Excerpt from May 5, 2005 hearing on Social Security in the Financial Services Committee's Subcommittee on Domestic and International Monetary Policy, Trade and Technology

FRANK: Thank you, Madam Chair.

First, on the question of social security, I do want to note my dismay to read in today's New York Times the headline, let me read the first sentence, "The Bush administration has warned the nation's biggest labor federation that union-run pension funds may be breaking the law in opposing President Bush's social security proposals." That is an outrageous effort to coerce people out of exercising their political rights. The notion that you have to be careful about advocacy is one which this administration has been very uneven in applying. Apparently, it is OK to use taxpayer money to create phony videos and pass them off as objective news reports, but if a labor union decides that it would not be in the interests of its members for this bill to go forward, they are going to be threatened. I hope that the unions will ignore this threat. It is a gross example of the wrong kind of politicization.

Secondly, I am glad that we are having this hearing because I think it helps us make a couple of points. First, as I read the early rhetoric about letting people have private accounts, it had a strongly libertarian thrust. It was an individual should make the decisions, not the government; that we should free people to do what they want with their own money. I have noted with some interest that as we have progressed to specifics, the individual choice involved has gotten narrower and narrower and narrower. We ought to be clear that what we are now being told should happen with regard to social security accounts severely restricts what the individuals can do.

That leads to a third point. President Clinton once suggested that social security funds could be invested in stocks to some extent, and that would increase the return for social security as a whole, with individuals still having their entitlements, but with more money coming into the fund. At the time, a number of people, including Chairman Greenspan of the Federal Reserve, expressed grave opposition to this, saying that it would be a terrible idea to let the federal government make these picks of what stocks should be in there. But as I read the current proposal, we are getting back to that. The current proposal is not to let individuals decide fairly freely where to put their money, but to create some limited choices for them. The federal government presumably would be the one ultimately making those limited choices. So the difference between what President Clinton proposed and what we are currently seeing is not, it seems to me, on whether or not the federal government has some influence over where the money goes, but whether or not we continue to have this guarantee to people or whether they are more at risk.

I was also struck, and I am not going to be able to stay for the whole thing, but I was pleased to see in Ms. James' testimony, actually, let me just say this. I have heard a lot from some of my Republican colleagues about the inappropriateness of America looking to foreign countries to make American policy. We have certainly heard that with regard to the Supreme Court, and we have often heard that this is America and we will make our own decisions, and borrowing from foreign countries is really not what we need to do. I am glad to see that that I think somewhat silly notion has been waived in the interests of trying to get support in some ways for social security, since we have other systems that have done that, and the silliness of ignoring the experience of others. Now, everybody has joined into that.

One of the things that struck me as I read over Ms. James' statement was at the bottom of page two and the top of page three, saying that, quote, "every country that has a personal account system also has a minimum pension, most commonly 20 percent to 30 percent of the average wage. This is designed to protect workers from both financial market and labor market risk." So far, we, America, do not have a minimum pension in our current system or in the proposed new system. I think that is a very relevant point of comparison.

As I understand the president's proposal, with progressive indexation and with the private accounts taking a significant chunk, up to one-half of what you put in, it does not seem to me that we would reach that 20 percent to 30 percent minimum.

The final point I want to talk about is on progressive indexation. I want to congratulate the administration on its mathematical flexibility. When we are talking about the point at which we begin to reduce people's social security from what they would currently be legally entitled to, the president says he wants to protect low-income people and we will begin to go to a progressive, i.e. reductive, approach to their social security benefits as they get into middle and upper income.

Apparently for these purposes, for the purposes of reducing the benefits of social security below what they now are, middle income starts at about $30,000. What strikes me is when we talk about tax cuts in this climate in Washington today, middle income seems to start at about $150,000. So whether or not you are considered middle income apparently varies. If it is a question of giving you a tax cut, it is much higher. If it is a question of when we can reduce your benefits, it is much lower.

The last point I would simply note again is, and I have been asked, and others, and I always want to repeat this on social security, what is the approach. It is clear that from now until 2018, unlike any other aspect of the federal government, the social security system will take in more money than it pays out. So for the near term, it seems to me we have a very easy solution: put the money back.