The Kline Record: Social Security

Winning re-election must have given John Kline confidence or something, because starting in February 2005, his floor speeches got much longer. On March 2, 2005, Kline spoke at length on the subject of Social Security; I've edited with the aim to reduce verbosity while keeping the sense of the dialog intact. Here Kline is taking turns speaking with Jim Kolbe of Arizona.

Of course we now know that Bush, Kline, and the rest of the Republicans were unsuccessful in passing their Social Security privatization plan, although Bush has quietly revived it in his proposed 2007 budget. And while Mr. Kolbe's description of Social Security's problems accurately reflects the consensus view in March 2005, that view is based on a long-range forecast which might well prove wrong. In fact, there is reason to believe that Social Security will be just fine if we do nothing at all.

With that in mind, here's an abridged presentation of Kolbe and Kline's dialog, with editors comments (((in red))).

Mr. KLINE: . . . I know that the gentleman from Arizona (Mr. Kolbe) and all of my colleagues on both sides of the aisle really would like to see a strong Social Security program. I have been telling folks, in fact, I was talking to high school students in Minnesota this last week that it is very important to me that Social Security be in place for my 84-year-old mother, and it will be in place for my 84-year-old mother. But I want Social Security to be in place, to be strong, to provide the kind of retirement safety net that our colleagues have been talking about for my 35-year-old son, my 38-year-old daughter, my 3-year-old granddaughter.

. . .

Our colleagues ascribed some motives that I think are out of place. One of them, for example, said that the President wanted to reward his buddies with his proposal, and that is simply not true. It is not fair and it ascribes a motive that is not there. One of our colleagues said that we want to gut Social Security. That is not true.

. . .

Listening to the debate, the arguments earlier this evening, it was clear that our colleagues recognize that something needs to be done. I know that the gentleman from Connecticut, I believe, said everybody knows that we have got to do something to strengthen Social Security, and other Members have said everybody knows we have to do something. And we heard a couple of proposals and increasing taxes was proposed by the gentleman from California, I believe; but if we know that something has to be done, we ought to be able to move forward and engage in the debates and engage in the discussion about what we are going to actually do to strengthen Social Security.

But I know that not everyone understands the nature of the problem and how quickly it is going to arrive, and, unfortunately, if we do not do something, how quickly it will turn into a crisis. I ask the gentleman to continue the explanation.

Mr. KOLBE: Mr. Speaker, I thank the gentleman from Minnesota (Mr. Kline) for his comments, and I hope he will continue to engage in this discussion here tonight.

I do want to take a few moments to talk about this particular chart up here because I think it expresses better than anything I could say verbally what the nature of the problem is that we are facing.

Going back, thinking back to the last chart where we talked about how the fewer numbers of people are paying the taxes to support the beneficiaries, the people getting the benefits, this illustrates exactly what that means in terms of the cash that is coming into the Social Security trust fund. The reforms, the changes that were made in 1983 went a long way towards fixing Social Security in the short and the median term; but for the long term, it just kicked the problem down the road. It did not make a permanent fix to it. It just postponed the day of reckoning, postponed the day of reckoning because it increased the taxes. And gradually we are in the process now of raising the retirement age. It made some other things.

So since the late 1980s and early 1990s, we have been collecting more in revenues from Social Security tax than we have been paying out in benefits. That means the Social Security trust fund has been reaping this windfall, if you will. It has had this extra money which we all know really is one arm of the Federal Government that is the Social Security trust fund taking the money and then turning around and loaning it to the Federal Government for part of the operations of the Federal Government. It is really paying part of the deficit, if you will, the operations of the rest of the government.

Now, the trust fund gets some IOUs and some Treasury bills in its name in there, and those are earning some interest. But here is what we have got right now. There are more benefits coming in. But as you can see here this black part up here which is the revenues exceeding the benefits being paid out, it takes a downturn here in just 3 years.

Now, that is the first critical date we need to focus on, the year 2008. It is in the year 2008 where the revenues start to decline and the excess revenues start to decline. And so the deficit, instead of masking more of the deficit each year, it will start masking less and less of the deficit each year.

So we will be doing more borrowing in order to cover the rest of the deficit.

(((Note the non-sequitur here. As of 2007, Social Security will run the largest surplus in its history, certainly a bigger surplus than in FY 2005, when Kolbe is giving his speech. But because the surplus will decrease in 2008, leaving more of the general fund's deficit exposed, Kolbe and Kline argue that we should tinker with Social Security. Perhaps a better idea would be to focus on bringing the rest of the federal budget into balance.

Here's an idea. At the time Kline and Kolbe were making their presentation, federal tax revenues were down more than $200 billion per year from when Bush took office. Maybe they should consider repealing some of those massive tax cuts.)))

Then, in the year 2018, you can see where these lines cross and the black turns to red. That is where the benefits being paid out exceed the revenues; the taxes that are actually being collected. So the Social Security trust fund has to go back to the Treasury, they have to go and cash in those IOUs they are holding, which means that the Federal Government has to give them cash and replace that borrowing with massive amounts of borrowing over here to cover the deficit.

At that point, they not only have the annual amounts they are covering for each month to cover the benefits, but they also are going to have to be covering the replacement of the IOUs. So the deficit really starts to balloon at that point. And within just a very few short years, up to 2018, the deficit being caused by the Social Security Trust Fund cashing in those IOUs is in the hundreds of billions of dollars a year.

We are going to be faced with a Titanic, a major, a simply major problem that we are going to have to confront at that point. How much do we borrow? How can we keep on borrowing those amounts of money, just to cover the shortfall in Social Security? (((At this point, Social Security is still just fine; it's consuming the surplus it's built up over decades, which Congress routinely stole instead of making the hard choices required to run the government. The problem isn't Social Security; it's the inability of our leaders in Washington --- Republicans and Democrats, but clearly Republicans for the past 5 years --- to lead responsibly))) And this is not saying anything about the shortfall in Medicare or the other kinds of entitlement programs that we have.

(((No, in fact no one, not Bush, Kline, Kolbe or anyone else mentioned Medicare much last year, despite the fact that the two Social Security and Medicare trustees who weren't in Bush's cabinet insisted that Medicare was a much more serious problem, exacerbated by Bush's 2003 'reform' legislation. You remember that bill, of course. It's the one which has prescription-dependent Americans on the brink of a healthcare crisis, the one which Kline might have stopped if he'd stood up for his principles. That one.)))

We are talking just about Social Security. It is going to be a massive shortfall that we are facing. That is why it behooves us to start thinking about this now.

Now, the third and last date that is currently projected is the year 2042. That is when the IOUs are gone. They have cashed in all the IOUs. Somehow we have managed to borrow the money from the Chinese or Japanese or the Germans, or whoever, to replace that borrowing, and we have managed to get the cash to pay the benefits. But in 2042, the IOUs are gone. There is nothing more for the trust fund to go out and use, except the money that is coming in each month.

At that point, assuming we have done nothing, as some people I have heard tonight over on this side suggest that we do, do absolutely nothing, if we do absolutely nothing, at that point the Social Security benefits would be cut by 27 percent.

Now, is there anybody listening this evening, and my colleague can answer this for himself, is there anybody that really thinks politically, with all the retirees we will have in the year 2042, we could realistically say, gee, your benefits just got cut 27 percent this month. Take it or leave it. That is it.

. . .

(((Okay, time for another chart. While Kolbe is indeed correct that retirees will see a reduction in benefits starting in 2042 if all goes as predicted, it's also important to note that the same folks who project that shortfall also predict that things will be worse under Bush's plan.

However, in fairness to Kolbe, his plan isn't identical to Bush's plan. I'll have more to say on that later.)))

Mr. KLINE: . . . To get back to the gentleman's opening comment about problem or crisis. Certainly it is a problem today, but clearly a crisis when you get into that big red area that says cash deficits. That is why it is so important we should have this debate today; that the American people understand that we are facing a problem which is going to turn into a crisis. We need to get this debate engaged and agree on a solution which will strengthen Social Security.

(Kline notes that there are many proposals, essentially states that "all options are on the table").

. . .

Mr. KOLBE: . . . there are really only three ways you can have a fix or do something to really reform Social Security.

One is increase the revenues. That is increase the amount of taxes you collect; whether you increase the amount of wages subject to the taxation, or whether you raise the rate of taxation, that is the rate of the Social Security tax we are paying today.

The second, of course, is to make some reductions in the benefits. You can make the reductions for future retirees, or whatever, what ever other retirees we are talking about. But you can reduce the benefits.

The third thing is to increase the rate of return on the investment. And that really gets us to the personal accounts, which I want to talk about in just a moment.

But before I do, I thought maybe it might be useful for us to talk a little bit about the town halls . . . .

I had two women who came up to me after the town hall was over and they both said they were Democrats. . . (and they were convinced, and they promised to tell two friends, who would tell two friends, and so on. Basically Kolbe is echoing Kline's call to open a discussion, all options on the table.)

Mr. KLINE: I thank the gentleman for yielding once again, and I just want to underscore the point the gentleman made that increasingly our constituents understand that something needs to be done.

This sort of anecdote has been put forth many times before, but just this last week when I was back in my district, I was visiting one of the high schools. . . (Overwhelmingly the students didn't think Social Security would be there for them when they retire). (((Funny thing about Kline's return trips to his district. Despite voicing his support for Bush's plan, he never held a town hall discussion about it, despite urgings from Bush to do so.)))

Mr. KOLBE: . . . Now, as I mentioned earlier, there are three things or variations on three things: raise taxes, decrease benefits, or increase the rate of return on investment that we have in Social Security. I happen to believe that we ought to do a little bit of all of those. If you are going to strengthen Social Security, you need to do a little bit of each of those things. (((I don't. Allowing people to divert a portion of their current Social Security taxes into private accounts is a sure-fire loser for the government, and a likely loser for individuals. So, no to private accounts. Notice that if we ignore private accounts but implement the rest of Kolbe's plan, the problem --- if problem there is --- goes away. But for some reason, Kline and Kolbe insist on tying these two relatively good ideas to the lousy idea of private accounts.)))

But the heart of that strengthening is increasing the rate of return on the investment we have, and that is why personal accounts are so important. Now, I have heard it said personal accounts do not fix it, and that is accurate. That is right. I have never said personal accounts fix it. Personal accounts are your link to the next generation because you are going to say to the next generation, look, you are going to have to pay just a little bit more to support this defined benefit, and you are going to get a little bit less.

And so the younger person is going to say, what is in it for me. So we can say there is a chance to have a greater return on investment through a personal account. Even though you are paying a little more taxes and getting a little less benefit from the defined benefit part of Social Security, you are going to have a part of it set aside, and it will grow as the country grows, grows as the economy grows, grows as the world economy grows; and that will yield a retirement that is better even with the reductions we are going to have to force. It is going to be better than what we have today. (((Of course, if I divert a portion of my Social Security taxes into the stock market, there's no telling whether I'll come out ahead, behind, or even. However, the logic to Kolbe's statement is inherently flawed, as Michael Kinsley patiently explains.)))

So the first principle we have to agree on is we do not do anything to change the benefits of people today who are retired or near retirement get. . . (Kline and Kolbe both beat this point into the ground.)

Mr. KOLBE: Mr. Speaker, the gentleman is exactly correct and on target. Obviously, when we talk about personal accounts, it has not always been that Democrats have opposed that. In fact, when President Clinton in the last 2 years of his term, second term in office, was talking about Social Security reform, talking about it honestly and openly, Democrats began to embrace the concept that maybe there ought to be a greater return on investment; maybe some of the money ought to go into a personal account.

Senator Reid, now the minority leader in the United States Senate said, "Most of us have no problem with taking a small amount of the Social Security proceeds and putting it into the private sector." He said that on Fox News in 1999. I think the Senator was correct about that. There are similar kinds of things that have been said by other leaders.

((('Similar', but not 'the same'. In fact, Clinton and Reid were both suggesting that the government might invest a portion of the Social Security surplus in the stock market, in the hopes of growing the fund a bit more quickly. This is completely different from allowing individuals to invest the money. Most notably, the Democrats' plan doesn't necessarily increase the national debt, since the government continues to collect payroll tax revenue.)))

The ranking Democrat on the Committee on Ways and Means said at a press conference at the same time, this was the same time the President was talking about Social Security reform, he said, "I am one Democrat who truly believes that Democrats will not benefit by doing nothing on Social Security." So he recognized the problem, and he believed we should do something.

. . .

There are a lot of single women who raised their children. I like to use the analogy of the 48-year-old single mother. She got her kids through school and college, worked herself to the bone, and now they are both over the age of 21, and she drops dead of a heart attack at the age of 48. What does Social Security provide? Zero. Not one dime, because her children are over 21. She is not married; there is no spouse. There is not one dime from Social Security.

Now, if a portion of what she had been paying in those taxes had been put into a personal account, she would have owned something. . . (etc.)

(((This is absolutely true. This is because Social Security was designed to be a safety net, not an insurance policy. Once you introduce the element of market risk, by allowing individuals to invest in the stock market, the safety net is less secure. Moreover, Kolbe's claim is misleading; Social Security does provide a death benefit to dependent children 18 or younger. Ironically, Bush just proposed cutting this benefit.)))

As I said, it is the link to the next generation because as I said, personal accounts do not fix the problem. Indeed, if we are going to take a carve-out as I think we should because to add it on is to say just a huge new tax on Social Security, a tax to be added as a burden on the people, if we are going to carve it out of the current amount being paid in retirement taxes, we are going to have in a sense a bigger problem, so we have to do something to make it all balance.

Guess what, you can do it, but you have to make some tough choices, and that is what nobody has been willing to do. Particularly as I listened over here, I do not hear anybody willing to make some of those tough choices. What do we do?

Well, the legislation we have introduced does a little bit of everything. We would make some modest reduction to the Consumer Price Index on which the annual cost-of-living adjustment is made, and that is justified by the superlative index which accounts for durable goods lasting longer today. Alan Greenspan has talked about it. It is a little complicated economic issue, but basically the Consumer Price Index today is a little bit out of whack with the reality of where the inflation rate is actually going.

In our bill, we would increase the amount of income subject to taxes, not increase the wage rate because we do not want to say to the person earning $25,000 we are going to increase your Social Security tax, too; you are going to have less take-home pay. But we are going to say to the person who currently makes over $100,000, you are going to pay more tax because we are going to increase the amount of wages subject to taxation. That is legislation that the gentleman from Florida (Mr. Boyd) and I have introduced. This is not necessarily the President's plan or any official plan on this side of the aisle, but I use it only to illustrate if you make some of these choices, you can fix some of these things. (((If we must tinker with Social Security, then this is the approach I support --- make the payroll tax apply to more of a person's income. However, with the current group running things in Washington, I don't want to give them one more dime of my money than I already do.)))

We would also accelerate the retirement age so we take out that 10-year gap from 65 to 67, we take that out so it goes to 67 a little faster. We do not change the retirement age; we just accelerate the speed at which it goes.

We would make some changes to the benefit structure for younger people, people with personal accounts, make some reduction in their benefits; and you can make Social Security solvent not for 10 years, not for 20 years, not for 40 years, and not even for 70 years, which is the only horizon that the Social Security Administration will look at. But economists have looked at ours and the CBO has looked at ours, and they say it goes as far as the eye can see as being solvent. So we can say to younger people, yes, you are going to pay a bit more in taxes, and, yes, you are going to get a little less benefit; but you are going to have retirement that nobody else has had up to this time. That is what personal accounts do, and that is why I think personal accounts are a critical part of any reform of Social Security.

It is not the be-all, it is not the end-all, it does not answer all of the problems; but it gives some confidence to younger people that there is going to be something in it for them when they get ready to retire. That is why I think the personal accounts are so very important.

. . .

The gentleman from Minnesota (Mr. Kline) knows this. As Members of Congress, we have exactly what we are talking about doing for Social Security. It is called the Thrift Savings Plan, and all Federal employees have it.

(Kline and Kolbe both praise the Thrift Savings Plan to the rafters.)

Now, thanks to Messrs. Kline and Kolbe, this has already been an epic post, but I wanted to point out one final bit of dishonesty in their presentation. They conclude by talking about how great the Thrift Savings Plan for federal employees is, and they're right. It is a great plan. It is such a great plan, I've even considered trying to land a job in federal government just so I could sign on to it. But any privatization plan for Social Security, either Bush's or Kolbe's, is a far cry from Thrift.

The interested reader is encouraged to read Paul Krugman's 10 piece series against privatization:

1. Inventing a Crisis
2. Borrow, Speculate and Hope
3. Stopping the Bum's Rush
4. The Iceberg Cometh
5. The British Evasion
6. The Free Lunch Bunch
7. Little Black Lies
8. Many Unhappy Returns
9. Gambling With Your Retirement
10. Spearing the Beast

or, for those with a short attention span, check out ThinkProgress.