Kolbe Urges Action on Reform

December 18, 2002

In a Roll Call op-ed, Rep. Jim Kolbe (R-AZ) urges that Congress move forward immediately to fix Social Security. Kolbe is the co-sponsor with Rep. Charlie Stenholm (D-TX) of the 21st Century Retirement Security Act. The text of Kolbe's remarks follows:

"For too long, Social Security has been considered the third rail of politics. Many Members of Congress carry battle scars from campaigns when they dared to utter the truth about Social Security and paid the political price. Over the past couple of years a subtle - but fundamental - shift in public awareness has occurred. The American people have come to understand the demographic and fiscal pressures facing Social Security. At the same time, Americans are weary of partisan bickering. They want answers - not accusations.

"The first step in solving Social Security's problems is to acknowledge them. The Social Security Administration has documented some basic facts that every American needs to know: In 2017, Social Security will begin to pay out more in benefits than it collects in payroll taxes. Between 2017 and 2041, the federal government (read: American taxpayer) will have to come up with almost $4 trillion to redeem the assets in the Social Security trust funds. In 2041, the system will be insolvent and that generation's seniors (read: today's young workers) will not receive their full benefits. In sum, we have promised to pay almost $24 trillion more in benefits than we have promised to pay in taxes to the system. The problem will not fix itself, regardless of how fast the economy grows. These are the facts, however unpleasant they may be to acknowledge. To address these looming deficits, there really are only three choices. First, we can do nothing. The result of inaction would be large cuts in promised benefits, beginning with 25 percent reductions in 2041 and increasing to 33 percent by 2075. If we wish to avoid those cuts by raising taxes, the current 12.4 percent payroll tax - the biggest tax most households pay - would need to increase by 50 percent or more. Other priorities, including homeland security, defense and education, would go unfunded to come up with the cash to redeem the trust-fund assets. The economy would suffer as larger and larger transfers of wealth are made to pay for programs for the elderly.

"Our second option would be to agree on some combination of benefit cuts, tax increases and government investment of the trust fund in the stock market. Government-directed investment - which the Senate rejected by a vote of 99-0 in 1999 - raises several concerns. The most alarming is that the government's substantial equity stake might distort the decisions of individual corporations through political manipulation. Moreover, unlike personal accounts, government investment of the trust fund requires all workers to invest part of their Social Security taxes in the stock market. There would be no flexibility, no ownership and no individual control.

"The third option - the approach Rep. Charlie Stenholm (D-Texas) and I have worked on for many years - contains a comprehensive set of reforms that maintain the best features of the current system while allowing all Americans to save and invest for their retirement. We propose to use personal accounts to pre-fund future benefit obligations and to implement needed reforms to the benefit formula. Our approach is not pain-free. No honest plan for fixing Social Security is. But our plan is confirmed by Social Security's nonpartisan actuaries to make Social Security fiscally sound forever, while improving the safety net, reducing poverty in old age and increasing Social Security's progressivity.

"Despite the white-hot rhetoric, personal accounts do not force larger benefit cuts than already necessary under current law. A recent analysis by Social Security Administration actuaries proves that a reform plan with personal accounts can provide higher retirement benefits than a non-account plan with the same funding. Simply put, personal account plans provide more "bang for the buck." This study echoes a Congressional Research Service report, issued last year, which found that a comprehensive reform plan including personal accounts would result in a smaller reduction in retirement income than a non-account plan.

"There are legitimate concerns about risk that accompany personal accounts. Under our proposal - modeled after the Thrift Savings Plan - all personal-account funds would be invested in broad-based index funds. No one would pick individual stocks or put all of their funds into a particular financial sector. Risk-averse workers would have the option of investing in risk-free Treasury bonds (albeit at a much lower rate of return).

"The $2 trillion cost of transitioning to a modernized Social Security system is significantly lower than the stunning $24 trillion necessary to prop up the current program over the next 75 years. But the longer we wait to fix Social Security, the more expensive it becomes. Even a two-year delay increases Social Security's 75-year payroll tax deficit by almost $2 trillion (in today's dollars), making drastic increases in taxes, reductions in benefits or hikes in the retirement age more likely. Indeed, delaying action until 2005 will make it virtually impossible to enact legitimate reforms without affecting those near retirement.

"Of course, our plan has not been greeted with universal support. Legitimate differences exist about how to solve the financial problems facing Social Security. But merely attacking reform plans that include personal accounts - ours or the many others - is not a substitute for offering a positive solution for dealing with the financial shortfall that will occur regardless of whether we enact personal accounts. At the same time, simply expressing support for personal accounts while ruling out the tough choices that must be made on benefits or taxes is equally irresponsible.

"While the events of Sept. 11, 2001, and the prospect of war with Iraq have altered the policy agenda in Washington, the need for Social Security reform is as urgent as ever. The public has heard enough accusations on Social Security. Today, it demands answers. Stenholm and I have put forward one answer to Social Security's problems. Some will agree, others will not. It is irrefutable that the decisions that we make today will leave an indelible imprint on future generations. And those decisions are simple: We can either strengthen Social Security today, or we can leave a legacy of debt for our children and grandchildren. Now is the time to act."

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