[Page H4970]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page H4970]]
SOCIAL SECURITY

The SPEAKER pro tempore. Under the Speaker's announced policy of
January 21, 1997, the gentleman from Michigan (Mr. Smith) is recognized
during morning hour debates for 4 minutes.
Mr. SMITH of Michigan. Mr. Speaker, the gentleman from Minnesota (Mr.
Minge), a Member of Congress, and I have introduced a bill, H.R. 4033,
that deals with some of the mistakes I think that we have been making
regarding Social Security and how we calculate and how we treat the
money that government borrows from Social Security, that we borrow from
the Social Security Trust Fund, and then spend that money on other
programs.
The legislation accomplishes two objectives. First of all, we say
that from now on, when the general fund or the government borrows from
the Social Security Trust Fund, instead of the blank IOUs, in the
future it will be required that we have marketable Treasury bills.

{time} 0945

Right now what happens is when there is a surplus coming in from
Social Security, and Social Security is a pay-as-you-go program, so
existing workers pay in their Social Security tax, immediately that is
sent out to existing retirees. Anytime there are more revenues coming
in than what is paid out in benefits, it goes into what is called the
Social Security trust fund. It is not really a trust fund, though. It
is simply considered and treated as additional revenue for the general
fund to spend on other social programs.
Number one, what we say in this legislation and what we are proposing
is that these become marketable treasury bills that the Social Security
trustees can walk around to the corner, to the nearest bank, anyplace,
and if they need that money to pay benefits, they can do it without
coming and begging to Congress to pay back the money that has been
borrowed.
The second thing that we do in that bill is say that from now on when
we talk about deficits and surplus, we are not going to consider the
extra money that is coming in from Social Security, that goes into the
Social Security trust fund and is spent on other programs, as revenue
in terms of deciding whether we have got a deficit or surplus in this
country. Right now we hear a lot of bragging about the fact that we are
going to have a surplus, a surplus in the unified budget that might be
as high as $60 billion, $70 billion this year, maybe up to $100 billion
next year. But because we are borrowing that $70 billion to $100
billion next year from the Social Security trust fund, it is not really
a surplus.
So we say from now on, when OMB and CBO scores whether or not we have
a deficit or surplus, we are not going to consider the amount that we
borrow from the Social Security trust fund as revenue in terms of
pretending that we really have a surplus in this country. I think it is
important that we be visible.
I have got a letter from Chairman Allen Greenspan, Chairman of the
Fed, that says, ``Look, what's important is that we have transparency,
that there is a clear understanding of what is happening in this
country.''
I suggest, Mr. Speaker, and I suggest to the American people that
there is not a clear understanding as we brag about a surplus when we
are depending on the amount that we are borrowing from the Social
Security trust fund as revenue to justify in our calculations that
there really is a surplus.
I just quote from Allen Greenspan:

On the first issue, my basic point would be that the
financial markets of switching from investments in
nonmarketable to marketable treasuries have little or no
effect.

It is important that we be transparent, it is important that we be
honest with ourselves in the way we calculate these surpluses so that
we can make real and honest policy decisions.

Federal Reserve System,

Board of Governors,

Washington, DC, June 18, 1998.
Hon. Nick Smith,
House of Representatives, Washington, DC.
Dear Congressman: I am pleased to respond to your request
for my thoughts on the bill you have drafted, H.R. 4033,
which would direct the investment of social security trust
funds to marketable securities and require that budget
surpluses or deficits be reported net of social security
flows.
On the first issue, my basic point would be that the
financial market effects of switching from investments in
nonmarketable to marketable Treasury securities should not be
significant. The crux of this matter is that it is the net
borrowing requirements of the federal government, on a
consolidated basis that encompasses the trust funds, that are
key in terms of pressures in financial markets. If the trust
funds were simply to purchase marketable rather than
nonmarketable securities, the net borrowing from the public
would remain the same. Under the circumstances, the question
would seem to boil down to a matter of which approach is most
attractive in terms of dealing with the technical problems of
public debt management.
The preceding remarks effectively anticipate what I would
have to say about the second issue regarding accounting. A
unified budget concept that encompasses the net flows into or
out of the trust funds most effectively captures the short-
run influence of the government's fiscal activities on the
financial markets and the economy. From this standpoint, it
would not be desirable, to my mind, to suppress the unified
accounts. On the other hand, a budget accounting that
separates out social security receipts and outlays may
provide an insight into the longer-term financial condition
of the federal government that would be helpful in the
planning and policymaking process. As with many issues in
accounting, the one-size-fits-all approach is likely to be
suboptimal. What is important is that the relevant
information be presented in as transparent a fashion as
possible, so that eveyone can appreciate the financial
consequences of policy actions.
I hope that these comments are helpful. Please let me know
if I can be of further assistance.
Sincerely,
Alan Greenspan,
Chairman.

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