FROM THE OFFICE OF PUBLIC AFFAIRS
May 23, 2005
JS-2465
The Honorable John W. Snow
Prepared Remarks to: American Institute of
Certified Public Accountants
Washington, DC
Thanks so much for having me here this afternoon. I hope you're having a terrific meeting, and that you're spending some quality time with your representatives on Capitol Hill. They need to hear your valuable perspective on the financial issues of the day!
Before I get started today I want to commend this group for your 360 Degrees of Financial Literacy effort. Treasury's Office of Financial Education is delighted to be working with you on national financial education efforts; our partnership is awfully important to the young people who will benefit from those efforts.
It has been said that, regardless of how much money you have, wisdom has to be acquired on the installment plan. Similarly, it is true that regardless of an individual's income, saving must be done steadily, deliberately, over a lifetime. Learning about how to become, and stay, financially healthy, is a life-long pursuit as well. So I want to thank you for giving back on this issue. It's a great gift to generations of Americans.
Speaking of generational issues, and of helping young Americans see a brighter financial future… I really appreciate the chance to talk with you today about a couple of policy items that I know are important to you in your profession, and that are of utmost importance to our President: strengthening the nation's Social Security system and reforming our tax code.
The President's leadership on Social Security is providing our country with a tremendous opportunity to save the program for current and near retirees and improve it for younger generations. His initiative to study and re-vamp the tax code offers great hope for increasing economic growth and decreasing taxpayer headaches!
Conversations like this are an important part of reaching decisions as to what, exactly, should be done in both of these critical areas.
Before we get into Social Security, I do want to talk about the American economy a little bit. Social Security and our tax code are such important parts of our economy – and the reform choices that are made in
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 they needed to grow, and they 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 the first Friday of this month, 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. In addition to the Social Security and tax reform that I want to talk about in detail, this commitment also includes reducing the budget deficit, 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 two weeks ago 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.
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 good trade policy, 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 both address some critical long-term economic issues.
For example, the President's Advisory Panel on Tax Reform is working right now to come up with some options that will encourage growth and save Americans much of the time and headache that they currently spend complying with the tax code.
No one knows that headache better than the people here today, and I appreciate the fact that you have reached out to the tax panel to offer help and advice. We welcome your input.
A few raw facts illustrate well the problems of our current code: American taxpayers and businesses spend an estimated $130 billion dollars in lost time and money trying to comply with our increasingly unwieldy tax code. That's $130 billion in resources that could be used to create jobs, invest in new business, or spur consumer spending. The $130 billion burden our tax code places on the American people is a drag on economic growth and an unnecessary headache for Americans.
The President has asked that the fine people on the advisory panel be guided by the goals of increased fairness, simplicity and ease of understanding, and economic growth and job creation. He has also asserted that any reform proposal should carry on the good traditions of recognizing the importance of homeownership and charity in our society.
Please take a look at the tax panel's website for more information. The site, www.taxreform.gov, includes a great new summary of the issues and key themes the panel is considering.
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 you appreciate what I'm saying, as people who work closely with small businesses… and especially those of you who are small employers yourselves. Because employers, regardless of size, shoulder half of that tax increase – because they pay that tax on all of their 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 job-creators – primarily small-business owners – all over the country, 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.
The President has spoken very plainly about the realities of Social Security. Inevitably, workers face a reduction in benefits because the system will go broke in 2041. He has 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 even 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 – some of you may 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.
Thank you 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 again; I'd be happy to take your questions now.