FROM THE OFFICE OF PUBLIC AFFAIRS

March 14, 2005
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Assistant Treasury Secretary Warshawsky's Prepared Remarks National League of Cities Congressional City Conference

Thank you, Mayor Williams, and thank you all so much for having me here today; I hope you're having a terrific meeting.

Yours is an important group, and it's wonderful to have you here in our nation's capital. You're a good reminder to people "inside the beltway" that the country doesn't revolve around this city - in fact, the country is your cities.

Policies that are set by mayors, city councils, town boards of selectmen and private or non-profit community groups really impact people's lives, on a day-to-day basis, more than most of the things we do here in Washington, DC. So I commend you for handling the critical responsibilities you have, and for dedicating your professional and/or personal lives to making your cities and towns better places to live, work and raise families.

Being a public servant - as many of you are, so you certainly appreciate - is a humbling job. It forces us to look at the big picture and plan for long-term future.

I know that you understand all too well that one of the toughest things a government at any level faces, each year, is setting budget priorities and then making all of those funding decisions, one by one.

By focusing on priorities and looking for savings in every agency, across the board, the President's administration has come up with a budget for FY 2006 that we believe is fair while also holding the government accountable. As the President announced in his State of the Union Address, his budget adheres to the principle of "Taxpayer dollars must be spent wisely, or not at all."

It's an awesome responsibility, is it not? Deciding how to spend taxpayer dollars. It requires the highest level of dedication and scruples.

With this respect for taxpayer money in mind, the President's budget holds the growth of discretionary spending to just 2.1 percent, below the expected rate of inflation. Non-security discretionary spending in this budget falls by nearly one percent, the tightest such restraint proposed since the Reagan administration.
 
We appreciate that cutting taxes and exercising fiscal discipline must go hand in hand. We appreciate that this is the people's money with which we are dealing, and that we work for the taxpayers.

That is why we are committed to making the President's pro-growth tax cuts permanent and building on our strengthened economic fundamentals, and it is why we submitted, to the Congress, a budget that will increase the efficacy of our government programs without over-spending the taxpayers' money.

The Administration is mindful that the way that the federal government manages the taxpayers' money sends a message to the people of America as well as to our trading partners and investors around the globe. When we control our spending, we are showing our citizens and the world that fiscal discipline is a priority on par with our policies that promote economic growth.

Policies that promote growth are part of the proposed federal budget as well. It seeks to make the President's tax cuts permanent, which we feel strongly about given the excellent track record of economic growth and job creation that have followed their enactment: three million jobs, GDP growth of 4.4 percent, low inflation, interest rates, and mortgage rates and record-high homeownership rates have all followed reduced taxes and sound monetary policy decisions by the Federal Reserve Board.

As no doubt you have seen in the budgets of your cities and towns, tax cuts can be hard on budgets and deficits in the short term, but if the tax cuts are geared toward improving incentives there are long-term benefits as well as short-term ones.

I point to the recent of growth because it is so important that we continue on a pro-growth path. Continued economic growth is needed, and will be needed, to continue to improve our standard of living and until every worker in America who is still looking for a job can find one.

Economic growth is also, importantly, part of a winning strategy on deficit reduction - one of the top priorities of the President's budget - because economic growth increases Treasury receipts.

Treasury receipts are rising - in the second half of calendar 2004, individual income tax revenue was up 10.5 percent versus the same period in 2003 - and will continue to rise, as long as we have economic growth. That must be accompanied, as I emphasized earlier, by strict fiscal discipline. That is why the President's budget proposes real savings. I know it will have its critics as a result, but its frugality is essential.
 
Let me be very clear on this: we have deficits and they are unwelcome. But we are not under-taxed and higher taxes will not be the solution to reducing deficits. Fiscal discipline, combined with economic growth, is the correct path.

Using this approach, we are making headway on deficit reduction, and we're on track to halve the deficit by 2009. The deficit is also forecast to fall to 3.0 percent of GDP in 2006 and to 1.5 percent by 2009, well below the 40-year historical average of 2.3 percent of GDP.

The 2004 deficit came in at 3.6 percent of GDP - nearly a full percentage point lower than had been projected. And the 2005 deficit is projected to show another decline.

While we are pleased with this progress, we recognize that more needs to be done.

We need to make the tough choices on spending and stand steadfast in our commitment to continuing economic growth in order to see that deficit whittled down.

We also need to look at our long-term deficit situation.

That is why the President is courageously leading the country in a dialogue on Social Security reform. Simply put: we've got to save Social Security.

Social Security is sound for today's retirees, but the system must be fixed to keep the promise of Social Security for our children and grandchildren, period.

The good news, the great news, is that the national dialogue on Social Security is terrific; it's the topic at lunch counters and kitchen tables, college dining halls and office water coolers all over the country. And as ideas begin to come forward, it's important to remember that reform of the Social Security system must be lasting, permanent, not just a temporary `band-aid.'

It takes courage to do more than patch up a system that affects every citizen's life. But you know that's what Americans expect of their leaders; they expect elected officials like many of you, and like the President and the Congress, to really solve problems, not just tinker with them.

That's why the President has said that Social Security must be put on solid financial ground permanently, for the long haul. He believes that it would be an injustice to the American people if Washington, DC simply put a band-aid on the problem. Because then the whole country would be back at the starting line in a few years.

So if someone promises you a 75-year fix, I encourage you to read the fine print.  In 1983 we were promised a "75-year fix" - but 2 years later, the system was headed out of balance again.

I know those of you who were born before 1950 know that nothing changes for you. You know a political game when you see one, and you aren't going to be scared by that type of thing. And if you are approaching retirement, you know better than anyone how important it is to have a secure retirement. You're also always thinking about what's best for your kids and your grandkids.

The generations of current and near-retirees have an awfully important opportunity: to be the ones to usher in a new generation of shareholders in the American Dream. Our children and grandchildren have an opportunity we didn't have - an opportunity to own their retirement, a nest egg they could pass on to their heirs.

The creation of voluntary personal accounts is the element that makes the President's vision so different from a band-aid approach. They would change our children's financial prospects and give Social Security a future that won't need constant patching-up.

It's inspiring to imagine, and inspiring that 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?"

And that's the question Americans want to hear. It's why the President encouraged this dialogue; he wants lots of ideas on the table. An open discussion with lots of ideas - not partisan politics - is the best way to accomplish the goal of securing the financial future of our children and grandchildren.

President Bush has established some basic principles. He wants a permanent solution, as I mentioned earlier, not a band-aid.

He wants to preserve benefits for current and near-retirees while saving and strengthening the system for future generations. Specifically, Social Security will not be changed for those 55 or older (born before 1950). For the more than 45 million Americans who are currently receiving Social Security benefits, and those nearing retirement, benefits are secure and will not change in any way, period.

The President has also said that he won't raise the payroll tax rate. Payroll taxes have been raised some 20 times since Social Security was established - and it has failed to make Social Security solvent. Raising the payroll tax will harm our economy, hurt job growth and fail to achieve the President's goal to create a permanent fix for Social Security. Even the most resilient economy can be devastated by dramatic tax increases.

For future generations of retirees, the President believes an awful lot of hope lies in personal accounts - something that would allow younger workers to build a nest egg that they own and control, something the government could never take away from them, and that would tap into the great force of compound interest.

Albert Einstein believed, and the President and I agree, that compound interest is one of the most powerful forces in the universe. It's why a personal account nest egg would have a real return on investment that is far better than the rapidly-weakening promise of Social Security benefits.

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. 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. And as the President has said, the retirement security of our young people is too important for partisan politics. Why wouldn't we do this? I have not heard one good reason not to and I can't figure out why anybody would oppose it.

Furthermore, as former Democratic Congressmen Tim Penny and Charlie Stenholm wrote in an op-ed last week, "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.

I encourage all of you, when you return to the fine cities and towns that you serve, to keep this dialogue going. If you have questions, we hope the new website, www.StrengtheningSocialSecurity.gov  can answer them.

Working together, keeping our minds open and our goals for our children and grandchildren high, we can save and strengthen this American institution. I look forward to the dialogue ahead.

Thanks again for having me here today; have a wonderful meeting.