FROM THE OFFICE OF PUBLIC AFFAIRS

May 9, 2005
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Secretary John W. Snow Prepared Remarks Connecticut Business and Industry Association Hartford, CT

Thank you so much for having me here today; it's great to be in Hartford!

I appreciate the chance to talk with you about strengthening the nation's 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. Conversations like this are an important part of reaching decisions as to what, exactly, should be done.

Before we get into Social Security, I do want to talk about the American economy a little bit. Social Security is such an important part of our economy – and the reform choices that are made in Washington will have such an impact – that I think it's important to start there. Furthermore, the strength of our economy is largely owed to businesses like yours, so I want you to know just how much of a difference your hard work is making.

We've seen amazing economic times in the last few years. Well-timed tax cuts, combined with sound monetary policy set by the Federal Reserve Board, got our economy moving when we needed it most. They gave business and industry the room you needed to grow, and you took over from there. As a result, economic growth was 4.4 percent last year, the strongest in five years.

We have had terrific news on jobs – 23 straight months of job growth. On Friday, the Labor Department announced that 274,000 jobs were created in April. The economy has created a total of 3.5 million new jobs since May 2003. That's great news – the best news – for 3.5 million families.

The President has made clear his commitment to strengthen our economy further. This includes reducing the budget deficit – as well as reforming Social Security and the tax system, reducing the regulatory burden on business, and passing energy legislation. We expect the deficit to total 3.5 percent of GDP this fiscal year. Tight controls on discretionary spending and increased revenue as a result of economic expansion are expected to cut the deficit by more than half, to well under two percent of GDP, by fiscal year 2009.

The Treasury announced last week that we expect to pay down $42 billion in debt in the second quarter of this year, which is very good news and is primarily the result of higher individual tax receipts.

I imagine you also heard that Treasury is considering whether or not to reintroduce regular issuance of a 30-year bond. A decision on 30-year nominal issuance will be announced at the next quarterly refunding on August 3rd. In considering such a change, we will examine if we have the flexibility to issue 30-year bonds while maintaining deep and liquid markets in our other securities, and determine if nominal bond issuance is cost effective.

All of the strong economic indicators, and our ability to pay down debt, point to the fact that reducing the tax burden proved to be a successful economic stimulus. And when the economy is growing and spending is controlled, we can also reduce our deficit.

But the job of keeping our economy unencumbered is a never-ending one, indeed. From tax cuts to regulations and energy policy, we need to work on it every day, and we need to work on keeping it strong for the future, for the long-term. Reforming our Social Security and tax systems addresses some critical long-term economic issues.

I appreciate the President's leadership on tax reform, and I deeply admire his leadership when it comes to the national discussion on Social Security reform.

The President doesn't believe in burying one's head in the sand… which is essentially what you have to do to ignore the serious nature of the Social Security problem. The Social Security Trustees – for whom I serve as Board Chairman – issued our annual report on the financial health of the programs' trust funds on March 23rd, and the numbers contained in that report leave 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.

Now, the President doesn't believe that we should make up that shortfall with tax increases. The 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.

That kind of tax increase would have significant, negative economic repercussions. Americans would start taking home less pay, and that's bad for countless facets of our economy. I imagine that, as business owners, you appreciate what I'm saying. After all, you would shoulder half of that tax increase – because you pay that tax on all of your employees. For the smallest of employers I fear that much of a tax increase would force you to make terrible choices, from lay-offs to health benefit cuts. And it would make hiring new people even more difficult.

Increasing payroll taxes hurts the economy and it hurts job creation, period. We know this from talking to business leaders like you, and 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.

Two weeks ago, in his Thursday evening press conference, the President spoke very plainly about the realities of Social Security. Inevitably, workers face a reduction in benefits because the system will go broke in 2041. He suggested a progressive indexing plan to make sure that those who are most in need – low-income workers – will be protected from that reduction in benefits.

The President proposes that, in the future, benefits for low-income workers should grow faster than benefits for people who are better off. By slowing the rate of increase of benefits for wealthier Americans, most of the funding challenges facing Social Security would be solved and the government will make good on this commitment: If you work hard and pay into Social Security your entire life, you will not retire into poverty.

A variety of other options are available to solve the rest of the solvency problem, and the President will work with Congress on any good-faith proposal that does not raise the payroll tax rate or harm our economy.

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 resulted.

People have been 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.

I imagine that you are talking about it with your spouse and family members, your business partners, customers and employees. Those conversations are critical, and I hope our meeting here today can help make them even more lively, more productive.

I know that you understand that if you are 55 or older your Social Security benefits are solid. They will not change. You know that you don't need to change your retirement plan or strategy because of Social Security reform, period.

But now I'll ask: how many of you have children or grandchildren? It's those children and grandchildren, those young workers and future workers, who we need to be worried about. They are the ones for whom we need to fix this system.

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 arithmetic. 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.

Just three years from now, in 2008, the first baby boomers will begin to retire. According to the new Trustees' report, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes in 2017 – that's just 12 years from now. By 2041, when younger workers begin to retire, the system will be bankrupt.

We must make Social Security better for those younger workers.

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 give workers the prospect of a retirement that is far better than the rapidly-weakening promise of Social Security benefits.

Albert Einstein believed, and the President and I agree, that compound interest is one of the most powerful forces in the universe.

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.

Former Democratic Congressmen Tim Penny and Charlie Stenholm wrote something very important in a recent op-ed. They said that "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.

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 children, or writing a letter to your Members of Congress.

Many of you in this room may want to pass your business on to your children or grandchildren. I know you'll want your business to be in top shape, financially, when that time comes.

Let's make sure we do the same with Social Security. If we act now, we can make sure that Social Security, and our economy, are on sound financial footing for our children and grandchildren.

A final issue that I think is of interest to so many businesses in this area is the status of the Treasury Department's study on Terrorism Risk Insurance Act.

The terrorism risk insurance program was an important confidence builder as this country recovered from the attacks of September 11 and the recession.

The issue of reauthorization of TRIA is one that will involve a detailed analysis. As you know, the Act required that Treasury study its effectiveness and report to Congress by June 30, 2005. Through our study, ongoing at this time, we are seeking to answer the questions Congress posed in the Act, such as the financial capacity of the insurance industry, the pricing and take-up of terror risk insurance, whether risk can be priced and managed, the return of re-insurers to the market, and what is the most efficient mechanism to produce insurance for the risk.

We are looking forward to a prompt completion of our study, so that we and Congress can have a full and open discussion about these important questions.

It's an important issue, and Treasury is dedicated to the most thorough study and analysis possible so that Congress may make a fully informed decision about terrorism risk insurance in the future.

Thank you so much for having me here today to talk about the really historic policy efforts that are underway right now. This is an exciting time to be in government, and I'm extremely proud to be helping the President as we seek to achieve a safe and promising financial future for all Americans.

Thanks so much for having me here today.

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