"The Washington Perspective" Economic Development Seminar for North Carolina Business Leaders

Thank you for inviting me to be here with you this morning. The National Committee to Preserve Social Security and Medicare is a membership organization of over 3 million members and supporters. They come from all walks of life and all political affiliations - in fact, we are about evenly split 1/3 each of Democrats, Republicans and Independents. What our members have in common is a deep understanding of the value of Social Security and Medicare, and a passion for protecting these programs not just for themselves, but for their children and grandchildren.

I would like to speak to you today about Social Security. I know this event is an Economic Development Summit of business leaders so you might well ask "why should I care about Social Security?"

I'll give you two reasons. The first is purely personal - all of you in this room have been paying payroll taxes with every paycheck, just as your employees have been paying them. And for those of you filing as self-employed individuals, you have been paying both the employees' and employers' share of payroll taxes.

Some of you are saving money for retirement in 401k plans or other retirement accounts; others of you are counting on the value of your businesses or homes to finance much of your retirement. But as we have seen dramatically with the recession, none of those savings are secure. 401k plans are still struggling and trillions were lost in home equity when the housing bubble burst. And about one-half of all small businesses fail in their first year.

Social Security, on the other hand, is financially secure - no matter what you may have heard from those determined to undermine the program. It's not bankrupt or broke - unlike any other part of the government it has a $2.6 Trillion surplus that you have built up over the past 3 decades, all of which is invested in Special Issue Treasury Bonds. United States government bonds are about the safest investment there is - which is why they are in such demand. The Treasury Bonds in the Social Security Trust Fund are backed by the full faith and credit of the United States government, just like the bonds sold to you or me, or to wealthy investors or our foreign neighbors.

This surplus has been building since 1983, when the last major reforms were made to Social Security. I was in Congress in 1983, and I can tell you - Social Security was truly in crisis then. We weren't sure there would be enough money for checks to go out just a few months ahead. President Reagan, along with Speaker Tip O'Neill and some wonderful Social Security people like Bob Ball decided action was desperately needed and worked out a plan to save Social Security.

The plan had two goals. The first was to fix the short term financing problem Social Security was facing so full benefits could continue to be paid. The second was to deal with the bulge in our population known affectionately as the 'baby boomers'. I'm so amused when I hear people today arguing that the retirement of the baby boomers has caused a financial crisis and that's why we need to cut Social Security. I can assure you - baby boomers were no surprise in 1983. How could they be? They were already in their 30s and 40s. As a nation, we had already built schools for them and housing, and we knew they were someday going to want to retire.

So the experts in 1983 went further than they needed to in order to fix Social Security's short-term problem. They raised taxes higher than necessary to build up a surplus in Social Security that would be used to pay for the boomer retirements. And in fact, that is exactly what happened. That's where the $2.6 trillion surplus came from - excess taxes everyone in this room has been paying since 1983 to fund your retirement. But now that boomers are approaching retirement, there are those who are arguing we can't afford Social Security so benefits will need to be cut.

I'm going to discuss this in more detail in a minute, but first I'd like to tell you what the second reason you should care about this issue is: the fact that you are here today means you are business people who care about your State's economic development. And Social Security is a big part of your State's economy - even though few people are aware of it.

According to the Social Security Administration's own numbers, over 1.6 million people in North Carolina receive Social Security benefits. That is more than 1 out of every 6 residents. These benefits total over $20.5 Billion per year. This comes to about 5 percent of the State's annual Gross Domestic Product. To give you some comparison, that means Social Security benefits are almost as important to North Carolina's economy as Durable Goods Manufacturing, which totaled about 8% of the State's Gross Domestic Product in 2008 (the most recent year BEA has available).

And unlike other parts of the State economy that can fluctuate wildly from year to year, Social Security checks flow consistently each month from year to year, with automatic increases most years to help keep up with inflation.

So both for personal reasons and for business reasons, every person in this room should care a great deal about what is happening with Social Security today.

And what is happening is, there is a powerful group of people who have decided the weak economy and high deficits create the ideal opportunity to significantly shrink this critical program. Unfortunately, a number of Members of Congress and people within the Administration have bought into this argument. Early this year the President created a National Commission on Fiscal Responsibility and Reform. He tasked it with reducing both the short term and long term deficit, and insisted everything would be on the table.

The Commission has 18 members - 14 of them must agree on a recommendation for it to be an official report from the Commission. If they agree, Senate Leader Harry Reid has agreed to bring it up for a vote in the Senate without amendments, and House Speaker Pelosi has agreed to do the same if the Senate passes the recommendations. The report is due by December 1st and is expected sometime after the election. So if the Commission issues a report, a lame duck Congress with numerous Members who are no longer responsible to the public will be making decisions that could dramatically affect every person in this room.

I will admit, I'm not convinced this Commission can get 14 votes for anything. But they might be able to get close to 14 votes for a proposal to cut Social Security benefits, and if they do, there is a good chance it will come up for a vote at some point in the near future.

You should understand the complete disconnect that is happening here. The Commission was tasked to come up with ways to reduce the deficit, yet Social Security hasn't contributed one thin dime to it. As I mentioned earlier, it has been running surpluses for decades and does not have legal authority to borrow money - so it cannot add to the deficit in the future. Once the Bonds in the Trust Funds run out, it will be forced to pay partial benefits unless Congress passes a law allowing it to do something different. It will still have enough money to pay 75% of promised benefits from the payroll taxes that will continue coming into the system, but it cannot add to the deficit. Yet Social Security is the one program the Commission seems to be focusing on cutting.

And although everyone associated with the Commission pays lip service to the notion that "everything is on the table", in fact the only thing that truly appears to be on the table is Social Security. No one on the Commission is seriously looking at our tax code or discretionary spending - all of their attention is on the one program that is working, that is keeping millions of Americans out of poverty, and that had nothing to do with causing the economic mess we are in - Social Security.

So after the election, we expect a major fight to protect this important program. And my members expect me to fight on their behalf to protect it - not just for themselves - but for their children and grandchildren. They know how important Social Security is in their economic lives, and they also know how important it will be for future generations. With the demise of traditional pension plans, the volatility in the stock market affecting everyone's 401k plans, and the trillions in home equity that vaporized when the housing bubble burst, seniors understand more than most that Americans of all ages need Social Security.

Thank you for your kind invitation to speak to you today. I'm happy to take any questions.