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FOR IMMEDIATE RELEASE:  February 2, 2005

SCHUMER BLASTS PRIVATIZATION SCHEME: NEW BIRTH TAX HITS $18K BY 2015 FOR ALL AMERICANS PREPARED OPENING STATEMENT SENATE FINANCE COMMITTEE HEARING ON SOCIAL SECURITY

Thank you, Senator Grassley and Ranking Member Baucus, for calling this hearing, which I hope will be the first of many hearings on this very important topic.

I know my time is limited, so I want to make a very brief statement before I turn to questions for our two witnesses.

Every member of this Committee knows that Social Security has been a success story. In 1950, one-half of the elderly lived in poverty. That figure is now less than 10 percent. That’s a pretty successful record.

But every member here also knows that the program needs some changes in order make sure it’s there for future generations of Americans. The question we have to wrestle with is, what sorts of changes? Does the program need minor tweaking, or does it need to be dismantled and replaced with something else?

Almost all of us on the Democratic side believe that the President’s plan to partially privatize the system is a bad idea from the start, whether it’s called privatization or personalization or whatever the buzzword happens to be this week.

We have come to this conclusion not because we believe that government does everything right, but because we believe the President’s solution is fundamentally flawed. Ironically, it makes the underlying problem – restoring long-term solvency – more difficult to solve, by taking money out of the program at exactly the wrong time. In addition, siphoning payroll tax money into private accounts will add trillions in additional debt that future generations will have to repay. That’s unacceptable.

Unfortunately, on this issue, the President is being advised by ideologues who believe that government can’t do anything well, and that the private market is always better. In my view, and the view of many, he is getting bad advice. The President needs to decide whether he wants to take the lead in fixing Social Security, or whether he wants to take the lead in destroying the most successful social program in history.

I want to bring some additional focus to the debt issue, which has received little attention in the press thus far.

If you take a look at this chart, you will see that the per capita public debt – the amount owed by every man, woman, and child in the country – was just under $12,000 in 2001. Call this the “birth tax,” since it was money each newborn American and all Americans will have to pay back, with interest. When President Bush took office, that number was finally on the way down.

As a result of the President’s tax cuts, September 11, and the slowed economy, our fiscal situation has shifted 180 degrees. That per capita “birth tax” is now scheduled to grow to over $18,000 by 2015, even with no other changes to spending or tax law.

When we add in the Administration’s defense buildup, the ongoing costs of the war in Iraq, and the costs to make all of the President’s tax cuts permanent, the per capita figure grows to over $25,000 by 2015.

And here’s where another major problem for the President’s privatization plan lies. According to most estimates, setting aside 4 percentage points of the 12.4 percent Social Security tax for private accounts would require the government to borrow close to $2 trillion over the next 10 years in order to pay scheduled benefits to current and near retirees.

Adding this borrowing to these other policy changes would bring each American’s share of the public debt – their “birth tax” – to close to $30,000 by 2015. That means that every child born in America will be $30,000 in debt on the day they are born. And this number does not even include any reforms to the AMT, which we all know must be made, or any new debt service costs.

For many in my party, this is a moral issue. The President talked a lot about moral issues during the presidential campaign, and I’d like to see him address the exploding national debt in his State of the Union speech tomorrow night. His Social Security reform plan is a nonstarter not only because privatization makes the problem worse, but also because we find these levels of debt unacceptable and unsustainable, and not representative of our values.

Speaking personally, I find it absolutely amazing that the President focuses so much attention on repealing what he call the “death tax” – a tax that affects only one American in 100 – while he is seemingly unconcerned with the rising “birth tax” that every single American is facing, poor and rich, rural and urban, black and white.

Simply put, it is immoral to borrow another $2 trillion from future generations to finance Social Security reform. We are already spending enough of our kids’ money. When the President gets around to sending us a plan with specifics, he should take whatever steps necessary to minimize any additional increases in debt that our children and grandchildren will have to pay back with higher taxes.

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