July 27, 2005
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Remarks of U.S. Treasurer Anna Escobedo Cabral
American Numismatic Association – World's Fair of Money Show
Treasurer's Forum
San Francisco, California

Good afternoon. It's wonderful to be with you today here in San Francisco, and to be part of your celebration. It's wonderful to see so many people so excited about coin and currency.

Alexander Hamilton, the first Treasury Secretary, knew that the establishment of a sound coin and currency system was paramount to the growth and stability of the U.S. economy. In his first year, he created a number of critical components of the financial infrastructure for the nation, elements that continue to serve us today. In his book, "Alexander Hamilton," Ron Chernow quotes from Hamilton's "Report on the Mint" delivered to Congress on January 28, 1791:

The success of our great nation rested squarely on the ability of the founding fathers to build institutions that embodied the ideas espoused in the Declaration of Independence.

Each president, beginning with George Washington and continuing through modern times, has been faced with the challenge of ensuring that our institutions remain true to those ideals.

I'd like to speak to you today about President Bush's leadership on two such matters of long-term importance to our economy: reforming the tax code and strengthening Social Security.

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.

To help advance this worthwhile goal, the President created a bipartisan panel to develop revenue neutral policy options. The President asked the panel to be guided by a few core principles – he wants a tax code that is simpler, fairer and more pro-growth. The panel is preparing recommendations that will be delivered to the Secretary of the Treasury this fall.

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 steady job creation. The economy has created over 3.7 million jobs since May of 2003. We have seen steady job gains for each of the last 25 months. Today more Americans are working than ever before. Across the board, economic indicators show strong, sustained growth.

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.

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. Earlier this year, the Social Security Board of Trustees 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 trillion over the next 75 years.

President Bush has shown real leadership on this issue. For many years, the conventional wisdom in Washington was that Social Security reform was a conversation stopper, the "third rail" of politics. The President had the courage to touch the "third rail," and now we're moving forward. People recognize there is a problem in our Social Security system. The President has called on Congress to help find a permanent fix.

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.

For those who are 55 or older, the President has made clear that Social Security benefits are solid. They will not change. But it's the 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. 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.

The President has also called for reforms that will create progressive benefit growth to help ensure solvency while strengthening benefits for those most in need. Under the President's proposal, low- and middle-income workers would receive greater benefits that increase faster than the rate of inflation. Higher earning individuals would receive benefits that grow no faster than the rate of inflation. This would provide greater benefits for those who need them most. For instance, a low-income 20-year-old who retires in 2050 would receive annual benefits of $12,900, or $3,500 more than the current system can pay. A middle income worker would receive $17,300, or $1,800 more than the current system can pay. Adjusting how benefits are calculated would eliminate approximately 70 percent of Social Security's shortfalls.

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 permanently improves the system for our children and grandchildren can be achieved. I encourage you to become involved in this national discussion. 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.

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