FROM THE OFFICE OF PUBLIC AFFAIRS
April 8, 2005
js-2364
Prepared Remarks from the
General Counsel and Acting Deputy Secretary of the Treasury Arnold I. Havens
Committee of 100 14th Annual Conference
Good afternoon. It's wonderful to be with you today. I bring with me the greetings and best wishes of Secretary Snow, who is sorry he couldn't be here himself. It's a great honor and privilege to serve the President and Secretary Snow as the General Counsel and Acting Deputy Secretary of the Treasury.
And of course I am honored to speak before the Committee of 100 at your 14th annual conference. The Chinese-American experience has been an authentic American Dream, and the members and leaders of this organization are true success stories. Many of you here today may be first or second generation Americans. Like so many others who have come to America, your parents and grandparents--and many of you--found in this country a new opportunity to build better lives for themselves, their children, and grandchildren. In that sense, the American Dream is a gift to the future.
I would like to talk about two opportunities we all have to give gifts to future generations of Americans. I'd like to share with you the President's visionary ideas to reform our tax code and strengthen Social Security.
Need for Comprehensive Tax Reform
While the American economy remains known for its flexibility, resiliency, and dynamism, our tax code has grown longer, bulkier, and more burdensome every year.
The tax code is dreadful in its complexity. More than a million words long, the Internal Revenue Code and regulations have more than doubled in terms of page-length over the past twenty years. The code is so filled with 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 estimated at roughly $125 billion annually.
Imagine, if you would, a tax system that was less complicated. Imagine what this great country could do if we could get back a few billion hours, or a few billion dollars, every year! Next Friday is tax day, so you I know you can relate to what I'm talking about.
To help advance this worthwhile goal, the President created a bipartisan panel earlier this year to develop revenue neutral policy options. The President asked the panel to be guided by a few core principles: increased fairness, simplicity, and ease of understanding, and economic growth and job creation.
The panel is preparing recommendations that will be delivered to the Secretary of the Treasury by July 31. Tax reform is a key priority for the President, and simplifying the tax code is a key to lasting reform.
In addition to achieving fundamental reform, taxes also need to remain low for our continued economic growth. We know this from recent experience. Well-timed tax cuts, combined with sound monetary policy set by the Federal Reserve Board, have produced good economic growth and continual job creation. The economy has created over three million jobs since May 2003. In addition to continued job growth, productivity continues to expand. GDP growth for 2004 was 3.9 percent.
Our economy is dynamic and resilient – the envy of the world. We need to keep taxes low and stay on this path of economic growth and job creation. We also need to continue looking down the field and make sure that our economy is not disrupted by things that we can avoid -- things that we can fix, today.
Need for Social Security Reform
Of course, in this regard, I'm talking about Social Security. Let me be clear: the current Social Security system is financially unsustainable, and in need of expeditious and lasting change. On March 23, the Board of Trustees of Social Security and Medicare issued its annual report. This report showed that Social Security cash flows will peak in 2008 and turn negative in 2017. The trust fund itself will be exhausted in 2041, when today's younger workers are beginning to retire. The unfunded obligation--that is, the difference between Social Security's income and assets on the one hand, and its outflows on the other--is $11.1 trillion on a permanent basis, and $4.0 trillion over the next 75 years.
President Bush has shown real leadership on this issue. For many years, the conventional wisdom in
Fixing it is quite simply our responsibility to our children and grandchildren. This is a matter of simple arithmetic. Social Security has enough money now because for decades we have had more than enough workers paying into the system and supporting the retirees who draw benefits. But you know the demographic trends. In 1950, there were 16 workers to support every beneficiary of Social Security. Today there are only 3.3 workers per beneficiary. By the time one of today's youngest workers turns 65, there will be just two workers to support his or her benefits. That's why we're facing the multitrillion dollar shortfall identified in the recent Trustees' report.
For those of us who are 55 or older, the President has made clear that our Social Security benefits are solid. They will not change. We don't need to change our retirement plans or strategy because of Social Security reform, period. But it's those children and grandchildren, those young workers and future workers, who we need to worry about. They are the ones for whom we need to save and strengthen this system.
The President would like younger workers and future generations to have the ability to save some of their payroll taxes they're already paying, to build a nest egg that belongs to them, not to the government. 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.
Personal accounts would give young workers more options to invest and build a better retirement for their future. Personal accounts can be implemented in a way that costs the current Social Security system nothing; current and near-retirees would not be affected. But they would give our children and grandchildren the promise of a better retirement, and they would help our country create a larger pool of savings.
Some have argued that we can save the system by increasing the payroll tax. But this multi-trillion dollar shortfall cannot be reasonably fixed by raising taxes. The recent trustees' report showed that the payroll tax would have to be increased by nearly 30 percent to achieve long-term balance. A 30 percent hike in the payroll tax would of course have significant, negative economic consequences. American workers would be taking home less pay, and we mustn't forget that their employers would shoulder half of that tax increase. For small businesses especially, a tax increase of that size could require terrible choices, from lay-offs to cuts in health benefits. And it would make hiring new people even more difficult. Quite simply, increasing payroll taxes hurts the economy and it hurts job creation. That's why the President is against it.
We're making progress. We believe that 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. I encourage you to become involved in this national discussion.
Conclusion
I would like to close with an analogy I recently heard Secretary Snow use. Many of you in this room own your own businesses, and you probably worked hard over your lives to build them up. You probably want to pass your business on to your children or grandchildren. And you'll want your business to be in top shape, financially, when that time comes.
Let's do the same with our tax system and Social Security system. If we make responsible decisions now, we can make sure that Social Security, and our broader economy, are on sound financial footing for our children and grandchildren.
Thanks again for giving me the opportunity to speak with you today.
I would be pleased to take your questions.