a tremendous opportunity to save Social Security for current and near retirees and improve it for younger generations. Since March 3rd, Administration officials – from President Bush and Vice President Cheney to Cabinet members like me and policy experts – have been traveling throughout the country as part of a coordinated 60-day tour of at least 60 stops to discuss the President's message of strengthening Social Security with the American people.

We were almost at the half-way mark of the 60 days, and were about to achieve 60 stops far ahead of schedule, when the Social Security and Medicare Trustees Report was released – another important milestone. This annual report on the financial health of the programs' trust funds left little doubt that the system is financially unsustainable, and in need of expeditious and lasting change.

The Trustees' report showed that Social Security cash flows peak in 2008 and turn negative in 2017, and the trust fund itself will be exhausted in 2041. The unfunded obligation, that is, the difference between the present values of Social Security inflows (plus the trust fund) and outflows, is $11.1 trillion on a permanent basis, and $4.0 trillion over the next 75 years.

The issue of Social Security is really a matter of basic arithmetic, and the threat to Social Security in the near future makes more sense when you look at the simple math. Social Security has enough money now because for decades we have had more than enough workers paying into the system, supporting the retirees drawing benefits.

In 1950, there were 16 workers to support every beneficiary of Social Security - a very comfortable ratio of those paying in versus those drawing benefits. Today there are only 3.3 workers supporting every beneficiary. By the time today's youngest workers – many of you have children in that age group – turn 65, there will only be two workers supporting each retiree.

Now, the President doesn't believe that we should make up the Social Security shortfall with tax increases. The Trustees' report showed just how much we would have to raise taxes to achieve long-term balance: the payroll tax rate would have to be raised immediately by 3.5 percentage points to make the system whole on a permanent basis. In other words, the payroll tax would have to be increased by nearly 30 percent.

I know you appreciate how that kind of tax increase would have significant, negative economic repercussions; it would be bad for countless facets of our economy.

Both workers and employers would bear a significant cost. For very small employers, I fear that much of a tax increase would force them to make terrible choices, from lay-offs to health benefit cuts. And it would make hiring new people even more difficult… which is worrisome since small business creates most of our nation's new jobs.

Increasing payroll taxes hurts the economy and it hurts job creation, period. That's why the President is against it.

It is also worth noting that payroll tax increases have been the standard "solution" to Social Security's problems, and they have never solved the problem! Payroll taxes have been raised some 20 times since Social Security was established – and it has failed to make the system solvent.

Tax increases aren't the answer, so the President has encouraged the Congress to propose a variety of ideas that might be, and he has put a number of ideas on the table as well.

When the President took this issue to the country in his State of the Union Address, he said his objective was to engender a broad national dialogue to get people talking about this issue. He wanted Americans to talk about Social Security, and a national conversation has begun as a direct result.

Today, people are talking about the issue from the halls of Congress to the halls of local shopping malls! The President's leadership has drawn critical attention to the problem and is creating movement. Progress, real progress, is being made. 

Over lunch counters, over breakfast and dinner tables all over America… the topic is Social Security reform. It's the front page story in virtually every newspaper. It's on the evening news. And it's there because of the President of the United States. It's there because of the courage that he's had to directly confront and deal with what so many in political life call the "third rail."

The American people respect leaders who call a spade a spade. The President touched the "third rail" without fear, and now we're moving forward. Neighbors and co-workers are talking about it; families are talking about it; Congress is talking about it. 

We've seen a clear shift in the course of the last month or so from the question: "Is there a problem?" to the question: "How do we fix it?"

The full question, of course, is "how do we fix it for our children and grandchildren?" Because for Americans 55 or older, of course, the system will not change. It's the young workers and future workers, who will be impacted, who will, I hope, benefit. They are the ones for whom we need to fix this system.

Raising their payroll taxes won't make it better. What the President would like to see, instead, for future generations is an ability to save some of their payroll taxes, to build a nest egg that belongs to them, not to the government. Something they could pass on to their heirs. A nest egg that would draw on the powerful force of compound interest to give workers the prospect of a retirement that is far better than the rapidly-weakening promise of Social Security benefits.

With voluntary personal accounts, younger workers would have the chance to learn about their financial choices, build a nest egg and benefit from sound long-term investment in the free market system without disrupting the system of benefits for today's retired beneficiaries.

For the life of me, I can't imagine why anybody would argue against young workers having the ability to invest and build a better retirement for their future. In fact, it is the only way to make sure that Social Security reform and putting Social Security on a sound fiscal basis is fair to young workers and future generations.  It costs the Social Security system nothing to do so, it will cost current and near-retirees nothing, it gives our children and grandchildren a better retirement, and it helps our country create a larger pool of savings over time.

Additionally, as former Democratic Congressmen Tim Penny and Charlie Stenholm wrote in an op-ed recently, "opposing personal accounts is not a substitute for offering a positive solution for dealing with the challenges that face Social Security." They went on to say, astutely, that they "believe that if Social Security were being created from scratch today, Americans would want to include a way to help everyone build up a nest egg."

The President and I couldn't agree more with Congressmen Penny and Stenholm.

Social Security reform that doesn't raise payroll tax rates, that protects benefits for today's seniors, and that improves the system dramatically for our children and grandchildren can be achieved.

We are part of an exciting moment in American history, where a President's courageous leadership has inspired a national discussion and, I'm confident, will lead to historic results. I encourage you to be involved, whether it's talking about the issue with your colleagues, with your families, or your Members of Congress!

If we act now, we can make sure that Social Security, and our economy, are on sound financial footing for our children and grandchildren.

Thanks so much, again, for having me here today. I'd love to take your questions now.