[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
1999 SOCIAL SECURITY TRUSTEES' REPORT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SOCIAL SECURITY
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
APRIL 15, 1999
__________
Serial 106-10
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
58-722 CC WASHINGTON : 1999
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Social Security
E. CLAY SHAW, Jr., Florida, Chairman
SAM JOHNSON, Texas ROBERT T. MATSUI, California
MAC COLLINS, Georgia SANDER M. LEVIN, Michigan
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois BENJAMIN L. CARDIN, Maryland
KENNY HULSHOF, Missouri
JIM McCRERY, Louisiana
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C O N T E N T S
__________
Page
Advisory of April 8, 1999, announcing the hearing................ 2
WITNESSES
Social Security and Medicare Board of Trustees, Stephen G.
Kellison and Marilyn Moon, Public Trustees..................... 5
SUBMISSION FOR THE RECORD
Steinberg, Michael A., Michael Steinberg & Associates, Tampa, FL,
statement...................................................... 38
1999 SOCIAL SECURITY TRUSTEES' REPORT
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THURSDAY, APRIL 15, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room B-318, Rayburn House Office Building, Hon. E. Clay Shaw,
Jr. (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON SOCIAL SECURITY
FOR IMMEDIATE RELEASE CONTACT: (202) 225-9263
April 8, 1999
No. SS-6
Shaw Announces Hearing on
1999 Social Security Trustees' Report
Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on
Social Security of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing to examine the findings of
the recently released 1999 Annual Report of the Board of trustees on
the financial status of the Federal Old-Age and Survivors Insurance
(OASI) and the Federal Disability Insurance (DI) Trust Funds. The
hearing will take place on Thursday, April 15, 1999, in room B-318
Rayburn House Office Building, beginning at 10 a.m.
Oral testimony at this hearing will be from invited witnesses only.
Invited witnesses will include the Social Security Public trustees.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
On March 30, the Social Security Board of trustees released its
1999 Annual Report on the financial status of the trust funds. The
report's projections regarding the Old Age, Survivors and Disability
Insurance (OASDI) Trust Funds are slightly improved from those reported
in 1998. For example, spending out of the trust funds is projected to
exceed tax income in the year 2014, and the trust funds will be
depleted by the year 2034. In last year's report, those dates were 2013
and 2032, respectively.
As in prior years, however, the trustees concluded that the OASDI
program is not ``in close actuarial balance'' over the next 75 years,
the traditional measure for the financial soundness of the system. Also
as in prior years, the trustees once again call for action to reform
the Social Security program: ``It is important to address the financing
of both the OASI and DI programs soon to allow time for phasing in any
necessary changes and for workers to adjust their retirement plans to
take account of those changes.''
In announcing the hearing, Chairman Shaw stated: ``Once again, the
Trustees' Report reminds us that the Social Security reform clock is
ticking. The trustees continue to call for reform, and no one should
take the slight improvement noted in this year's report as an excuse
for delay.''
FOCUS OF THE HEARING:
The Subcommittee will examine the findings of the 1999 Annual
Report of the Board of trustees on the financial status of the Social
Security Trust Funds.
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and Means, U.S. House of Representatives, 1102 Longworth House Office
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noted above.
Chairman Shaw. Good morning.
By now, many Americans are familiar--in fact, I think you
have to live on the Moon not to be familiar--with how Social
Security works, and why reforms are needed.
Today, 44 million Americans--1 in 6--depend on Social
Security Retirement, Disability, or Survivor Benefits. But
because Americans are having fewer children, living longer, and
retiring sooner, Social Security's financing system faces
trouble ahead.
Each year's benefits are paid for by that year's workers,
so as our society ages, there will be more retirees supported
by fewer workers.
That will place Social Security's financing system under
increasing strain as the years go by.
As Social Security's Trustees told us in their most recent
annual report, this problem will become acute after 2014 when
Social Security begins to spend more on benefits than it takes
in through taxes.
If we want to keep the budget balanced and pay all the
benefits seniors are promised, other government spending will
have to fall or taxes will have to be raised.
By no later than 2034, Social Security benefits will have
to be cut or taxes increased, but not just for retirees, but
for their children and their grandchildren as well.
That is if we fail to act. Some see the latest Trustees'
Report as a reason to delay. Our problems are remote, they say,
as much as 35 years away.
But that assumes that a good solution can be reached later
when the choices will be much more painful and much more
expensive.
You can call me a skeptic, but I think that will be
incredibly difficult, especially if reform is delayed until the
crisis is actually upon us. By then, no good options will be
available.
The good news is that once again, the Trustees' Report has
served as a call to action for reasonable and ultimately
necessary steps to preserve and strengthen our Nation's Social
Security system.
I am pleased that we have Social Security public Trustees
with us to review their report and its implications, and we
certainly look forward to your testimony.
Mr. Matsui.
Mr. Matsui. Mr. Chairman, I think that in the interest of
time, I'll just submit my written statement.
Thank you.
[The prepared statement follows:]
Opening Statement of Hon. Robert T. Matsui, a Representative in
Congress from the State of California
Thank you, Mr. Chairman. I want to thank our witnesses for
testifying today on the Social Security program's annual report
released two weeks ago by the Social Security Board of
Trustees. Today we will hear from the two public members of the
Board of Trustees, Marilyn Moon and Stephen Kellison, whose
role on the Board is to increase public confidence in the
integrity of the Trust Funds. I look forward to hearing their
assessments of Social Security's financial status and their
views on proposals to restructure the program.
Although the 1999 Trustees Report shows that Social
Security is out of actuarial balance over the next 75 years, it
nonetheless brings us better news than any other Trustees
Report in the past six years. The 1999 Report projects a long-
range financing shortfall equal to 2.07 percent of taxable
payroll and estimates that the Social Security Trust Funds will
be exhausted in 2034, more than three decades from now. This is
the smallest actuarial deficit and the latest projected date of
Trust Fund exhaustion since the 1993 Trustees Report.
Of course, this is encouraging news, but we must continue
to be vigilant in addressing the long-term challenges
confronting Social Security. We should take advantage of the
projected budget surpluses and robust economy to strengthen
Social Security and protect the retirement income security of
all Americans for the 21st century. And I know we can do it if
we work together.
The 1999 Trustees Report makes it abundantly clear that,
while the challenges Social Security faces are significant,
they are manageable. Consequently, radically restructuring
Social Security by replacing part or all of the progressive,
guaranteed, life-long benefits it provides with individual
accounts would greatly endanger the income security of future
retirees. Individual accounts would subject the most dependable
element of workers' retirement income to greater risk and would
impose the burden of enormous transition and administrative
costs on our government and our working families.
The 1999 Trustees Report also highlights the critical
importance of sustained economic growth in meeting our
obligations to future retirees. According to the trustees,
better-than-expected short-term economic growth, combined with
a reduction in projected rates of unemployment over the long-
term, were responsible for nearly half of the improvement in
the program's financial status. We have learned that what
counts the most in determining Social Security's long-term
financial status is not simply the number of Baby Boomers or
their projected life expectancies, but the size of the economy
during their retirement and the resources available to meet
their needs once they are out of the workforce.
The most direct way for the federal government to promote
economic growth is to increase national saving by reducing the
amount of debt held by the public. We know that national saving
rises by one dollar for every dollar of public debt that is
retired. In contrast, for every dollar dedicated to individual
accounts, national saving would rise less than a dollar, since
people would be likely to reduce other forms of saving or
borrow more in response to the accounts.
The President's plan makes great strides in reducing the
amount of debt held by the public. Under his plan, budget
surpluses would be used to reduce the amount of debt held by
the public for sustained period of time. In fact, the amount of
debt held by the public would ultimately reach its lowest level
since World War I. While the reform package upon which we
ultimately agree may differ in some respects from the
President's plan, its impact on national saving must be the
same if we are truly to strengthen Social Security for the 21st
century.
Thank you, Mr. Chairman. And thank you again to our
witnesses for being here. I look forward to hearing your
testimony.
Chairman Shaw. Thank you.
Our panel this morning, and it's our only panel, is
composed of Stephen Kellison, who is a Trustee of the Social
Security Board of Trustees; and Dr. Marilyn Moon, who is a
Trustee of the Social Security Board of Trustees.
Mr. Kellison.
JOINT STATEMENT OF STEPHEN G. KELLISON AND MARILYN MOON, PUBLIC
TRUSTEES, SOCIAL SECURITY AND MEDICARE BOARD OF TRUSTEES
Mr. Kellison. Thank you, Mr. Chairman. It is an honor and
privilege for Dr. Moon and myself to be with you today to
discuss the 1999 Trustees' Reports and some of the issues that
involve our activities surrounding those reports.
We have been public Trustees since 1995. This is a part-
time statutory position that involves confirmation by the
Senate, and we are privileged to serve in this role as the
public reviewer of the process by which the Trustees' Reports
are assembled.
The experience under the Social Security System depends on
a lot of variables as they develop. And these break down into
two broad categories, the first being economic experience; and
the second being demographic factors.
In the economic area, we have assumptions that need to be
made on a variety of things--gross domestic product,
unemployment rates, wage growth, inflation, CPI, consumer
product index, rates, productivity increases, interest rates,
and the list just goes on and on.
On the demographic side, we similarly have some very major
factors. We have life expectancies to look at, fertility rates,
disability rates that are key in the Disability Insurance
Program, immigration rates, and others.
This array of economic and demographic factors have to come
together in a very complex methodology that leads to the
results that you see in the Trustees' Reports.
In this process, there's a very large amount of very good
work that is done within the Social Security Administration on
this program and similarly within the Health Care Financing
Administration on the Medicare Programs. I would like to
commend the work of the actuaries in those two governmental
agencies that do a tremendous amount of the detail work that
lies behind these reports.
This is very high-quality professional work. I'm an actuary
by profession, and I think this is an outstanding group of
people and the government is very fortunate to have this
quality of staff preparing the work that goes into these
reports.
The assumption-setting process is probably one of the key
roles that the public Trustees participate in, because one of
our charges is to assure the public and the Congress and others
of the integrity of these assumptions, and that they are truly
the best estimates of what expected experience under these
programs may be.
This year, Dr. Moon and I sponsored a series of review
meetings with leading economists on the economic assumptions.
There were several such meetings during the summer, probably
the most extensive review of the economic assumptions we have
conducted in the 4 years that we've been in this position, and
we feel very comfortable at the conclusion of that process,
that the assumptions that are in these reports are honest, fair
assessments, based on the best information we have received
from a lot of individuals, both within government and outside
government.
So, we do have, I think, a clean bill of health to give in
that regard from our public role in terms of the quality and
integrity of the assumptions in this process.
The 1998 results of the program were good. The financial
condition of both the OASI, the Old Age Survivors Insurance
Program, and the DI, or Disability Insurance Program, improved
during 1998.
In terms of key dates, as the Chairman has reported, the
year 2014 is the first year where tax revenue begins to fall
short of paying the benefits. That's an extension of about 1
year from last year's report.
The next key year is 2022, when the tax revenue plus
interest falls short, and then the final year is 2034 when the
combined OASDI Trust Fund is exhausted.
This year of exhaustion is an extension of about 2 years
over the 1998 report.
In terms of the long-range actuarial deficit measurement,
which is expressed as a percentage of taxable payroll, the
OASDI long-term actuarial deficit declined from 2.19 percent of
payroll to 2.07 percent, a decline of 0.12 percent, which is a
significant decline.
This is the second straight year of improvement, which is
very welcome news, following many years of the trend going in
the other direction.
These results were driven largely by the strong performance
of the economy during the past year--high rates of employment,
low inflation rates, and strong wage growth.
In terms of the Disability Insurance Program, in
particular, there were lower rates of disability incidence than
in years past when the economy may not have been as strong.
One issue that deserves special mention in the assumptions
this year is that the effects of the 0.2 percent adjustment in
CPI, consumer product index, made by the Bureau of Labor
Statistics in April 1998, was included in this year's report.
It came in too late to be included in the 1998 report 1 year
ago. That was fully reflected in this report.
In terms of the formal tests of trust fund solvency that
the program has experienced, the program does satisfy the
short-range test. The OASI and DI funds are above 100 percent
of the following year's payments, and that does persist over
the 10-year period.
However, the program does fail the long-range test of close
actuarial balance. The maximum tolerance there is 5 percent,
and the long-term actuarial deficit is much larger than that.
In making these projections, there is a significant amount
of uncertainty. We talked about that in our report this year.
As part of the measures of uncertainty, we do look at some
alternative scenarios, called alternatives I and III, to try to
capture a range of possible outcomes.
Despite the uncertainty and the difficulty of trying to
make projections over a 75-year period, we are strongly
committed to the desirability of continuing to do that. The 75-
year period has been part of the process for a long time, and
we think it should continue.
This is a period of time that basically encompasses a
working lifetime and a period of retirement for a typical
person. It is a period of time that is necessary to capture the
full effect of demographic factors like the baby boom, and it
does impose a discipline on our process of recognizing that
this is a long-term program that needs frequent review as it's
going along to continue to refine estimates of the financial
condition of the system.
In terms of the dynamics of the system, what is driving the
pattern of costs is essentially a demographic issue. It was the
baby boom generation followed by the baby bust generation, low
fertility rates that have been fairly stable now for close to
25 years, and increasing life expectancies, people living
longer in retirement.
This is what is driving the long-term financial results of
the program.
These factors are pretty well locked into place. They're
not going to change dramatically in a short period of time.
Economic factors are also important in the sense that a
richer economy that's more productive perhaps can afford a more
rich social insurance program; a poorer economy that's leaner,
probably cannot afford as much of one.
But the demographic effects will be in there, regardless of
the performance of the economy.
The effect is that today, Social Security is running
surpluses because the FICA taxes bring in more revenue than the
payments. Once the baby boom generation retires, costs escalate
dramatically until revenues fall short of the benefits, and
then the cost rates ultimately do stabilize, but they stabilize
at a much higher level than they are at today.
Another way to look at this is in terms of the worker/
beneficiary ratio. Today there are 3.4 workers per beneficiary.
At the end of the 75-year projection period, that will fall
to 1.8 workers per beneficiary.
At the end of the 75-year period, the tax rates will pay
about two-thirds of the cost of the program.
In terms of percentages of gross domestic product as
another measure of the magnitude of the system today, Social
Security, OASDI, represents about 4.5 percent of the gross
domestic product.
At the end of the 75-year period, this will rise to a
little over 7 percent of the gross domestic product, so that
gives you some magnitude. It's about a 58-percent increase in
the magnitude of the program in terms of the portion of the
total economy that it represents.
Another phenomenon of the current law and the financing
program is that because cost rates are less than the tax rates
today and higher later on, you do get a significant trust fund
buildup, followed by a significant trust fund drawdown.
Today, the combined OASDI Trust Fund is about 190 percent
of 1 year's payment, well in excess of the 100 percent that we
look at for short-term solvency. This will increase to about
360 percent in the year 2013.
At that point, it declines very precipitously, going to
zero in the year 2034, so you do have this phenomenon of a huge
trust fund built up, followed by a very significant drawdown.
This has budgetary and macroeconomic effects. As we know,
the effect today is that Social Security surpluses mask
deficits in the rest of the budget.
This will all reverse when the trend goes the other
direction, and when Social Security would be running
shortfalls, and that will exacerbate any deficits that exist
elsewhere.
At this point, I think I've run out of time by quite a bit.
I'd like to close with a summary and then turn it over to Dr.
Moon who will talk about where we might go from here in terms
of Social Security.
I think my recap would be that 1998 was a very favorable
year. However, the long-term picture of the program is
relatively unchanged. The demographic issue is still there.
There was modest improvement, but the basic picture is
unchanged over the last several years, really.
I think as we continue to monitor this system and work on
the annual reports, that it's important we make the changes in
the assumptions incrementally as experience really develops
over a period of time.
There is a temptation when times are good as they are now,
to get euphoric about how well things may work out; equally,
there are temptations when the economy is in a recession to
think it's gloom and doom forever.
These extremes in perspective probably are not the way to
run a 75-year program, and I think the changes that we look at
should be made incrementally, and I think this report was done
in that spirit.
At this point, I would turn it over to Dr. Moon and
entertain questions at the end.
Chairman Shaw. Thank you.
Dr. Moon.
Ms. Moon. Thank you. Like Steve, I'm very privileged to be
here. I appreciate the chance to address the Subcommittee.
As one of the two public Trustees, I am not the actuary, so
I have learned a lot in the last 4 years about how these
estimates are done, and I've also been impressed at how
carefully the review process goes on and how difficult it is to
look in your crystal ball 75 years into the future. These are
not easy things to look forward to.
Nonetheless, I think that we feel these trust fund reports
provide a good indication of what we could likely expect, and
provide essentially an early warning device for changes that
are going to be needed in the program.
And it is in that spirit, rather than taking all of the
numbers literally, that I think we move forward. I would
reiterate what Mr. Kellison said: Despite the good news that we
are discussing today, there is still an urgency to make changes
in this program because we like to think of this program as a
very long-term program that you want to keep secure, and you
want to assure younger people that it will still be there in
the future.
As a consequence, I think that vigilance is something that
people should take very seriously.
As we note in our testimony, payroll taxes for OASI, which
are now at 5.35 percent each for employers and employees, would
have to be raised, if you did it only through taxes, which we
are not proposing, but as an illustration, by 16 percent if we
made those changes today, to 6.2 percent of payroll.
If we wait until the year 2025, we would have to raise
those tax rates to a little over 7 percent each. That means not
only a much larger increase in those burdens, but it also means
a shifting of the burdens away from this current generation of
baby boomers who are still working and contributing to the
system to future generations as well.
We also note in the testimony that we believe there are
many ways to solve the problems, and it is not our role as
public Trustees to advocate one particular approach, but rather
to be here to indicate what we think will be the future for the
trust funds with no action, and then, of course, once action is
taken, to evaluate those in another report later on.
We also note, however, that we do not see these problems,
serious as they are, as ones that mean inherently you must do a
massive structural change. We do have a choice still at this
point in time of whether or not you have major structural
changes or more modest, incremental changes.
Those are choices that fortunately are still before people
like your Subcommittee, to make those decisions, rather than
being forced into a particular decision.
We also note that this year's good news reminds us that we
should not just use a few years, as Steve Kellison also said,
of good news or bad news to make policy. The disability changes
that occurred, for example, in the early nineties caused a lot
of consternation and concern because it looked as though
disability was going to rise forever, and it suddenly stopped
with no particular understanding or reasoning as to why all
those changes had occurred.
So, if we had locked in a lot of changes at that point in
time, we might now be talking about undoing them.
Similarly, good news and bad news for a few years does not
change the outlook of the picture, although it is interesting
to see how even small changes in the economy can sometimes
change the projections.
We are, therefore, cognizant of how important it is to make
changes in the assumptions very slowly over time, recognizing
both the uncertainty and the need not to unduly alarm or
reassure people by short-term changes.
Finally, the other important thing that I think we take
from this is that seeking 75-year fixes represents an ambitious
undertaking. As we sit in our position, we're concerned that
sometimes the emphasis on just a 75-year fix can lead us in the
wrong directions.
This can be, perhaps, either in terms of seeking only an
all-or-nothing sort of change, only overarching changes and no
incremental changes, or in tailoring those changes that do take
place, only to achieving 75-year numbers. But one of the things
we certainly have become cognizant of over time is how
difficult it is to target 75 years into the future with
exactitude.
So, our testimony essentially urges you to make changes
when you feel you can and there is consensus. Even if they
don't solve the 75-year problem, perhaps that may be one way of
adding some urgency and discussion that otherwise is lacking in
some of the situations that we're facing in terms of trying to
find consensus.
In conclusion, we would add that based on our experience as
Trustees over the last 4 years, it is clear that Social
Security cannot and should not be insulated from all the other
things that take place in society. Social Security will need to
change and be adaptive.
But it is also important that we need to think about this
program in the very long term. That's how it was created, and
we are strong believers in that's how it should continue.
Thank you very much.
[The joint statement follows:]
Joint Statement of Stephen G. Kellison and Marilyn Moon, Public
Trustees, Social Security and Medicare Board of Trustees
MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
It is our privilege to be here today to testify regarding
the financial status of the Social Security Trust Funds as
shown in the 1999 Annual Report of the Board of Trustees of
those funds. As you know, the Public Trustees are part-time
officials appointed by the President and confirmed by the
Senate to represent the public interest in this important
process of public accountability. In our normal activities, Mr.
Kellison is an actuary and consultant and Ms. Moon is an
economist and researcher, both with extensive public and
private experience in Social Security and Medicare.
As Public Trustees, our primary activities are directed at
assuring that the Annual Trust Fund Reports fully and fairly
present the current and projected financial condition of the
trust funds. To this end, we work closely with the Offices of
the Actuary in the Social Security and the Health Care
Financing Administrations to ensure that all relevant
information is considered in the development of assumptions and
methods used to project the financing of these vital programs.
Mr. Chairman, we would note for the record what we are sure you
and this committee know well: it is an extraordinarily complex
task to make financing projections for these programs for the
next 75 years. It is only through the high professionalism and
decades of experience of the Social Security and Medicare
actuaries that such projections are possible. But it is
critical to remember always that these projections ultimately
are only estimates and must necessarily reflect the
uncertainties of the future.
Thus, the projections in the trustees reports are most
useful if understood as a guide to a plausible range of future
results. And, as this hearing illustrates, the reports serve as
an early warning system that allows us the opportunity to make
changes in a timely and responsible manner.
The Old-Age and Survivors Insurance Trust Fund
In the 1999 report, the Old-Age and Survivors Insurance
(OASI) Trust Fund, which pays Social Security retirement and
survivors benefits, shows a positive balance at the end of 1998
of $681.6 billion with a net increase in that year of $92.5
billion. The fund's assets now equal 2 years of projected
benefit costs. The OASI fund has been taking in more in tax
revenues than it has been spending for a number of years and is
projected to continue in that mode for 15 years. As the baby
boom generation begins to reach age 65 after 2010, however,
OASI benefit costs each year will increase rapidly and,
beginning in 2015, will exceed annual tax income.
However, the accumulated assets of the OASI fund, interest
on those assets and tax revenues are projected to cover benefit
outlays until 2036, two years longer than projected in the 1998
trustees report. Although the assets of the OASI fund would be
exhausted at that time, tax income provided under current law
would equal nearly three-quarters of full benefit costs in
2036. By 2073, however, the portion of benefits that tax income
would cover is projected to decline to about two-thirds. Over
the full 75-year period, the OASI fund shows a deficit of 1.70
percent of payroll, which is almost 13 percent of the projected
summarized 75-year cost of the OASI program.
The Disability Insurance Trust Fund
Turning to the Disability Insurance (DI) Trust Fund, it
also showed a net increase in 1998 of $15.4 billion and ended
that year with a positive balance of $80.8 billion. As this
committee is well aware, disability costs are more difficult to
project than are retirement and survivors benefits.
Historically, the Social Security Disability Insurance program
has experienced periods of growth and decline for which causes
cannot be established with certainty. In the early 1990's the
number of workers applying for disability benefits increased
rapidly, and there was great uncertainty whether this was a
temporary or a long-term phenomenon. Actual experience since
1993 shows that applications for disability insurance benefits
levelled off in 1994 and have actually declined slightly each
subsequent year despite the fact that more people are moving
into the prime ages for disabilities. It seem likely that the
tight labor market has contributed to the lack of growth in
disability insurance applications. The total number of disabled
workers receiving benefits has continued to increase, however,
because more people have come onto the rolls each year than
have left.
The disability program has experienced significant and not
fully explained fluctuations over the last two decades. The
trustees therefore recommend that the program be monitored
closely in coming years. The 1999 Trustees Report intermediate
projections show that income to the DI fund will exceed
expenditures through 2005, but that full DI benefits can be
paid until the fund's assets are exhausted in 2020. Over the
75-year projection period, the DI fund shows a deficit of 0.36
percent of payroll, or about 16 percent of the program's
projected 75-year cost.
If the DI and OASI trust fund projections are combined, the
exhaustion date for the combined funds is 2034, 14 years later
than for the DI fund and 2 years sooner than for OASI. On a
combined basis, expenditures first exceed tax revenues in 2014.
From 2015 through 2021 interest income will be needed to
supplement current tax income to meet costs, and in 2022
through 2034, current tax income, interest income plus a
portion of the trust fund assets will be needed to pay
benefits. Considered together, the OASI and DI programs have a
projected long-term deficit of 2.07 percent of payroll, which
represents an decrease in the deficit of 0.12 compared to the
1998 projection.
The primary reasons for the reduction in the projected
actuarial deficit in the 1999 trustees report are the continued
good economic experience in 1998 and an improvement in the
projected economic performance in the future. The major reason
for the improved outlook was taking account of the announcement
by the Bureau of Labor Statistics in 1998 that the measured
cost-of-living will be reduced by 0.2 percent per year in 1999
and later due to the Bureau making changes in the measurement
methodology it uses. We met with a variety of economic experts
last year to perform a comprehensive review, particularly in
light of the BLS change, of the economic assumptions used in
this report. We were gratified that there was wide agreement on
the range for the assumptions, but with full recognition of the
uncertainty involved.
Is Legislative Action Needed?
The Board of Trustees has established both short-term (10
year) and long-term (75 year) tests of financial adequacy for
the trust funds. Over the short range, if a fund has sufficient
assets on hand at the beginning of each year to pay projected
benefits for that year--what is termed a trust fund ratio of
100 percent--we considered its financing adequate. Both the
OASI and DI trust funds are expected to maintain trust fund
ratios above 100 percent throughout the next 10 years and thus
meet the trustees short-term financing test. You will recall
that the DI fund failed this short-term test early in this
decade and the trustees wrote to the Congress, as they are
required to do, to recommend legislative action, which was
taken in 1994. Then, the Hospital Insurance part of Medicare
failed the short-term test for several years until the Balanced
Budget Act of 1997 was enacted. Based on the 1999 trustees
reports, however, the OASI and DI, as well as HI, trust funds
satisfy the trustees' short-term financing test.
Over the long range, the trustees' test of financial
adequacy is that a trust fund projected actuarial costs be no
more than 5 percent larger than projected income in the 75th
year, or a proportionally smaller variance for shorter periods.
Neither the OASI nor the DI trust fund meets this test,
referred to as ``close actuarial balance.'' Thus, the trustees
recommend that legislative action be taken to bring these trust
funds back into close actuarial balance and stress that it is
important to address the long-range financing shortfalls in the
OASI and DI funds soon in order to allow time for phasing in
any necessary changes and for workers to adjust their
retirement plans to take account of those changes. We would
also note that there has been an alarming erosion of public
confidence in the Social Security program over the past few
years, particularly among younger generations. Early attention
to Social Security's financing problems is important to
restoring public confidence in the program.
Another important consideration regarding the timing of
action on Social Security financing is that the sooner changes
are enacted the more broadly can the burden of closing the
financing deficit be distributed across different age groups.
For example, if it were decided to raise payroll taxes now to
eliminate the OASI projected deficit, employers and employees
each would have to pay about 16 percent more in all future
years (i.e., to about 6.2 percent rather than the 5.35 percent
for 1999). If the change were not effective until 2010, the
rate would have to be increased to 6.42 percent, and if delayed
until 2025, the tax rate would have to be increased by almost
one-third to 7.02 percent. Other types of changes would have
similar increases in size if their effective dates were
significantly delayed. Further, the longer we delay in making
changes in either taxes or benefits, the more the burden of
those changes will be concentrated on future workers and
beneficiaries. Thus, while we have time to consider and plan
carefully for necessary changes in Social Security, we should
act as soon as a rational reform plan can be developed and
support built for it.
So, in answer to the oft-asked question, ``When is
legislative action on Social Security financing needed?,'' on
the basis of the 1999 trustees report projections we would
respond, ``The sooner the better!'' But we would add that this
program is too vital to every American to make hasty changes
that are not fully thought out. Of course, Mr. Chairman, we
recognize and appreciate that this committee has over the years
exercised great diligence in assuring that changes in Social
Security are as good as we can devise. We applaud the
committee's efforts to investigate proposed reforms and build a
record on which well-considered legislation can be based.
Is All-or-Nothing the Only Approach to OASI Financing Reform
As we have said many times, Social Security's financing
deficit can be solved with OR without major structural change.
Unfortunately, it appears at times that Social Security
financing reform is presented as a choice between dramatic
structural change or nothing. That is, those who support
structural change have seemed to have an incentive to oppose
any other change because it looked as though with each new
trustees report the OASI and DI deficits would grow larger and
the pressure for reform greater. Then, in both the 1998 and
1999 trustees reports the projected deficits under the
intermediate assumptions were reduced somewhat, in considerable
part due to the continued good performance of the U.S. economy.
Given this set of historical circumstances, three points
regarding long-term financing reform of Social Security strike
us. First, longer term change should not be driven by only a
few years' experience. For example, in the early 1990s, the
Social Security disability insurance rolls grew dramatically in
1991 and 1992, but then just a quickly stopped growing.
Legislation based only on either of those periods would have
been subject to error. Similarly, Social Security financing
legislation enacted on the basis of only the poor economic
performance of the U.S. economy in the 1970s would have been
misdirected, just as basing legislation only on the last few
years of economic experience could be misleading. The trustees,
with the extraordinarily able assistance of the actuaries, have
always tried to base their projections on long-run expected
averages, and not on extremes in experience over short periods.
Second, aiming for a reform package that will ``fix'' the
Social Security program's financing for as long as 75 years may
be too ambitious and potentially can mislead policymaking. As
the trustees note each year, the projections in their reports
are not intended as predictions but rather as indicators of the
expected trend and likely range of future income and outgo
under a variety of plausible economic and demographic
conditions. In recognition of the fact that we cannot predict
the future perfectly, the trustees' long-range test of
financial adequacy calls, as we described, for projected costs
income and costs not to diverge by more than 5 percent.
Implicit in this test is an allowance for change in the
actuarial balance in each new annual trustees report without
ringing alarm bells because the program's 75-year projected
actuarial income and costs do not perfectly balance. Thus, we
believe any Social Security financing legislation should
evaluate changes on their merits, and not allow a 75-year point
estimate to influence the type or degree of change.
Third, we would hope that when programmatic changes arise
that make sense and can obtain substantial support, legislative
action will not be delayed until one overarching reform package
is developed. For example, a number of changes, such improved
benefits for widows(ers), were contained in at least two of the
reform plans offered by the 1996 Social Security Advisory
Council, but the strong sense of need for changes in such areas
is lost in the standstill over finding a comprehensive
financing plan. Further, the danger of making policy changes in
the context of seeking a specific level of savings or achieving
perfect 75-year actuarial balance is that the policy change may
be altered to fit the numbers rather than designing it on the
basis of what makes the best sense. For example, the scheduled
increase in the retirement age--2 months per year for 6 year,
no change for 11 years, and then 2 months per year for 6 more
years--was an artifact of achieving the right level of savings
rather than deciding the best way to phase in changes in the
retirement age without creating unnecessary ``notch'' effects.
Conclusion
Based on our experience as trustees over just the last 4
years, it is overwhelmingly clear that Social Security cannot
be insulated from social and economic change in our country in
the future, just as it has not been in the past. The strength
of the Social Security program has been that it can adapt as
our national circumstances change. It is the acceptance of the
necessity for change by all of us as individuals that is most
difficult. This can be eased only by having the information we
need to be able to understand why change is necessary and in
which direction it should take us. This committee serves a
crucial role in developing the necessary information for Social
Security policy development, and we welcome the opportunity to
participate in this hearing to discuss the dimensions of Social
Security's financing problem.
We have attached the four-page ``Message From the Public
Trustees'' that is included in the Summary of the 1997 Annual
Reports, as well as our biographical information. We thank you
for the opportunity to present our views and will be pleased to
answer any questions.
FROM A SUMMARY OF THE 1999 ANNUAL REPORTS OF THE SOCIAL SECURITY AND
MEDICARE BOARDS OF TRUSTEES, MARCH 30, 1999
A MESSAGE FROM THE PUBLIC TRUSTEES:
We are privileged to take part in the thorough and careful
process by which the Annual Reports are prepared to provide
this vital public accounting. Our goal as Public Trustees is to
ensure the integrity of the process by which these Reports are
prepared and the credibility of the information they contain.
Further, although we are of different political parties, we
approach our work as Public Trustees on a bipartisan basis
because this is the only way through which financial problems
facing Medicare and Social Security can be solved.
1998: Strong Economic Performance Boosts the Trust Funds
Continued strong economic growth in 1998 caused income to
the Social Security and Medicare trust funds to be higher than
expected, strengthening the current financial condition of both
programs. In addition, for Medicare the growth of benefits was
lower than projected. The long-run financial outlook for both
programs also has improved for the second consecutive year. The
Social Security trust funds now are projected to run short of
money to pay full benefits in 2034, rather than 2032 as
projected last year, while the Medicare Hospital Insurance
trust fund is projected to have insufficient funds in 2015,
rather than 2008 as previously projected.
After many years of watching the outlook for both programs
worsen without legislative action, two successive years of
improvement is significant. Further, this reminds us that the
demography of an increasingly older population with its
resulting declining number of workers per retiree is not the
only issue--that continued strong economic growth could make
promised benefits more affordable in the future. We say
``could'' rather than ``will'' because we cannot prudently rely
on economic growth continuing at this rate. Instead, it is
essential to make the best projections possible based on the
best available data and methods and to update those projections
each year.
Projections Are Always Uncertain
One lesson we have come to fully appreciate is that
projections are expert ``guesses'' about the future and not
predictions of what will actually happen. Uncertainty is
unavoidable because projections depend upon almost everything
that happens in our society (marriage and divorce rates, birth
rates, immigration rates, death rates, disability and recovery
rates, retirement age patterns) and in our economy (the number
of people working, their productivity and wages, inflation
rates). Accurately predicting any one of these factors even for
one year is difficult; projecting all of them for 75 years is
mind-boggling.
Then why undertake such projections, especially for 75
years into the future? As the reports note, a 75-year period
spans the working and retirement years of the vast majority of
people now covered by these programs. And, the effects of
demographic changes, such as the sharp increase in the birth
rate after World War II that led to the ``baby boom''
generation, can be fully taken into account.
One way we as trustees deal with the inherent uncertainty
in long range projections is each year to reexamine in light of
recent experience all our assumptions about the factors that
underlie Social Security and Medicare financing projections.
During 1998 we met with a variety of economic experts to
undertake a comprehensive review of the economic assumptions in
these reports. We were gratified that outside reviewers were
generally supportive of the assumptions we use. But even when
modifications are needed, assumptions for a period as long as
75 years into the future should change only slowly over time.
For example, two or three or even five years of poor or strong
economic growth do not mean that we should assume such
performance for 75 years.
Uncertainty, Politics and Reform of Social Security and
Medicare
In each of our previous statements regarding the annual
trustees reports, we have indicated the need for reforms in
both Medicare and Social Security and the benefits of acting
sooner rather than later. Like our predecessors in this job, we
believe it is important to indicate that even with the
uncertainty that exists in projections, changes will be needed
to keep these programs on a solid financial footing. Last year
an important national debate on Social Security was begun and a
greater awareness of the problems facing that program was
achieved. The National Bipartisan Commission on the Future of
Medicare also worked over the past year to find a set of
recommendations to send to the Congress for action but was
unable to reach agreement on proposals for change. Thus,
despite wide agreement that reforms should be made sooner
rather than later, it is not at all certain that major changes
in either program will be forthcoming in the near term.
Why is reaching agreement on change in these programs so
difficult? Fear of change is instinctive, but it should be
reassuring that Social Security and Medicare have been adjusted
many times since they were enacted. And, there is no reason for
us to think now that Social Security or Medicare should be
frozen in place for the decades ahead. The economic and social
factors that determine the financial health of Social Security
and Medicare will change in the future as they have in the
past. Thus, as citizens, we have to expect and accept the need
to periodically adjust eligibility, benefits and financing for
these programs.
How much of the reluctance to act is due to legitimate
concerns about the inherent uncertainty of the financial
projections, and how much to an inability to reach political
consensus on what will be hard choices, is not clear. But the
Bipartisan Medicare Commission's difficulty in reaching
consensus raises the issue of whether it is wise to focus on
finding one overarching solution to the problems these programs
face, or whether to seek instead incremental changes on which
agreement might be reached.
Medicare
Medicare costs are increasing both because new, more
expensive (and effective) medical technology is being developed
every year and because an aging U.S. population has greater
medical care needs. As the slowing of spending in response to
recent legislative changes indicates, more efficient health
care delivery systems can moderate Medicare's cost growth. Even
with these improvements, however, the system still faces major
financial shortfalls because program costs are increasing much
faster than the rest of the economy. A lack of consensus on
sweeping reforms should not preclude measured changes to make
Medicare a more streamlined and effective program. Additional
substantial legislation needs to be enacted no later than 2007,
the year that HI annual expenditures are projected to again
exceed annual income. Once deficits begin, the financial
outlook for the HI trust fund will dramatically worsen. The
extension of the trust fund exhaustion date to 2015 should be
welcomed as an opportunity to take the time to evaluate what
options may mitigate the financing problem but also preserve
the strengths of the program.
Social Security
The long-term financing problem facing Social Security is
significant but could be solved by small gradual changes IF
those changes are enacted soon. The public discussion of the
last year has advanced the reform debate by bringing into
sharper focus the limitations and administrative difficulties
of replacing a major part of Social Security with individual
savings accounts. One way not discussed in recent years to deal
with uncertainty and political gridlock could be to enact
modest changes in benefits or eligibility that would be
triggered by changes in key indicators. For example, [in some
way] tying the age of eligibility to life expectancy changes,
or tying benefits to the growth in wages rather than prices,
would help stabilize program financing. We are not proposing
such indexing: a reasoned political debate reaching consensus
would be the preferred solution. But we do note that a major
step in the direction of indexing was taken in 1972 when
automatic cost-of-living adjustments and automatic earnings-
base indexing were added to replace ad hoc legislative
adjustments made haphazardly, and that these changes have come
to be valued as integral parts of the program.
Conclusion
We strongly believe that these Reports serve as an early
warning of the need for changes to ensure continuation of
Social Security and Medicare and not as evidence of their
failure to protect future generations. Working cooperatively,
with informed public debate, solutions can be found to the
financing problems facing America as our population ages. It is
time to begin that undertaking.
Chairman Shaw. I thank you both for very fine testimony. I
also would be remiss if I didn't thank you for your good work.
I know that you're up for reappointment, and if that's the
direction you want to go, that's the direction that is in the
stars for you, and I certainly appreciate the quality of the
work of both of you.
Mr. Kellison, I have just a few questions with regard to
your actuarial assumptions.
Do you predict rising unemployment, recession, in and out
of recession, as far as your projections are concerned, or do
you assume that the economy we have today will continue?
Mr. Kellison. We have a long-term assumption that would be
less favorable than the economy today.
The economy is today, by historical standards, extremely
strong. Unemployment rates are at 30-year lows, really,
The long-term unemployment rate assumption, we did bring
down in the report, I think, from 6 to 5.5 percent, if I
remember. This is higher than the unemployment rate currently
in the economy, but certainly in terms of a historical average
over longer periods of time, something we think is very
commensurate with long-term experience.
So, we did improve the long-term actuarial balance on the
unemployment assumptions this year, thinking there was enough
evidence to bring it down, but it is still higher than is
experienced in the economy at the present time.
Chairman Shaw. Your assumption assumes a level of 5.5
percent unemployment?
Mr. Kellison. In the long range, as an average, yes.
Chairman Shaw. Life expectancy, did you assume that we may
conquer cancer? There are, I tell you, medical research and
technologies that are going forward at a tremendous speed,
which could very well--I remember, growing up, my grandfather
died in his early eighties, and we thought that was as old as
you can be.
Today, when someone dies in their seventies, we say isn't
it a shame, they were so young.
What are you assumptions with regard to that? I am very
sensitive, in that I turn 60 on Monday, and I'm very sensitive
to that.
Mr. Kellison. Well, I'm increasingly sensitive to that
myself. It's amazing how your perspective changes over time on
that.
Chairman Shaw. It surely does.
Mr. Kellison. You rightly have identified life expectancy
as a key factor in the cost of the program.
That is, clearly, the length of time people live in
retirement, on average, is an obvious contributor to the cost
of the program.
There have been increases in life expectancy throughout
this century that we've measured and looked at. There have been
some oscillations in that over time, but there certainly,
overall, has been significant improvement in life expectancy.
The Trustees' Reports project continued improvements in
life expectancy, based on past trends. I guess that would be
the best way to put that. It's broken down by gender and other
factors to try to refine it, but it's essentially extrapolated
off of past experience.
I would not say that we have quantified a quantum
breakthrough in miraculous cures of diseases in the elderly
population. It did not encompass that kind of an assumption on
our best estimates.
I think in some of the alternative III, that is, the high
cost estimates, there are much more significant improvements in
life expectancy that were looked at to see what their effects
would be.
In the Trustees' Reports there are sensitivity tests on all
of the assumptions so that you can isolate each one, one by
one, to get some idea as to what the effect of that change
would be.
There is some information in the Trustees' Reports on that,
but I would, I guess, indicate that the best estimate
assumption and our central assumption is an extrapolation off
of past experience; it does not assume a quantum breakthrough
in life expectancy in the elderly.
Chairman Shaw. What has been the increase in life
expectancy, say, over the last 20 or 25 years?
Mr. Kellison. Since 1980, it's a little under 1 percent a
year in the overall rate for males, but about 0.5 percent and
decreasing for females.
Chairman Shaw. Is that what you project in the future, a
continuation of 1 percent?
Mr. Kellison. Yes, under alternative III assumptions, but
closer to 0.5 under alternative II.
Chairman Shaw. OK.
Dr. Moon, what is your Ph.D. in?
Ms. Moon. Economics.
Chairman Shaw. OK.
I've got a degree in accounting, so I'll try to deal with
it, and maybe we can communicate, if we talk slowly to one
another.
Ms. Moon. OK.
Chairman Shaw. The structural changes that you referred
to--and I think that your economics degree would certainly
qualify you to discuss this particular area.
If we are not to change the benefit structure, and if we
are not to increase the taxes, what are the alternatives
available to us in trying to reform Social Security?
Ms. Moon. My guess is that no one has invented a way to
solve the problems in the future without talking about changes
in the benefits or in the----
Chairman Shaw. I'm not asking you to invent anything. I'm
asking you just how other pension plans work, how other
investments work, as to where does this Subcommittee turn to
find how we can solve the problems of Social Security.
I'm talking about for 75 years now, because I think that is
very telling. It would be, to my knowledge, one of the first
times this Congress has really looked forward in trying to
solve something for 75 years, instead of just dumping the
problem on the future generations.
Ms. Moon. The 1996 Social Security Advisory Council, I
think, pretty much defined the range of alternatives that are
out there, looking at everything from incremental changes only,
to more structural changes that would rely on having
individuals develop private accounts or that would try to
obtain some additional returns from investing the trust funds
in riskier stock market activities and so forth, as one way to
try and expand what the opportunities are for Social Security.
I think that pretty much is the list, if you looked at that
list, that is, I think, the relevant list that you all should
begin to think about.
My sense is that there is a whole range of things that
could solve this problem, and you could, to some extent, take
some from column A and some from column B, but I think there
probably are directions that move you off on to a couple of
different branches.
Chairman Shaw. Let me give you a yes or no question. If we
are to hold the line on payroll taxes, not increase payroll
taxes, and we are not to cut benefits, then it's correct that
we do have to look at the investment structure of Social
Security; is that not correct?
Ms. Moon. If that is your restriction, yes, then I think
you would do that, but the caveat, I would say, is that there
are costs of the other direction as well. That is that higher
risks from investing privately are clearly there and will
result in not necessarily then an equivalent change. There will
be a different set of choices.
Chairman Shaw. OK, now, what you are telling me then is
that we set that out as our model, then we are going to have to
turn to the private sector in order to increase the return on
our investment, but those investments do carry with them,
certain risks?
Ms. Moon. That's right.
Chairman Shaw. Now, over the long run, if you have
widespread investment over large areas of stocks and a mix of
corporate bonds, does that reduce the risk, if you're looking
over the long period of investment from historical data?
Ms. Moon. Yes, indeed, certainly expanding the range of
things that you look at will reduce the risks. Whether it will
reduce the risks for individuals when they have choices among
those options and then they have timing issues in terms of when
they retire, is another issue, as well.
Chairman Shaw. But over the long run, over the long period
of time, realizing there will be fluctuations in the market and
if somebody is retiring in 2014, they could have a bad year in
the stock market and they could find that an individual
retirement account is actually deflated.
But if you were to go over the long run, then the return on
investment, the return on the taxes that are paid in for Social
Security would be far greater than they are today; is that not
correct?
Ms. Moon. I don't know that I would say far greater,
because I think people sometimes make an incorrect assumption
about the rates of return today.
The rates of return today, if you look at the rates of
return from the Treasury bills themselves that are held, are
reasonably high.
The rates of return that people often talk about for Social
Security are a reflection of the demographic issues; that I, as
an individual, paying taxes into a pay-as-you-go system, will
not draw out as much as if I put that money into a private
account.
But, in part, that's because my tax dollars today are going
to help support today's generation, and next, when I retire,
then I'm depending upon the next generation.
Some of that lower return that people sometimes point to is
simply because there are going to be fewer of those workers
that Steve was talking about to support me in my retirement.
Chairman Shaw. Now, this is going to be the ultimate test.
I'm going to ask you an accounting question.
Ms. Moon. OK. I did take accounting.
Chairman Shaw. And I took economics, and I didn't
understand it. [Laughter.]
In the existing system--and it has been made very clear, I
think, by both of you that the tax dollars outside of the FICA
tax are going to be necessary after 2014 in order to support
our retirees. One of you made the observation that it's going
to be 75 years from now that you're going to have just 1.8
workers supporting one retiree, which would be just an
unbelievably horrible burden for those young workers.
I've got two grandchildren that are going to be coming into
the world this year, and I just can't imagine leaving that mess
to them.
But from the cash flow situation, would the result be any
different as far as the cash flow with or without the trust
fund?
Ms. Moon. In terms of the cash flow? I'm not sure exactly
what you're asking.
Chairman Shaw. In other words, we have a system where FICA
dollars are being paid into the Social Security Trust Fund. By
law, those funds immediately go out of the trust fund and are
invested in Treasury bills under existing law.
The President made a suggestion that we run the surplus
back through the trust fund. It certainly could be argued that
that money came out of the trust fund to begin with, so
following his scenario, we could increase the amount of
Treasury bills in the trust fund.
But if that's a great idea, then we should take that money
that came out of the trust fund and run it through several more
times and pile up a lot more Treasury bills.
Now, my question to you, and what I am concerned about is
the tax burden on the future generations. The Trust Fund
itself, would the result to the taxpayer through general
revenue and through FICA tax, be any different with or without
the trust fund itself?
Ms. Moon. I am a believer in the trust fund, which probably
is rational since I'm a public Trustee. I believe these are
promises to pay that are taken seriously, and that are an
important contribution to try to ease the burden into the
future.
Chairman Shaw. Right.
Ms. Moon. In that sense, I think that if what happens on a
cash flow basis is the trust funds, over time, become the most
important and perhaps the dominant way in which debt is held by
the Federal Government----
Chairman Shaw. You're not answering my question. I
understand that it is a commitment, it's a public commitment by
the taxpayers, future taxpayers.
But my question is strictly asked on a cash flow basis.
Ms. Moon. But I thought you were asking whether or not it
is going to make it easier in the future to pay these----
Chairman Shaw. I didn't say easier, I said, whether it
would be any difference on a cash flow basis if you had or
didn't have the trust funds.
Ms. Moon. Well, now you're going to catch me on some of the
accounting of which I am not as skilled as you.
I believe the notion that, over time, the higher interest
being paid into the trust fund by having the trust fund be
larger is helpful to the system.
Chairman Shaw. And where does that interest come from?
Ms. Moon. It comes from the Federal Government.
Chairman Shaw. And where does the Federal Government get
that money?
Ms. Moon. It gets it from taxes, you're absolutely right.
Chairman Shaw. The burden on the taxpayer is going to be
the same, with or without a buildup of the trust fund.
It's a simple question.
Ms. Moon. The burden on the taxpayer is not necessarily--I
think of the question of what other resources are used for
other things. If the rest of the----
Chairman Shaw. I'm having trouble getting an answer.
Let's assume----
Ms. Moon [continuing]. The rest of the debt----
Chairman Shaw. The economists always make assumptions, so
let me try to make an assumption. All things remaining equal,
would the burden on the taxpayer be any different with or
without the existence of the trust fund?
Ms. Moon. No, I don't believe that it would be.
Chairman Shaw. Thank you.
Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman. I appreciate the
report and your testimony today. I think even though the report
is somewhat more optimistic from what it was 2 years ago, it
does bear out that something has to be done and something has
to be done soon.
We really appreciate this. I don't think anybody, because
we have an additional 2 years on the program, takes the
position that we can relax a little bit and not take action.
Mr. Kellison, what I'd like to ask you is, your
assumptions, CBO has certain assumptions over the next years
and certainly OMB does as well in terms of massive surpluses,
both in the Social Security system through the payroll tax, and
obviously general fund surpluses that will build up 3 or 4
years from now and be very sizable as well.
Are your assumptions more optimistic, pessimistic, or about
the same as CBO and OMB?
Mr. Kellison. I think in the short run, 3 or 4 years,
they're pretty consistent. The way we go at the assumption-
setting process is to look at both the long-range and the
short-range assumptions as two separate exercises, and then we
try to develop a program of grading in the assumptions from the
short run into the long run.
I think the short-range assumptions that we use, we try to
validate against other assumptions, both within the government
and outside government by private sector forecasters.
We try to make an independent judgment on our own
assumptions, but we certainly do look at what others are
projecting, and we look at the ones that CBO and others within
government do.
My sense is that in the short-range period, they're not
exactly identical, but they're quite close.
Mr. Matsui. What about the long-term assumptions?
Mr. Kellison. The long-term assumptions, they don't make
long-term assumptions, really, in the same way that we do.
We're about the only group that tries to do that.
Mr. Matsui. In terms of the unfunded liability at this
time, assuming that all current employees receive the benefit
levels that currently exist, do you happen to know what your
numbers might be? I know Mr. Rubin said $8.5 trillion, and I
believe Dr. Aaron has said somewhere in the range of $5.5
trillion or up. Do you have a number from your actuarial
report?
Mr. Kellison. I don't have a number in front of me. It's
several trillion dollars, but exactly, a specific number on a
crude liability type calculation, I do not have that particular
number at hand.
Mr. Matsui. In other words, that's not anything you
calculate when you do your actuarial report?
Mr. Kellison. No, it's not.
Mr. Matsui. OK.
I want to ask both of you these questions. My understanding
is that the 75-year period that you use is not a legislative
mandate; this is something you feel is appropriate in terms of
your projections.
Could you just explain why that is, why 75 years, rather
than 80 years or 72 years or 100 years?
Mr. Kellison. Well, it's clearly an arbitrary number. It
could be 80, could be 60, it could be 100.
But it's a number that has been used for a number of years,
and we're very comfortable with it. It tends to equate to the
period of time when someone entering the work force, say, in
the teenage years, might live in the work force and go through
an extensive period of retirement.
It's a period that's relatively compatible with that period
of time. It's a period that is long enough to capture the full
effect of the demographic factors like the baby boom
generations so that you reach a complete state of equilibrium
or maturity out there.
So, I think it's a reasonable period of time for a long-
term program in terms of what is a lifetime of a person, and
what is a period of time that's sufficiently long that you can
really get the full dynamic effect of the demographic profile
of the population.
Mr. Matsui. Thank you.
Now, I'd like to ask both of you this question, with,
perhaps, Dr. Moon, first.
Assuming that we can't come to an agreement on a 75-year
fix, in 1983 I believe we thought we did, but we created the
cliff, I guess. We just did it and fixed it up to 75 years, but
we didn't project beyond that, and as a result of that, I guess
your long-term projections required going beyond the 75 years,
and all of a sudden we face this 2.09-percent deficit.
But the question I have for you is, If we could fix this
for 60 years, as the President's proposal does, does it make
sense at least to try to do that, and then maybe work the
additional 25 years later, or is it better to wait until we
have a 75-year fix?
Maybe that's a political question, but perhaps you can give
me your thoughts on it.
Ms. Moon. One of the difficulties of a 75-year projection
is that in a period of time like we're in today where you have
in 1999, taxes that will come in that will far exceed the
benefits that will be paid, and next year, that year will drop
out and be replaced by a year in the 2070s in which the
benefits would be higher than the revenues, then you get an
effect essentially every time you move forward 1 year that puts
the system naturally out of balance. That is part of what
happened since 1983.
The other part is that it is very difficult to project well
and predict well, what will happen, and there are changes that
have been made since 1983 in our economy that people didn't
anticipate.
So, I think that that helps to clarify an answer that would
suggest that if you can make progress, come to consensus on
changes that make sense for the system programmatically, move
in a direction that people think is a valuable direction to
move the program in, it seems to me you should make them as you
go along, rather than necessarily packaging it as a 75-year
fix.
The 75 years I view not as a requirement for any change,
but rather as something that you should always keep in mind as
a goal to have. If you could make substantial progress with any
number of changes in the meantime, I think that that would only
be for the better.
The only thing that would be a caution there is that if
some of them would turn out to be in directions that people
didn't think the program should go, then I wouldn't recommend
that you make those changes anyway.
So----
Mr. Matsui. I know my time is running out, Mr. Chairman.
Just as a further followup, you mentioned that obviously
there are massive structural changes we can make, or we can
make incremental or moderate structural changes.
You suggested that because we do have time, the funding
shortfall begins in 2014 to 2015, but the real problem doesn't
begin until years beyond that in terms of a cash flow problem.
So, we do have some time.
If we give the current generation in the work force time to
prepare for the retirement, do you feel we still have an
opportunity to make moderate changes and basically keep the
program as a safety net retirement program for seniors. If we
didn't have Social Security, about 50 percent of seniors would
live in poverty, and right now about 11.9 percent live in
poverty according to your actuarial report.
Is that a correct assumption?
Ms. Moon. I would say that's certainly fair. I think that
it's nice to be in a situation where the choice of whether you
want to make structural changes in the program, or you want to
try to retain the program as it is, although you would have to
affect either benefits or taxes to do so, is a good position to
be in because that allows you to make choices on the basis of
good policy, rather than feeling that one set of changes is
necessary or required.
Mr. Kellison. I would like to supplement that, though, by
pointing out that if you do--right now, we do have the time to
look at a range of options, as Dr. Moon has suggested.
If we wait 15 years until 2014, until we hit that point at
which we're in a negative cash flow position, the choices at
that point are much more difficult than they are today. The
solutions have to be much larger, more painful, so that even
though there's not a current cash flow problem today and there
won't be for 15 years, earlier action is still distinctly
better.
Mr. Matsui. I hope my question wasn't interpreted that I
want to wait until 2014 or 2015. I think we should deal with it
now, but I appreciate the testimony and the responses.
Thank you.
Chairman Shaw. Thank you. I particularly like your last
statement, Mr. Matsui. We should deal with it right now.
Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. I appreciate the
input today, and I think we're fortunate to have you all as
Trustees, and to have the actuarial information that we've been
receiving from SSA that's critical to solving the OASDI
problem.
Let me just get back to one thing that my friend, Mr.
Matsui, said with regard to 2014 and 2034 or the 2036 time
period. We've gone over this again and again in this
Subcommittee and in the Full Committee, and there's a lot of
debate about it.
I agree with what Mr. Matsui said at the end, which is, I
think, that it's better to take the action now rather than to
have the train wreck occur and being able to adjust. I think
Dr. Moon and Mr. Kellison both agreed with that.
But just for the public's purposes, I think it's important
to lay out here very clearly today, that both of you, although
you have more optimistic projections because of the better
economic conditions than we'd expected, you're extending the
life of the trust fund a couple of years, you're both saying--
and I think this is a direct quote from you, Dr. Moon, it's an
early warning device, and there's still an urgency to make
legislative changes.
I think that clearly needs to be on the record.
Second, if you could both answer this question, and, again,
this has been kind of haunting this Subcommittee. What is the
key date?
Mr. Matsui said there's a problem in 2014, but the real
problem doesn't occur until later. What's your view of that?
Mr. Kellison, you could start, and then Dr. Moon.
Mr. Kellison. Well, I don't know that there is one key
date. There are a series of dates.
I think, to me, if I had to pick one, I guess it probably
would be 2014, in the sense that that's the crossover point
where now the revenue is falling short of the benefits in that
year, and that's a very distinct reversal from where we are
today.
Mr. Portman. At that point, what would our options be? When
do we have this issue of not having enough payroll taxes coming
in to be able to pay out the benefits, our options would be
what?
Mr. Kellison. Well, the options at that point are that you
start drawing down the trust fund interest, and then----
Mr. Portman. What does that mean? For instance, for the
taxpayer, does that mean more borrowing, or does it mean higher
taxes, or does it mean that the government can simply absorb
it?
Mr. Kellison. Well, it basically gets back to the cash flow
discussion that was discussed earlier. If the revenue coming in
falls short of the payments going out, the difference will be
made up out of the Treasury, whether it be interest or drawing
down, or selling off the assets.
The net effect, on a cash flow basis is that the income
into the system is falling short of the benefits and that has
to be made up out of the rest of the budget.
Mr. Portman. At this point, are there assets in the trust
fund to be able to account for that cash flow problem?
Mr. Kellison. There are government bonds, Treasury bonds,
in the trust fund which earn market rates of interest, and
those are real assets; they're not phony assets. But it clearly
does have an effect on the rest of the budget and on the cash
flow situation in the government.
If there were no trust fund in place, what's in there would
have to be held somewhere; in other words, those government
bonds represent debt that somebody has to hold.
Mr. Portman. How would you characterize those assets, Dr.
Moon, and what do you think about----
Ms. Moon. About the dates?
Mr. Portman [continuing]. About the dates. This is
relevant, not just for our Subcommittee, but it is as to the
public's thinking about this. We're talking about whether it's
incremental change or more dramatic changes that are for many
people, difficult to deal with, especially folks who have
believed over the years that anything Congress does to change
Social Security is going to result in hurting them one way or
another, because potentially their benefits will be reduced or
taxes increased.
Ms. Moon. I agree with you that there is often a
misunderstanding in the public about what these issues are.
What the sense of the trust fund is, I believe that beyond the
2014 date, the issue of the timeframe in which the OASDI outgo
can also be paid for by interest on the debt is meaningful.
Another way to think about the issue is that the debt that
is held by the U.S. Government earns interest; that interest is
a promise to pay, particularly in an environment in which we
may be able to reduce debt held by the public, that makes it
much easier to pay the interest.
Mr. Portman. Because it's easier to go out and borrow more
money, which would incur additional costs because of the
service of that debt.
Ms. Moon. The revenues that go into the payment of the
interest is intended to be there. Now it is on the books as a
payment that we make with the full faith in the same way that
if I hold a Treasury bill, there is an interest payment on it.
The notion, however, is quite correct that one way or
another, one has to come up with the dollars to pay the
benefits and the cash flow issue is an important one and not
one to set aside.
It is extremely difficult over time to imagine ways in
which my generation of baby boomers can put money aside through
the Federal Government in order to pay for my retirement, and I
think that struggling with that is going to be a difficult
issue.
I have some concerns about ways to do it as a private
individual and private accounts where I think that carries some
additional risks that are not inherent in a program like Social
Security, but I think that those things should all be on the
table for discussion.
Mr. Portman. That was going to be my next two or three
questions, and I've run out of time, I'm sorry. I do appreciate
very much, the very informed testimony that we've gotten today.
Thank you, Mr. Chairman.
Chairman Shaw. Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
Dr. Moon, you have indicated previously that while the
challenges we face with Social Security are important
challenges, we can meet them with incremental changes rather
than junking the system that America has relied on for about
six decades now.
Is that your general feeling?
Ms. Moon. I believe that that is one of the options, and as
a public Trustee, I think the important thing to stress is that
a number of those different kinds of changes could occur.
I do think it is appropriate to point out that it would not
be possible, I believe, to have Social Security continue into
the future as it is now, without change.
There would have to be some changes in the program.
Mr. Doggett. But as far as some of the changes that have
been suggested, in fact, we've had people come and sit where
you are, and tell us they really don't believe in the Social
Security system and would like to see it replaced entirely.
We've had the Majority Leader indicate that it was a
mistake to have Social Security in the first place.
We've had one person who came and testified with a fairly
comprehensive study indicating that if we were to replace the
current Social Security system with an individual account
system, either in whole or in part, there's not any person
living on the planet today who would get any personal economic
gain from that, largely due to the high transition costs of
moving from the system we have now to a individualized account
system.
Could you describe what some of those transition costs
problems might be, and how the system would try to deal with
them?
Ms. Moon. Transition costs, I think, are important. There
is a very big difference between starting a system from scratch
that is a funded system as people are talking about with
personal accounts, versus a pay-as-you-go system, as opposed to
then trying to move into that.
There are many people over the age of 50 for whom such
changes are just not feasible because they have contributed to
Social Security all their working lives, and to suddenly move
to a system of personal accounts, obviously would not work for
them.
Most reasonable proposals obviously don't do that. Instead,
they would keep on the books, a basic Social Security benefit
for such individuals and current retirees for a very long
period of time. I'm hoping, as someone just over 50, that I'll
also have a very long life expectancy, so the transition
problem for me would be a 40-year transition problem,
potentially, quite easily.
So, there are going to be some substantial issues that way
that need to be dealt with. As a Trustee, I think the thing to
stress is that one would hope we could find ways--and these are
tough questions to analyze--to do them so that people could
agree on what the nature of those costs are, neither to
overstate nor understate what they would be.
Mr. Doggett. And you used age 50 as an example, but I
suppose if somebody began flipping hamburgers when they were 18
and they paid into that system, Social Security earnings for 20
years, they also feel, though they haven't hit 50, that they've
been paying into a system that they hope to get a Social
Security check from.
Ms. Moon. Yes, I believe the transition would be much
longer than 50 years. I think people talk often in the nature
of 70 to 75 years.
Mr. Doggett. And then some of those countries that have
moved to an individualized system like the United Kingdom seem
to have incurred rather substantial administrative costs. I
know the low administrative costs associated with the Social
Security system that has served our country so well has been
one of the real points of pride of the system.
Could you describe some of the administrative costs that
might come into play if we junked the system and moved to an
individualized account system?
Ms. Moon. Certainly, the administrative costs are going to
vary depending upon what kind of system you move to. I think
one of the things, in terms of doing a study of this, is that
there are better and worse ways in terms of administrative
costs of thinking about that.
I believe most people who have looked at this have thought
that a highly individualized, decentralized approach would have
the highest administrative costs. Administrative costs could
come down substantially if you restrict the number of choices
or plans that people could go into, for example, and how they
are overseen.
But there would be higher administrative costs than under
the current system, presumably offset by higher returns.
Mr. Kellison. I think Dr. Moon has summarized it pretty
well. I think any individual account program will incur higher
administrative costs than the current one.
I think that's inevitable, but there's a large range of
administrative costs that would exist, depending upon the
structure, and again it depends on the degree of complexity,
the number of options.
If you had a very bare bones simple approach with three or
four options, and there's not a lot of complexity in it, the
costs would be lower than say, an IRA type model, where you
sort of----
Mr. Doggett. Where you just go off and do your own thing,
the more choice, the more costs.
Mr. Kellison. That's correct. There's a real tradeoff
between flexibility of options and cost.
Mr. Doggett. Some of these plans that have involved
significant choice have taken almost as much as half of a
worker's individual account balance, haven't they, in some
other countries?
Ms. Moon. I think are a number--there are some other
countries that certainly, ne would not want to use as a model
in the United States, and one would hope that those lessons
were learned. I don't exactly know how high they are, though.
Mr. Doggett. Thank you.
Chairman Shaw. Mr. McCrery.
Mr. McCrery. Thank you, Mr. Chairman.
Dr. Moon, referring to Mr. Doggett's question about
incremental changes to Social Security that we could make to
tide us over until sometime, what are some examples of
incremental changes that we could do?
Ms. Moon. There are a number of incremental changes that
people have discussed. One which, for example, would be to
eliminate the hiatus that's going to exist in the increase in
the age of eligibility where the normal retirement age will
rise to age 66, then I believe there's about an 11-year hiatus
before it begins to rise again.
You could eliminate that hiatus and take care of about one-
quarter or a little bit less than one-quarter of the imbalance
that currently exists.
Some people have suggested raising the cap on the wages
that people pay into the system on the argument that, over
time, the share of wages that have been subject to payroll
taxes have declined a little bit.
Another set of changes would affect the benefits and the
way that the formulas work, so there are a whole range of them.
Mr. McCrery. What do you mean by affect the benefits?
Ms. Moon. It would reduce the benefits, either at the top
end of the scale is one way to do it, or across the board. All
of these obviously involve some pain.
I think what you are probably getting at is the notion that
incremental doesn't mean painless.
Mr. McCrery. Incremental is a nice way of saying we are
either going to raise the age of retirement, raise taxes, or
reduce benefits.
That's what you just told us, and I think that's correct.
I would hope that this Subcommittee would try to be, and
the Congress would try to be, a little more imaginative when it
comes to solving the Social Security crisis, and I believe it
is a crisis, than just raising taxes, cutting benefits, or
raising the age of retirement.
Now let's talk about administrative costs of individual
accounts.
Dr. Moon, do you or Mr. Kellison know what the
administrative costs of the Thrift Savings Plan are for Federal
employees?
Ms. Moon. I don't know. I know it's relatively low, but I
don't know exactly what it is.
Mr. McCrery. Isn't that a system of individual accounts?
Ms. Moon. Yes, it is.
Mr. McCrery. What makes you think that administrative costs
for the same type of program for individuals in Social Security
would be so much higher?
Ms. Moon. I think when you compare a system, such as one
that's run through a Federal employee or any employee
environment, as opposed to one that's going to reach out to
hundreds of millions of workers with multiple jobs and multiple
accounts, potentially over time, and to turn over, the
administrative costs would be higher than under the FERS
system.
The FERS system, I think, is a model of how you would
structure the accounts but would lower the costs.
But when you deal with individuals who have sometimes two
or three part-time jobs, for example, change jobs frequently,
that will also add to administrative costs over time.
Mr. McCrery. Don't all those people who change jobs have
employers who report to the IRS their income and withhold taxes
and all those things?
Isn't that done already?
Isn't there already a reporting mechanism to the Federal
Government for every one of those jobs?
Ms. Moon. Yes, there is. The question is, are those
employers then liable in a private account system to deposit
the money in the private accounts. How would that structure
work?
In Social Security, my understanding is that it takes about
18 months before all those accounts are resolved in terms of
figuring out where the money is going into what account and so
forth.
It doesn't matter in a pay-as-you-go system; it does matter
in a funded system. You'd have to do it much more rapidly I
think.
Mr. McCrery. Well, the rapidity with which we do it is
another issue. The issue we're talking about is administrative
costs and I just think that in today's world of technological
wizardry, that there's a way to do this without administrative
costs overwhelming the advantages of a higher rate of return.
And I think it's really ridiculous for us to sit here and
dismiss a rather--I almost said innovative--we've known for a
long time that the power of compound interest is a pretty
powerful thing, and to me it's regrettable that we've not
utilized that for the Social Security system before now.
I would hope that this Subcommittee and the Congress would
not dismiss trying to get a higher rate of return for at least
this window that we have of a huge surplus over the next 15
years to help us out of this problem.
And speaking of that, the President has proposed setting
aside 62 percent of the anticipated surplus in the General
Treasury over the next 15 years for the purpose of solving the
Social Security problem.
Do you know how much that amounts to, 62 percent of the
surplus over the next 15 years?
Ms. Moon. I don't know.
Mr. McCrery. You're not really up on the President's plan?
OK. It's a large amount of money.
Ms. Moon. My recollection is it's something like $2.7
trillion.
Mr. McCrery. Two and seven-tenths trillion dollars just
over the next 15 years, and that's money--is that money over
and above what we will need to pay benefits for the next 15
years?
Ms. Moon. That would be money that's over and above what
would be needed to pay benefits.
Mr. McCrery. We have approximately $2.7 trillion sitting
out there, and the Republicans have agreed to that, the
President agrees to it, that we can use to finance the
transition to some newer, better system.
Is that correct?
Ms. Moon. That's certainly one use of those funds. It seems
to me that that's an appropriate way to put one of your sets of
choices.
Mr. McCrery. Thank you, Mr. Chairman.
Chairman Shaw. Mr. Cardin.
Mr. Cardin. Thank you, Mr. Chairman.
I first want to thank both of our public Trustees for their
public service, and I appreciate your holding this hearing on
the 1999 Social Security Trustees' Report.
It's clear, in reading the report, that the trust fund is
important.
And I think it's interesting that a lot of this discussion
talks about the Social Security Trust Fund and the Social
Security obligations in insolation.
And then we look at the total budget of the nation, and we
try to reconcile our national budget system with the Social
Security system.
And sometimes we want to make a point rather than taking a
look at whether we're going to meet future obligations.
I agree with both of our Trustees that the trust funds are
very important, and the question you asked, Mr. Chairman, as to
if everything remained equal, if we didn't touch any of the
money, would it make any difference on cash flow.
Well, we've never gone more than 2 years in the history of
this Nation without changing our budget. The problem is that we
already passed a budget. We passed it yesterday on the floor of
Congress.
Everything will not be equal. The money will be spent on
tax cuts or other ways, so the money won't be there.
I guess my first question to you is, If we didn't have a
trust fund, if there was no trust fund today, would your annual
report be different?
Mr. Kellison. I would guess it would because if there were
no trust fund, there probably would be no Trustees. [Laughter.]
Mr. Cardin. Would the projections on the long-term solvency
issues change if you didn't have a trust fund?
Mr. Kellison. I would hope the projections that were done,
the assumptions setting and the rest of that, would continue
unchanged. I would certainly hope that would be the case.
Mr. Cardin. If you didn't have the $600 billion or so
that's currently in the OASDI fund, would your projections for
long-term solvency issues be altered?
If all of a sudden, we said we're just going to get rid of
the trust fund, and whatever surpluses happen to come out in
Social Security, we're just going to put that in the Treasury
of the nation and pay down on our debt, or whatever we do with
it, spend it, and so forth, but we're not going to dedicate any
special bonds to the Social Security Trustees because it's all
one country, one system.
Would there be a difference in your analysis as to where we
would be?
Mr. Kellison. There would not be a difference in the
actuarial analysis in terms of making these assumptions on
economic and demographic factors and what that results in.
Mr. Cardin. Where would we be in your projections in the
year 2000 and let's say 2015, if we didn't have a trust fund?
Mr. Kellison. In the year 2015, if there were no trust
fund, you essentially would be in a negative cash flow position
at that point because you----
Mr. Cardin. Where would you get the money to pay for that?
Mr. Kellison. It has to come out of the rest of the budget.
Mr. Cardin. Legally, how would that happen?
Mr. Kellison. I am not a lawyer. Clearly, at this point in
time, the only resources available to pay Social Security
benefits have to come out of the trust fund. Clearly, that kind
of a law would have to change.
Mr. Cardin. Congress would have to take action in order to
make sure that Social Security checks continued?
Mr. Kellison. Absolutely.
Mr. Cardin. In the full amount.
If we continued the trust fund, would Congress have to take
specific action?
Ms. Moon. My understanding is no. If we continue the trust
fund,certainly there's the period in which the interest would
continue to keep the balance in terms of payments and the
revenues into the system. And after that, we would be drawing
down the debt that is dedicated for this purpose.
My understanding is that this is a commitment and an
obligation that is a strong indication that we believe this is
important enough to continue it in that vein.
I also think there's the issue of, if you were to eliminate
the trust funds, I think that there would be a very strong
incentive to substantially reduce the taxes that are now going
to fund both Social Security and other things that we are now
seeing in terms of the buildup of the trust fund.
Mr. Cardin. It would be difficult to continue public
support for overpaying for current benefits is what you're
suggesting.
One last question because my time is running out.
You're Trustees, and if you were charged with providing for
75-year solvency, and if there were no restrictions on how you
could invest the moneys, and if you were looking to ensure a
75-year system with the modifications that we would be making
this year, would you continue an investment strategy that would
buy U.S. Government bonds, or would you look at a different way
of dealing with the return you have on your trust assets?
Mr. Kellison. That's not an option that we have had.
Current law requires all of the money----
Mr. Cardin. I said if we didn't have that. You're a
Trustee----
Mr. Kellison. We're Trustees. I think we would, as
fiduciary responsibility as a Trustee, we would clearly have to
look at the appropriateness of that investment policy very
hard.
And it could conceivably change if that were a flexibility
that we had.
Mr. Cardin. Dr. Moon, you're an economist. How would you
see that as a Trustee?
Ms. Moon. My belief is that one would want to look both at
what was possible to responsibly invest in elsewhere, but I
think some considerable amount of conservativeness is
appropriate.
Social Security is the absolute base of retirement for
individuals, it's not where I think you'd try to maximize
returns, either individually or publicly.
I think what you want to do, if you thought there were
things you could do for which there were protections, the
appropriate protections, you might consider it, but I think you
should err on the side of investment conservativeness in this
program.
Mr. Cardin. Thank you.
Thank you, Mr. Chairman.
Chairman Shaw. Just a couple of observations.
I know Mr. Cardin wasn't implying this, but I want to be
very clear, particularly in facing the Trustees here.
I don't know of anyone who is talking about, in any way,
diminishing or doing away with the trust fund.
I want to be very clear as to your futures if you are
reappointed. [Laughter.]
Mr. Cardin. If the Chair would just yield very briefly,
there are proposals, though, that would increase the trust
fund, and I think the Chair was inferring that that wouldn't
have any impact on the overall budget of our Nation or overall
cash flow issue.
Chairman Shaw. That was the point I was trying to make.
Mr. Cardin. The point I was raising is that if you go to
zero, the point that you're making that by increasing it, it
has no effect, then I would suggest that by decreasing it, by
the same analogy, it would have no effect. Therefore, if it
makes no sense to double the fund, then why don't we just get
rid of it?
Obviously, I'm not suggesting we get rid of it.
Chairman Shaw. And neither am I.
I'd also like to comment with regard to what would happen
if we do do nothing and the trust fund, FICA taxes coming into
the trust fund, are not sufficient to pay its obligations, as
has been stated, it won't be in 2014, it won't be relying upon
interest paid on the bonds to take it to 2022.
And then the appropriate process will have to come in,
unless this Subcommittee was willing to increase FICA taxes.
We would be leaving a terrible, terrible burden to future
Congresses or a terrible disservice to future generations
relying upon Social Security.
And I think that's a tremendously important point.
Mr. Hayworth.
Mr. Hayworth. Thank you, Mr. Chairman, Dr. Moon, Mr.
Kellison.
Dr. Moon, I appreciate it when you use the word
``conservative'' in any context, and I thank you for that.
My good friend from Maryland, and my esteemed Chairman,
just had an exchange that I think is illustrative of part of
the problem.
There was once a wise man who said, Isn't it a shame that
youth must always be wasted on the young.
We could amend that perhaps this morning to say, Isn't it a
shame that sound policy must always be predicated on electoral
politics, not the notion that the people decide, but some of
the trappings that go along with it.
I'm so sorry my good friend from Texas schedule would not
allow him to stay, because I feel compelled in the record just
to ask you both--and it may be in terms of what you perceive,
both as Trustees of our Social Security funds--do you know of
any scheme on the part of any political party, especially the
two parties that inhabit the U.S. House of Representatives, to
destroy Social Security?
Mr. Kellison. I personally know of none that are serious.
There are fringe groups that might take that position, but I
know of none that are serious.
Ms. Moon. I think there have been proposals that have been
made by people that would largely dismantle some of the
protections of Social Security, but my belief is that even
relatively major restructuring proposals usually try to retain
a number of the elements that I think are very important in the
Social Security system.
Mr. Hayworth. And the record should reflect and perhaps you
can feel free to correct me, since my friend from Texas
mentioned the Majority Leader specifically, and I think it's
important to have it in the record, you know of no plan from
the Majority Leader to dismantle or destroy Social Security?
Ms. Moon. Not that he's communicated to me anyway, no.
Mr. Hayworth. Thank you.
I'm sorry we had to do that, but again it points up some of
the difficulties we face because there are those who succumb to
a temptation to replace facts with fear and perhaps it's just
the legal background that they have. They feel they have to
plant a sufficient doubt in the minds of the jury when it comes
to making decisions.
I appreciate the comments of my good friend from Louisiana
about administrative costs.
Would you agree with me that administrative costs are not
static? In other words, they do not occur in a vacuum. There
are changes that can occur in the current system that could
lead to reduction of administrative costs, are there not?
Ms. Moon. Certainly.
Mr. Hayworth. For example, one of those, because we had
some interesting testimony from a man whose government job is
that of a Social Security claims representative, but who has
not actually handled a claim since 1983, he instead spends his
time as basically a shop steward of a union to make sure that
union conditions are maintained for the betterment of the
union.
Indeed, he was dispatched to Oklahoma City in the wake of
that horrible tragedy, not to deal with Social Security claims
but instead to represent the interests of the union, and he
does so on the taxpayers' dime.
Do you think that's a wise use of administrative funds in
Social Security?
Ms. Moon. You can answer that one. [Laughter.]
I think we're getting into areas of policy that are
probably beyond both our expertise. [Laughter.]
Mr. Hayworth. But Dr. Moon, certainly with your
intelligence and your ability to observe the scene, do you
think there could be some readjustments, that perhaps people
who have job titles in administering what has become a sacred
trust for the American people, that should actually spend time
on fulfilling what their job descriptions say they do?
Ms. Moon. I believe collective bargaining is a well-
established and valued part of our history.
Mr. Hayworth. Certainly. That's not my question.
Ms. Moon. And I think those same protections need to be
available to workers in the Federal Government. Sometimes that
means some higher costs. And I assume that's a negotiated
agreement and that's part of it.
Mr. Hayworth. I appreciate that, Dr. Moon.
That's not the nature of my question.
It was simply, could we reduce costs if those who have a
job title saying they are claims representatives in fact
carried out that job rather than constantly spending their time
in the collective bargaining process?
We can agree that collective bargaining plays an important
role in the labor force. I think we would all agree with that.
Let me go to another question before my time is up.
Chairman Greenspan came to testify to us, and we
appreciated the President's remarks thinking outside the box
about the future of Social Security.
But the President talked about government direct investment
in the stock market. Indeed, the Senate voted in 1999 to
nothing in opposition to such investments.
What are your thoughts about the government investing
directly in stocks, as our President has proposed?
Mr. Kellison. I think that's a topic we would have to face
as Trustees if the restrictions on investments in Treasury
securities were removed.
At that point, we would have to look at a broader range of
investment options.
I think there are a number of issues that have to be dealt
with very carefully there.
When I was a schoolboy, we used to call government
ownership of private industry socialism. That's a term that we
don't use much anymore in quite that way.
But I think if Federal funds were to be invested directly
into equities, there would have to be a number of questions
answered along those lines that really are policy questions, as
well as rate-of-return questions.
I think Chairman Greenspan was basically trying to draw
attention to the fact that there are a number of issues of that
kind, corporate governance issues, who owns industry, and so
forth, that we can't ignore if we get into that realm.
Ms. Moon. And although it might be tempting, as a public
Trustee, to own America On Line personally and control it, I
think you would want to have a lot of protections in place.
My responsibility as a public Trustee would say I would
want to have a lot of protections where I felt that the gains
that you might get from higher returns were not only worth it
in terms of the kinds of restrictions that would need to be
placed on such a system, but also there would need to be a lot
of protections put in place to keep it out of the political
system and environment.
I think there are a lot of questions.
As public Trustees, I don't think we believe it's our role
to say this is a good idea or a bad idea, but rather to caution
there are a lot of things you'd want to put in place before you
did that.
Mr. Hayworth. I see my time is up.
Again, Dr. Moon, Mr. Kellison, I thank you for your
testimony.
Thank you, Mr. Chairman.
Chairman Shaw. Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
There are several groups in the Congress that are working
on this particular issue, and I happen to be on a task force
with another Committee, the Budget Committee, that's trying to
find some answers to the Social Security problem.
Yesterday, we met with a number of actuaries, two from the
Social Security system, the administration, as well as two
outsiders.
They all had a lot of facts and figures about how we are
extending the life expectancy, and how the new gadgets are
making people physically able to work longer, and they differed
on some of the numbers.
But one thing they didn't differ on is the fact that as
time goes on, there will be a lower or a closer ratio of
workers to beneficiaries. Today, it's about 3.3.
I believe by the time the report ends, it's 1.8 or almost 2
to 1. There was no dispute over that.
Mr. Greenspan's been mentioned.
Mr. Greenspan testified that unless you end the current
pay-as-you-go type system, where the current beneficiary or the
current workers pay the benefits, at some point in time, you'll
have the same problem reoccur again.
The question is, Do you end the current pay-as-you-go
system, or the current Social Insurance Program.
If so, who do you end it for, what age group or what age
groups?
And that question hasn't been answered.
There is no immediate crisis. We know there's a problem
coming, the train, you can listen to the rumble and the roar,
and you'll hear it, but it's not immediate.
That's the reason currently it's seniors who are under the
Social Security system, the drawing of benefits, it's the
reason they don't trust Congress to deal with this, especially
if it affects them.
In fact, Members of Congress don't even trust Members of
Congress to deal with this because of the political volatility
of it.
Any plan that comes up that changes the benefit structure
of the current recipients of Social Security or those who are
just about to go into it, raises red flags to the point it
makes it difficult, probably makes it impossible for us to do
anything in this Congress that will be substantial or will be
beneficial, far different from the way Medicare was.
We dealt with Medicare in 1995 and then again in 1997. That
was a crisis. It was in a deficit cash flow. And I go home and
I talk about Social Security at every meeting that I have,
every group I talk to. I'm not afraid of it as the third rail
of politics, it's real.
It's my old age pension as well as yours. But people at
home say, If you hadn't have robbed the trust fund, and spent
it, we wouldn't have a problem.
They haven't been convinced yet that there is a problem
coming, and I'm glad to see that both the administration and
the Congress are taking steps to try to stem that concept at
home.
The President said we're going to set aside 100 percent
last year, and changed a little bit on percentages for this
year.
But the Congress just passed a budget yesterday that does
set aside FICA taxes, plus the interest that's owed on the
notes that are held by the trust fund.
We're making some headway, but it's slow, and I think it
needs to be slow.
My daddy had only a third-grade education. In fact, he
didn't even finish the third grade. And when I was a young guy,
I thought I was a lot smarter than he was. But as I got a
little bit older, I found out that he was a whole lot smarter
than I was and I am.
But he used to tell me, when I wanted to get in a hurry to
do something, Son, haste makes waste.
We thank you for coming today, we thank you for your
report, and I look forward to reading through your report.
Thank you.
Chairman Shaw. Mr. McCrery.
Mr. McCrery. Thank you, Mr. Chairman.
I was afraid if we didn't ask a second round of questions,
this would be the shortest hearing we'd ever had before the
Subcommittee, so I wanted to take advantage of these two
prominent experts in the field to just ask a couple of more
questions.
Over the past 75 years, the economy has grown, on average,
3 to 3.5 percent per year. Yet your projections, the Trustees'
projections about future economic growth are about 1.5 percent
per year.
Why are the growth assumptions so much lower for the future
than the facts show about the past?
Mr. Kellison. That's a complex question, but I'll try to
give you some answer, and Dr. Moon may have a little different
way to express it.
It largely is a result of labor force participation, and
essentially labor force participation rates have increased
fairly significantly over time.
That inevitably comes to an end because of the baby boom
generation moving toward retirement, and the percentage over
time of, say, working women in the work force has increased
significantly, but at some point hits a plateau.
In terms of just the age distribution of the population,
and the percentage of both genders for that matter that are
already in the work force, entry into the work force has to
slow down significantly in the next 25 years, compared to, say,
what it has been in the last 25 years.
I think, in a nutshell, that a large part of the
explanation has to do with just what the potential work force
is.
Ms. Moon. It's interesting you asked that question because
when Steve and I first came on board as public Trustees, we
were actually criticized sometimes for being too optimistic
about the future.
And now the criticism tends to be that we are too
pessimistic.
Maybe we're honing in on getting it right.
But I think our sense has been that the economic
assumptions, while we would like them to be higher, and we
would hope that that's what happens, we think that since this
trust fund report is supposed to provide some warning about
potential problems ahead that we should try to err on the
conservative side, that we should try to keep the growth rates
a little lower than some people have thought they might be.
The other thing is you have to be very sober in looking at
something 75 years ahead. One of the things the actuaries do
for us every year, when we start to talk about the assumptions,
is provide us with a wealth of information about what has
happened in the last 5 years, 10 years, 20 years, 50 years, 75
years, and it is an enormous task to try to think about what
the long run really does look like.
Mr. McCrery. In other words, the Trustees don't see much
hope of growing our way out of the problem?
Ms. Moon. I think the last couple of years indicate that
certainly economic growth can play a part in helping to reduce
the size of the problem. And one would certainly like to
encourage everything that's possible, as people have talked
about, to encourage savings and higher productivity. That will
certainly help.
Because whatever we do about Social Security, we will have
an aging population into the future that's going to change
enormous numbers of things about our society in all sorts of
ways.
But I think we don't want to count on it, and we don't want
to base this report counting on such change.
Mr. McCrery. The Social Security Advisory Council included
in its report some data that most of us are familiar with.
One being that over the last 75 years or so, stocks have
earned an inflation adjusted return of about 7 percent
annually, whereas Treasury bills or bonds have averaged about 3
percent or a little less than 3 percent annually.
In light of your expectations for lower economic growth
over the next 75 years, is there any reason to expect that
those returns will differ, vis-a-vis stocks and Treasury bonds?
Mr. Kellison. I'm not an economist so I'll defer to people
that are to perhaps give you a more solid answer to that
question. I think that is a valid question.
In other words, if the future growth rate in the economy
does decline, say, from three-something to one-something, can
the stock market continue to deliver 7-percent returns over a
long period of time is certainly a question that needs to be
asked.
On the surface of it, it does appear to be difficult to
achieve, and again I would predicate my answer by saying I'm
not an economist but I think that's a valid question that will
really have to be looked at.
Mr. McCrery. Dr. Moon.
Ms. Moon. I concur with Steve Kellison, that this is
something that's very difficult to know. There ought to be a
link. One would think that there would be a strong linkage
between the health of the economy and the health of the stock
market, but I've been around long enough to observe that there
doesn't always seem to be a very close correlation, and I know
a number of my economics colleagues who have also found that
out through bitter experience over the years.
But I do think that that is one of the things, when someone
wants to make the comparisons, that you have to try to be very
careful to be as realistic as possible in those comparisons.
You would want to try to have a consistent set of
assumptions between what you're using to compare the current
system as it is now and one that involved private accounts in
which there would be these kinds of investments to be able to
make the best possible comparisons about the pros and cons of
those different approaches.
Mr. McCrery. Just one quick addition.
Even if the rates of return for stocks are lower because of
lower economic growth, would rates of return on Treasury bonds
also be lower because of low economic growth?
And could we or should we expect still a premium on the
return of stocks over Treasury bonds, even with lower economic
growth?
Ms. Moon. On average, one would expect that the returns
would be higher from stocks over time, again because of the
risk differential. That's really what they're reflecting in
part. That is the big driver in terms of that differential.
Mr. McCrery. Thank you, Mr. Chairman.
Chairman Shaw. Thank you.
If there are no further questions, we will conclude this
hearing.
Steve, Marilyn, we'd like to thank you for the job that you
do, the work you do for all of us, and for your time here
today.
Without objection, I would ask that the graph contained in
the status of the Social Security and Medicare Programs be
inserted in the record.
This is a graph that shows the diminishing number of
workers to support the number of retirees that's contained in
the Trustee's Report.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] T8722.001
Chairman Shaw. Thank you very much.
The hearing is concluded.
[Whereupon, at 11:35 a.m., Thursday, April 15, 1999, the
hearing was adjourned.]
[A submission for the record follows:]
Testimony of Michael A. Steinberg, Esquire, Michael Steinberg &
Associates, Tampa, Florida
I appreciate the opportunity to submit a written statement
for the printed record of this hearing and your consideration
of the same. My name is Michael Steinberg, and I am the
principal attorney in the law firm of Michael Steinberg and
Associates. Michael Steinberg and Associates is a moderate-
sized law firm with offices in Worcester, Massachusetts;
Washington, D.C.; Jacksonville, Florida; Ft. Lauderdale,
Florida; Tampa, Florida; and Clearwater, Florida. Our firm
primarily handles Social Security related matters and is made
up of attorneys with both strong Democrat and Republican
affiliations. This statement, however, is not submitted on
behalf of any client, firm, or organization, but is simply a
personal analysis and critique of the 1999 Annual Report of the
Board of Trustees on the financial status of the Federal Old-
Aged and Survivor's Insurance (OASI) and the Federal Disability
Insurance (DI) Trust Funds.
It is my understanding that despite the report's
projections regarding OASDI are slightly improved from those
reported in 1998, the spending is still projected to exceed tax
income in the year 2014 and trust funds will be depleted by
2034.
As in prior years, the Trustees recommend that action be
taken to reform the Social Security program. ``It is important
to address the financing of both the OASI and DI programs soon,
to allow time for phasing in any necessary changes and for
workers to adjust their retirement plans to take account of
those changes''
We all are familiar with the traditional choices to reform
the Social Security program, but for the purpose of analysis, I
will enumerate the same below:
1. Establish individual accounts without reducing benefits
for those approaching retirement age: Those in favor of
allowing individuals to set up personal savings accounts
suggest that benefits to be paid to current retirees and those
soon to retire be maintained by the Social Security surplus
while future Social Security recipients' benefits be reduced.
They argue that the increased revenues from the personal
savings accounts will exceed the expected rate of return on
Social Security Trust Fund monies, thereby netting the future
retirees with the same or more retirement income. Opponents of
this type of plan counter that by 2010-2014, the plan would
require new taxes, deeper cuts in the rest of government, or
deficit spending, and that individual accounts are essentially
a large new entitlement program. For instance, Wendell Primus
of the Center on Budget and Policy Priorities, posits that this
plan would sacrifice the needs of younger generations to
increase benefits directed to the elderly, especially the more
affluent elderly, and weaken the progressive nature of the
current benefit structure.
2. Cutting benefits: A. The retirement age for full
benefits is currently scheduled to increase to 67 over the next
20 years. There are suggestions that the retirement age be
raised to 70. Opponents argue that this would be unduly
burdensome on many ``blue collar'' workers who will not be able
to physically sustain work until age 70. Proponents say that it
is the poor and middle class that will actually benefit from
raising the retirement age. If someone is physically unable to
engage in substantial, gainful activity, he or she qualifies
for Social Security Disability Insurance Benefits, which pays
benefits at substantially the same rate as if he or she retired
at ``full benefit retirement'' age. Blue collar workers are
more likely to qualify for Disability Insurance benefits than
white collar workers. Presently, many middle income workers
cannot make ends meet if they retire at age 65. It is the
wealthy that can afford to retire earlier. Furthermore, as the
country's economy shifts from agriculture and industry to
service and technology, people will be able to physically work
longer. There is no reason why a lawyer, accountant, judge, or
Congressman should not be expected to work until age 70.
B. Cost-of-living adjustment: There is a growing consensus
that the current method of calculating the cost-of-living
adjustment (COLA) based on the Consumer Price Index (CPI)
overstates inflation and that some change in the COLA formula
needs to be made.
C. Reduction in benefits for the middle-class and upper-
middle class: For some time there has been discussion about
reducing benefits to retirees with higher average monthly
earnings and/or retirees with high retirement income from other
sources. Opponents argue that the wealthier participants paid
money in the system, it is ``their money,'' and they are
entitled to a fair return on their ``investment,'' regardless
of whether they ``need'' the income as much as their poorer
counterparts.
Proponents point out that the Social Security Retirement
system is a non-contractual welfare benefits program and
thatSocial Security recipients' benefits are not dependent on
the amount they have put into the system by taxation.
Furthermore, although Social Security is an earned benefit
program, Congress has wide latitude to create classifications
for the allocation of benefits.
D. Increase the cap on taxable earnings: A viable, partial
solution to bolster the Trust Fund is to accelerate the
increase of the cap on taxable earnings. Since Social Security
is a progressive tax, the higher the average earnings of a
participant, the lower the percentage rate of his return.
However, once the participant reaches his cap on taxable
income, he can theoretically invest the same percentage of his
earnings in his IRA or 401K plan, netting a higher rate of
return than his lower income cohort. Raising the cap on taxable
earnings would raise the participant's expected return on
contributions, but at a lower percentage rate of return. An
advantage to this type of proposal is that the cap on taxable
earnings can be periodically adjusted without a drastic
overhaul of the Social Security system.
E. Invest Trust Funds in securities: At present, Trust Fund
surpluses are ``invested'' in Treasury securities, earning a
relatively low rate of interest. Many suggest that we invest
part of that money in securities in private securities.
Initially, one might conclude that since historically the stock
market has realized higher rates of return than Treasury
securities, the Trust Fund would grow more rapidly, easing the
solvency problems.
There are several problems with this solution. First, if
the United States Treasury did not have the ability to borrow
Social Security Trust Funds at a low rate of interest, it would
have to borrow elsewhere at a higher interest rate. This would
in turn exacerbate the deficit problem and/or result in
decreased spending on other programs. At the same time, a
greatly increased supply of capital to the stock market may not
have beneficial results and might result in smaller rates of
return on investments. Furthermore, opponents are wary of
giving so much control over the stock market to the government.
F. Reduce disability rolls: According to Social Security
data, as of January 1999, 44,168,500 received Social Security
benefits of which 27,473,000 were retired workers, and
4,763,900 were nondisabled widows and widowers.
There were 5,617,700 beneficiaries receiving payments on
the basis of disability. 4,710,700 disabled workers, 712,700
disabled adult children, and 194,300 disabled widows and
widowers. In addition, 185,500 spouses, and 1,398,400 minor and
student children of disabled workers were receiving benefits.
Monthly retirement benefits totalled $31.3 billion and $3.8
billion to disabled workers.
The average monthly benefits as of January 1999 were $780
for retired workers and $733 for disabled workers. Having been
practicing law for 17 years, most of them in the area of Social
Security Disability law, I have had the opportunity to
represent literally thousands of Social Security Disability
recipients and discussed the economics of the Social Security
Disability program with Administrative Law Judges, claims
representatives, state disability determiners, claimants, and
other attorneys (both private and government). Recently, there
have been hearings and discussions about efforts to assist
disabled beneficiaries in returning to work. One proposal was
to raise the amount Social Security would deem substantial
gainful activity. Another way is to extend health care coverage
to persons removed from the disability rolls. The above
proposals are faulty both theoretically and in practice.
Proponents of raising the substantial gainful activity
level to $700 suggests that if a person is on disability and
the SGA amount is $500, a person will not even try to return to
work for fear of losing benefits, but if the SGA amount is
$700, that person will get a job making less than $700 per
month until he or she can regain skills and eventually get off
the disability rolls. The other theory is that disabled workers
will not get off the disability rolls for fear of losing health
care coverage. Both of these theories are irrational and
illogical.
First, Social Security already gives disabled recipients a
trial work period of 9 months (earnings during trial work
periods do not affect payment of benefits). Secondly, health
care is readily available to the poor and lower income families
who do not qualify for Medicare, i.e., county health care, VA,
state welfare, etc.
Instead, legislation needs to address a disincentive to
beneficiaries receiving Disability Insurance benefits, for not
making an attempt to return to work. A rational proposal would
be to require disabled workers to perform community service as
a condition requisite to receiving benefits. (Exceptions could
be made for persons with extreme disabilities.) By requiring
this, recipients would be persuaded to return to work and learn
job skills and trades, while doing ``volunteer'' work. In
addition, the general public would benefit from the services
performed and recipients would receive a boost in self esteem.
There are already nonprofit organizations such as the United
Way, Salvation Army, etc., that have the capability of
monitoring participation in such a program.
G. Increase the cap on how much a retiree may earn before a
reduction in retirement benefits and/or eliminate reduction in
benefits altogether: Many Social Security retirees do not see
the logic in reducing their retirement benefits, if they choose
to continue to work after retirement age. After all, if they
paid money into the system, aren't they entitled to a return
after reaching a certain age? Reducing benefits to retirees who
earn over a certain amount, does not increase revenues or
decrease expenditures. It merely discourages the elderly from
working, thereby actually reducing the potential contributions
to the system far greater than any savings in expenditures.
Those against the change say that since Social Security
system is not a retirement program, but a social welfare
benefit designed to replace a worker's lost earnings, allowing
retirees to receive their full retirement benefit and earn an
unlimited amount of money would be contrary to the intent and
purpose of the program.
Conclusion
Drastic changes should not be made to the Social Security
retirement and disability programs. Small changes should be
made in several areas rather than large changes in any one
area. The changes that are made should be ones than can be
``undone'' or modified without an inordinate cost, i.e.,
decreased COLA, increasing income cap, etc., versus setting up
private savings accounts, investing Trust Funds in stock
market, etc. Efforts should be made to decrease the disability
rolls by mandating community service by recipients of
Disability Insurance Benefits.
It is important to bear in mind that the economics of
Social Security cannot be studied in a vacuum. There are many
factors that effect the integrity of the program which occur
outside of the program.
Ironically, it appears that the traditionally conservative
party is more apt to support ``changes'' in the Social Security
system, while the ``liberal'' party is more ``conservative.''
Thank you for your consideration of the above.