FROM THE OFFICE OF PUBLIC AFFAIRS

April 20, 2005
JS-2399

The Honorable John W. Snow
Prepared Remarks to
The Bond Market Association
New York, NY

Good afternoon. It's great to be here in New York, and I appreciate the opportunity to speak with you today. We share important concerns, including the one at the top of the President's agenda: the long-range fiscal health of the nation's Social Security system, and the implications of both reform and of inaction.

My trip to New York is an important stop on the Administration's "60 Stops in 60 Days" tour on Social Security. This is week seven of that tour, and Administration officials like me – not to mention the President and Vice President – have made over 130 stops in 39 states so far. We're dedicated to achieving the President's vision for a national dialogue on Social Security, and I think we've been very successful. There really is a terrific, vibrant national dialogue going on. From Wall Street to Main Street, from lunch counters to family dinner tables to college dining halls… this conversation is taking place and that means we're making progress on saving and strengthening the system for all generations.

I know that reforming Social Security is an important topic for the members of this association and for the broader financial industry here in New York. You are obviously aware of the problems that the Social Security program faces. You understand what an enormous impact Social Security can have on our economy overall, and I know that you are interested in seeing the system successfully reformed in a way that protects beneficiaries as well as our economy – for the near term as well as for long term.

You are sharply aware of the fact that if those of us in the government don't pursue and enact meaningful changes now, the Social Security system would eventually need to be propped up with massive tax increases, which would send terrible shockwaves through our economy.

The American economy is the most dynamic and resilient in the world, but we cannot take that for granted, and this is something uniquely understood by financial leaders like you, who watch and participate in our markets every day. I have a message for you from our President: he understands that the government must plan for the future and deal with looming financial threats when we see them… and that's exactly what he is doing.

The President doesn't believe in ignoring the reality. He doesn't think it would be wise to turn a blind eye to the reports of the non-partisan Social Security actuaries, which tell us that the program faces a long-term deficit of $11 trillion. The President doesn't believe in costly procrastination – in this case to the tune of $700 billion every year that we wait to act.

The President is too intellectually honest to ignore the irrefutable facts, the undeniable fact that the Social Security system is on an unsustainable path. The demographics, the arithmetic, cannot be denied: Cash flows peak in 2008 and turn negative in 2017, and the trust fund itself will be exhausted in 2041. People are living longer and having fewer children, so there are fewer workers to support retirees. We had 16 workers paying into a system for every one beneficiary in 1950, and today we only have about three workers for every beneficiary. That ratio will drop to two-to-one by the time today's young workers retire.  

When those young workers retire, in 2041, the system will be exhausted, bankrupt. Today's 30-year-old can expect a nearly 30 percent benefit cut from the current system when he/she reaches retirement age. Without action, our children and grandchildren will be faced with huge benefit cuts or massive tax increases.  

The President doesn't want that future for America's younger workers. His leadership on Social Security reform displays his great courage as well as his dedication to doing what is right for the American people, for generations to come.

For the current generation of retirees, and near retirees – those who are 55 or older today – there will, of course, be no change. Those Americans still have an interest, a stake in the issue – but more because they care about the financial future of their children and grandchildren and want them to have a Social Security benefit they can count on when they retire. 

I appreciate the support of this organization for the creation of personal retirement accounts for younger generations of workers. The President believes that it is a critical part of any Social Security reform that younger workers are given the opportunity to build a nest egg and benefit from sound long-term investment in the free market system. The power of compound interest is a mighty one; including personal retirement accounts in Social Security reform will mean opening a door to that force for people who would not have had the opportunity otherwise. This is an exciting and empowering proposition, and best of all we know that it can be done without disrupting the system of benefits for their parents and other generations of retired beneficiaries.

Social Security has been patched up in the past. We've raised taxes to take us through a few more generations of retirees. But the patches don't last because our demographics are working increasingly against us. We need lasting, meaningful reform. Part of lasting reform ought to be this option, for younger workers, to build a nest egg and I'm excited to be talking with this group about how to make that opportunity a reality in a fiscally responsible way that will not unsettle our financial markets. The President believes that a gradual approach to the establishment of personal retirement accounts – phasing in account participation and slowly phasing up the amount of allowable contributions – is the way to achieve those goals.

While Social Security reform addresses critical long-term deficits, I also want to share with you the action that the Administration is taking on the short-term budget deficit. A combination of spending restraint and economic growth – which increases Treasury receipts – is well underway and achieving results. We expect the 2005 deficit to be 3.5 percent of GDP; this is substantially lower than the 4.5 - 6 percent experienced at times in the 1980s and 1990s. The deficit is still but still too large, but with tight controls on discretionary spending and increased revenue stemming from the expanding economy, we expect to cut the deficit in half to well under 2% of GDP by 2009.

Ongoing budget deficit reduction must be accompanied by a recognition of, and plan for, the long-term unfunded liability that is the reality of the Social Security system's current structure. Insisting on the first while ignoring the second would be hypocritical and irresponsible. Dealing with both, head-on, is the fiscally responsible thing to do, and the President is fully dedicated to both.

It has been a pleasure to spend time with you, talking about an issue that is so important to all Americans. I am looking forward to seeing a bi-partisan bill in Congress that will bring us to the next stage of the Social Security reform movement. Any effort to improve something that impacts so many Americans must be bi-partisan, and I think we will see legislation that will save Social Security and strengthen it so that it offers a better deal to younger generations.

I look forward to continuing this dialogue with you as we move forward on this historic reform effort.

Thank you.