[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




 
              2000 SOCIAL SECURITY TRUSTEES' ANNUAL REPORT

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 6, 2000

                               __________

                             Serial 106-37

                               __________

         Printed for the use of the Committee on Ways and Means

                     U.S. GOVERNMENT PRINTING OFFICE
66-258 CC                    WASHINGTON : 2000



                      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


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 30, 2000, announcing the hearing...............     2

                               WITNESSES

Social Security and Medicare Board of Trustees:
    Stephen G. Kellison, Former Public Trustee...................     7
    Marilyn Moon, Ph.D., Former Public Trustee...................     6

                       SUBMISSION FOR THE RECORD

TREA Senior Citizens League, Alexandria, VA, Michael F. 
  Ouellette, statement...........................................    25


              2000 SOCIAL SECURITY TRUSTEES' ANNUAL REPORT

                        THURSDAY, APRIL 6, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10 a.m. in room 
1100, Longworth 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

                                                CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
March 30, 2000
No. SS-14

                       Shaw Announces Hearing on

              2000 Social Security Trustees' Annual 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 2000 Annual Report of the Board of Trustees on the financial status 
of the Social Security Trust Funds. The hearing will take place on 
Thursday, April 6, 2000, in the main hearing room, 1100 Longworth House 
Office Building, beginning at 10:00 a.m.

    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include the Social Security Public Trustees who helped 
draft The 2000 Annual Report. 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:

      
    The Social Security Board of Trustees recently released The 2000 
Annual Report on the financial status of the Social Security Trust 
Funds. The Trustees' projections show that Social Security's financial 
outlook has improved slightly relative to last year's projections.
      
    Based on intermediate assumptions about economic and demographic 
trends, the Trustees project that Social Security will begin running 
cash deficits in 2015-one year later than projected in last year's 
report. The Trust Funds are expected to be depleted by 2037-three years 
later than projected last year. At that time, annual tax revenues will 
be sufficient to pay 72 percent of annual expenditures. The improvement 
in Social Security's financial outlook is mostly attributable to 
improved economic assumptions and several changes in the methods used 
by the Trustees to make projections.
      
    Despite the near-term improvement in Social Security's financial 
status, the Trustees conclude that the Trust Funds are not in ``close 
actuarial balance'' over the next 75 years, the traditional measure for 
the financial soundness of the system. The Trustees repeated their call 
to make timely changes to the Social Security program so that changes 
can be phased in and workers can have time to adjust their plans to 
account for the changes. The Public Trustees noted that ``. . .a few 
good years do not reduce the inherent uncertainty about the future.''
      
    In announcing the hearing, Chairman Shaw stated: ``While the near-
term prognosis for Social Security appears slightly improved, its 
underlying vital signs remain critical. In fact, the Trustees' Report 
shows that Social Security's cash flow problem will get worse with each 
passing year after 2015. We cannot rely on economic growth from one 
year to the next to change that. Without responsible reforms that save 
Social Security for 75 years and beyond, this long-run picture will 
only get worse with each passing year.''

FOCUS OF THE HEARING:

      
    The Subcommittee will examine the findings of The 2000 Annual 
Report of the Board of Trustees on the financial status of the Social 
Security Trust Funds.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
April 20, 2000 , to A.L. Singleton, Chief of Staff, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Social Security office, room B-316 
Rayburn House Office Building, by close of business the day before the 
hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `http://waysandmeans.house.gov
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Shaw. If the hundreds of people in the audience 
will take their seats, we can get started. Despite the light 
turnout this morning, this is certainly one of the more 
important things that we do.
    Today's hearings feature the public trustees who help 
compile the new 2000 Social Security Trustees' Report. Their 5 
year service has now come to an end, and we thank them for 
their outstanding work. Their insights will certainly help us 
better understand the current and projected condition of the 
Social Security program.
    Most attention this year focuses on the trustees' estimate 
that the Social Security fund will extend to 2037, that is 3 
years beyond the previous estimate of 2034. That is a positive 
development, but we need to consider some context. Social 
Security's soundness always has been measured over 75 years, or 
long enough to span most people's working and retired years. 
Obviously, paying full benefits for only 37 years falls well 
short of that standard.
    Current retirees need not worry about their benefits. But 
many workers under the age of 50 and most workers under the age 
of 40 can expect to see the year 2037. What will their Social 
Security benefits be? How should they plan their retirement and 
their savings? Our inability to answer these simple questions 
is one reason why the trustees again, and I quote, ``Urge that 
the long range deficit of both the OASI and the DI trust fund 
be addressed in a timely way.''
    But that is still only half the picture. As the trustees 
note, in only about 15 years, Social Security will cost more 
than taxes bring in. After that, we can raise taxes, we can cut 
benefits, or we can borrow more each year to make up the 
difference. What will that Congress do? And that difference is 
very real. In 2015, benefits will exceed taxes by $7 billion. 
And that is going to widen to a $318 billion gap in the year 
2037. That $318 billion, spelled with a B.
    In 2037, that will be like shutting down the Department of 
Defense and sending the money to Social Security. Between these 
years, we need to find a total of $4 trillion to pay full 
Social Security benefits. And that is trillion with a T. It is 
good we are using today's Social Security surpluses to pay down 
our current debt, which will strengthen our economy for the 
long run. But no amount of debt repayment or economic growth 
can substitute for real improvements to make Social Security 
sound for 75 years and beyond.
    For those who see this year's report as cause for delay and 
inaction, there's one simple fact to remember. We now need to 
find more than $1 trillion more than last year to pay full 
Social Security benefits over the next 75 years. In spite of 
all the rosy headlines, Social Security's long-run deficit 
increased from $20 trillion to $21 trillion almost without 
notice.
    So the clock is ticking on us. And the price tag of saving 
Social Security for all generations keeps going up with each 
year that we delay. We are in good times, we are in times of 
surplus. Now is the time to act. I would hope that we would 
take the trustee's report not as necessarily good news, but 
also while we are happy that the life is being extended, 
there's also some real warnings out there that all of us need 
to take note of and to answer.
    Mr. Doggett.
    Mr. Doggett. Thank you very much, Mr. Chairman.
    It is really good to have you here with good news, very 
good news. I believe that you bring us better news, in fact, 
than any of the Social Security Trustees' Reports in the last 7 
years. This is the smallest actuarial deficit and the latest 
date of trust fund exhaustion that we have had since your 
report in 1993.
    I agree fully with the comments expressed by our Chairman. 
What we need is thoughtful and deliberate action, but indeed we 
need action to address the long term problems. At the same 
time, we need to realize that this is not the kind of emergency 
or crisis situation demanding inappropriate solutions that some 
have advocated in the past. I believe that your 2000 trustee 
simply confirms what some of your prior reports that haven't 
had quite as good bit of news for us, that the challenges that 
Social Security faces are significant, but there are ways to 
manage them.
    Consequently, we ought to avoid radical restructuring of 
Social Security. We ought not to substitute for a system that 
has been very, very successful, perhaps one of the most 
successful programs that this Congress has ever initiated, that 
provides progressive, guaranteed and life-long benefits. We 
ought not to substitute that proven system with one that junks 
it and says that every person who retires or becomes disabled 
is in there to fend solely for themselves, with some kind of 
individualized, privatized system that destroys what Social 
Security was all about.
    Radically restructuring Social Security would subject the 
most dependable element of our workers' retirement, the only 
source of income, at least 90 percent of income, for millions 
of single, older women in this country. It would subject those 
people to incredible risks and would impose enormous transition 
and administrative costs to American workers.
    As I'm sure our witnesses have heard, we have heard expert 
testimony in the Subcommittee previously from one former 
associate of Jack Kemp that no American living today, indeed, 
no American living before the year 2025, would actually benefit 
from junking the current Social Security system and 
substituting a partially privatized system. We view this 2000 
Trustees' Report as being of extreme importance, also because 
of the message it conveys about economic growth.
    To the extent that we can sustain economic growth, as we 
have had in this unprecedented prosperity of the last few 
years, to the extent we can continue to heed the advice of 
Chairman Alan Greenspan, who only recently testified to the 
Senate Aging Committee about the importance of increasing our 
national savings and avoiding risky tax cuts in favor of 
reducing the national debt, that may well be one of the most 
significant steps that we can take here in Congress to continue 
to bring more good news from the trustees of Social Security.
    We thank you for your participation this morning. Thank 
you, Mr. Chairman.
    Chairman Shaw. Thank you, Mr. Doggett. If I can have the 
privilege of adding to your remarks, I totally agree with what 
you said when you stated that we should never junk the existing 
system and we should not privatize it. The existing system must 
stay in place, and we need to adopt a middle of the road 
process by which we can save Social Security without changing 
in any way the basic structure of the system, the investment 
within the Social Security system.
    I think the President has talked about privatizing or 
partially privatizing by investing the trust funds in corporate 
assets. And I would oppose that. I quite agree with Mr. 
Doggett, we should not privatize the Social Security system 
when we find that we can do it by a middle of the road 
approach, by developing a process by which it can be shored up 
but in no way changed structurally itself.
    And with that, I will welcome the first panel, Mr. 
Kellison, who is a trustee of the Social Security Board of 
Trustees, and Dr. Moon, who is also a trustee of the Board of 
Trustees. We welcome both of you. We have the text of your full 
statement, which will be made a part of the record. And I would 
invite you to proceed as you might see fit.

STATEMENT OF MARILYN MOON, PH.D., FORMER PUBLIC TRUSTEE, SOCIAL 
      SECURITY AND MEDICARE TRUST FUNDS, BOARD OF TRUSTEES

    Ms. Moon. Thank you. When we flipped a coin, I guess I won 
this morning, to go first. I wanted to reiterate, Mr. Chairman, 
as you said, that our terms ended when we signed the report on 
the 30th of March. This is a duty that has been a pleasure to 
do. We have both learned a great deal, and then I think both of 
us have been very impressed by the care and objectivity that 
goes into the discussions about the assumptions that underlie 
this report.
    I believe that it is an extremely important role the public 
trustees play, to try to be not only there to assure that care 
and objectivity happens, but to participate fully in that 
discussion. And it is our hope that new trustees will soon be 
named, so that they can be a full part of that process for next 
year's report. That process begins pretty early in the fall in 
terms of discussions about assumptions.
    So we are hopeful to see new people come on board. We also 
believe that it is important to have new blood and new ideas, 
because these are very difficult issues to grapple with.
    When we think about the trust funds, we note how difficult 
it is to make 75 year projections. There are many very fine 
economic forecasters and actuaries out there, but many of them 
are very nervous about making 75 year projections. But as 
you've also noted, this is an important thing to do, not only 
to indicate potential problems, but also to provide assurances 
to younger persons that the system is intended to go on 
indefinitely into the future.
    We view these trust fund reports as an early warning 
system, telling us when there are changes that are needed with 
enough advance warning that rational and reasonable changes can 
be made. We also note that we believe that there are needs for 
incremental changes in the assumptions. Very good economic 
times are sometimes tempting to build into the trust fund 
projections. But over a 75-year period it is very difficult to 
sustain some of the good economic news, for example, of 2 or 3 
years, just as it probably means when the news is not so good 
for several years, we shouldn't be unduly pessimistic.
    We also note the enormous uncertainty in these reports. We 
don't believe that they are truth, but as I indicated before, 
an early warning system to capture our attention appropriately 
on an annual basis.
    As you've also mentioned, the news is considerably better 
this year for the Social Security trust funds. For the OASDI 
funds, when combined, the date of exhaustion is now 2037. And 
the date where costs will exceed revenue is now extended to 
2015. It also means that the long term deficit of the trust 
funds is just 1.89 percent, rather than 2.07 percent. Those 
are, I think, numbers that underscore the importance of 
economic growth and what that has meant for the changes in the 
trust funds.
    If you look specifically at OASI, the old age and survivors 
program, there are more revenues coming in than anticipated in 
the past because of the good economic news. By 2016, though, 
costs will exceed tax income, but income and the accumulated 
assets should last until 2039.
    The deficit in OASI is 10 percent less than last year. And 
again, I would note that although we made important changes in 
the assumptions, we believe that the changes were made on an 
incremental basis.
    In sum, from my perspective, the good economic news does 
have an important impact on the trust funds. It does not wipe 
out the long term concerns that are there. It does give us the 
time to talk and have a good debate about what the appropriate 
solutions are, as both you, Mr. Shaw, and Mr. Doggett have 
noted.
    I'm going to leave to my colleague, Mr. Kellison, some of 
the more graphic details.

STATEMENT OF STEPHEN G. KELLISON, FORMER PUBLIC TRUSTEE, SOCIAL 
      SECURITY AND MEDICARE TRUST FUNDS, BOARD OF TRUSTEES

    Mr. Kellison. Thank you, Marilyn, and thank you, Mr. 
Chairman and Members of the Subcommittee. It is a real honor 
and privilege to be able to be with you today to report on the 
fifth and final Trustees' Report that Dr. Moon and I have 
participated in.
    Picking up where Dr. Moon left off, I would like to add a 
couple of comments on the disability, DI program. It is a 
program that hasn't received a lot of discussion in the last 2 
or 3 years. But it does have the earliest date of exhaustion of 
any of these programs, 2023, with income first falling short of 
outgo in the year 2007, only 7 years from now.
    This program is clearly a smaller program than the OASI 
program, but it does bear careful monitoring. In the past, 
disability experience has tended to fluctuate a fair amount, 
often for no obvious reasons. Also, we are in a very strong 
economy right now. Past experience would indicate that as the 
economy might weaken, disability experience would tend to 
deteriorate somewhat. So we would encourage the Subcommittee to 
keep a close monitoring of the disability insurance program, as 
well as the old age and survivors insurance program.
    Dr. Moon has given you the overall numbers for the OASDI 
program, in terms of exhaustion dates and actuarial balance. We 
might review very briefly for you what contributed to the 
change from the prior year. There really were four factors that 
went into the change. The first one is the strong economy, that 
is, strong economic growth. Basically higher levels of 
productivity in the economy, certainly very positive, combined 
with low unemployment rates and low inflation, have produced 
considerably positive effects on the system.
    The second major factor influencing the results went the 
other way a little, and that would be the demographic changes. 
We did feel that it was appropriate to put in faster rates of 
improvement in longevity. This is obviously good for people, 
although it does increase the costs to the system somewhat, if 
people are going to live longer in retirement. And we did feel 
some further increases in life expectancy than what had been 
assumed before were warranted.
    On the other hand, we did put in a small increase in 
fertility rates, based on recent birth patterns over the last 
decade. And that tends to offset the longevity increase 
somewhat, but the net effect of those two demographic changes 
is still an overall minus.
    The third factor influencing the results was the addition 
of a 75th year into the projection period. That is a negative 
year, the year 2074 combined with a good year 1999, falling out 
of the projection period. So this rolling forward 75-year 
methodology does each year bring in a negative year. And that 
certainly contributed a minus.
    Finally, the fourth factor involved several methodology 
changes. There were quite a few different factors coming into 
play, largely having to do with newer data, better sampling 
techniques, improved modeling techniques, improved software, a 
variety of things like that. So the methodology changes this 
year contributed positively.
    The net effect of all four of these, when they're 
aggregated, was an overall net positive, which did, as Dr. Moon 
said, extend the life of the trust fund by about 3 years. It 
extended the date at which revenue first falls short of 
expenditures by 1 year, to 2015, and did reduce the long term 
actuarial deficit by about .17 percent of payroll.
    My overall assessment of these results obviously is that 
the last two or 3 years have been very positive for the system, 
largely due to the strong economic growth. However, I think it 
is important to note that the long term demographic challenge 
that the system faces is still very much in place; namely, the 
retirement of the baby boom generation, followed by relatively 
low birth rates. Today, the system has a ratio of 3.4 workers 
per beneficiary. At the end of the projection period, that will 
fall to about 1.9.
    So the system still basically, in the long term, is being 
driven by major demographic factors in the population. Strong 
economic performance can improve this situation and help 
finance these benefits, but it will not completely solve this 
problem.
    Our recommendations for you going forward is to always keep 
the long term view in mind. I think the 75 year projection 
period is a key part of what this activity is all about. We 
would recommend avoiding getting caught up in short term 
phenomena. Right now we are in a period of very strong economic 
growth. Ten years ago, on the other hand, rates of productivity 
were basically flat. There were corporate downsizings, there 
was a lot of gloom and doom that the economy had entered, a new 
period in which a stagnant type of situation existed.
    There is a tendency to overreact to both good times and bad 
times. We would caution against that. We think that we need to 
keep the long term view in mind. And there is a value, we 
think, in making the changes in the assumptions incrementally 
rather than abruptly. The experience evolves over time, and 
this annual review is an important part of continually 
monitoring the experience each year as it develops.
    We are heartened that there has been a constructive 
political debate starting on how this system can be dealt with. 
No consensus has yet emerged from that debate. These particular 
trust fund reports do not point to any particular solution. 
There are a variety of ways in which the program can be brought 
back into long term balance.
    We strongly encourage that this debate continue. We 
certainly agree with the Chairman that this is not the time for 
delay and inaction even though the news is good. It is 
important that the system be brought back into balance. The 
earlier action is taken, the less drastic the changes have to 
be. The longer that action is deferred, then the more 
significant the changes will have to be.
    Also, there's a real value, we believe, in whatever changes 
are made to phasing them in smoothly and not abruptly, so that 
people will have significant time to plan for their own 
retirements, so that the rules of the game basically aren't 
changed abruptly for people who are at or nearing retirement 
age.
    It is important that we continue to work to restore 
confidence in this system, particularly among the younger 
generation.
    In closing, I would like to commend the professionalism of 
the work which is done in the Office of the Actuary at the 
Social Security Administration. Their efforts in producing the 
materials that Dr. Moon and I and the other trustees review is 
invaluable. It is high quality work. I think the country is 
very well served by the professionalism of that staff and the 
process by which these reports are prepared and the assumptions 
and methodologies are set.
    In closing, it is a true honor and privilege to have been 
able to serve for 5 years as a public trustee. It has been a 
great experience. I will certainly second Dr. Moon's comments 
that we believe it is very important that new public trustees 
be appointed. I think they are an important part of the process 
to continue to ensure the integrity and objectivity of the 
process by which these assumptions are set and the reports are 
prepared.
    Thank you very much, and we would both be happy to 
entertain any questions you might have.
    [The prepared statement follows:]

Statement of Stephen G. Kellison and Marilyn Moon, Ph.D., Former Public 
Trustee, Social Security and Medicare Trust Funds, Board of Trustees

    Mr. Chairman and Members of the Subcommittee:
    As you know, our terms as Public Trustees ended with our 
signing of the 2000 Annual Report on March 30. Thus, we are 
appearing here today at your request as public citizens. Of 
course, our deep interest in the Social Security program and 
its financing did not end last week, and we are happy to 
testify regarding the financial status of the Social Security 
Trust Funds as shown in the 2000 Annual Report of the Board of 
Trustees.
    At the outset we note that our goal as Public Trustees was 
to ensure the integrity of the process by which the annual 
reports are prepared and the credibility of the information 
they contain. We believe that the Public Trustees' role is 
important and strongly urge the President to nominate and the 
Senate to confirm new Public Trustees promptly so that they can 
be full participants in next year's report. Public Trustees are 
part-time officials, must be of different political parties, 
and should have technical expertise in the financing of social 
insurance or related programs in order 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 we also approached our work on 
a bipartisan basis because we are convinced that this is the 
only way in which the financing problems facing Social Security 
and Medicare can be solved. The passage with bipartisan support 
of the Balanced Budget Act of 1997, which has so dramatically 
improved the financial status of Medicare, illustrates this 
point cogently.
    As Public Trustees over the last five years, our primary 
activities were 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 worked 
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. And we can attest that this work has proceeded on a 
most careful, nonpartisan basis. But it is critical to remember 
always that these projections ultimately are only estimates and 
must necessarily reflect the uncertainties of the future.
    In fact, as good as it has been the last 5 years' 
experience reminds us that the rate of economic growth has 
always varied over time, and that a few years or even decades 
of performance in one direction do not tell us what the future 
will be. For example, in the early 1990s many economists 
believed that the United States had after 1973 entered a future 
of much slower economic growth. Now, many think the current 
fast rate of growth may persist indefinitely. Our experience 
convinces us that for the Trustees' 75-year projections, the 
responsible approach is to make changes in the economic and 
demographic assumptions on an incremental basis. As the reports 
are updated each year, an incremental approach still allows new 
information or experience to be reflected relatively quickly 
when appropriate.
    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 2000 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 1999 
of $798.8 billion with a net increase in that year of $117.2 
billion. The fund's assets now equal over 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 16 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 2016, 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 
2039, three years longer than projected in the 1999 trustees 
report.
    Although the assets of the OASI fund are projected to be 
exhausted in 2039, tax income provided under current law would 
equal nearly three-quarters of full benefit at that time. By 
2074, 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 1.53 
percent of payroll, which is 11\1/2\ percent of the projected 
summarized 75-year cost of the OASI program, and is 10 percent 
less than the deficit shown in last year's report.

The Disability Insurance Trust Fund

    The Disability Insurance (DI) Trust Fund also showed a net 
increase in 1999 of $16.5 billion and ended that year with a 
positive balance of $97.3 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 leveled off in 
1994 and have actually declined 16 percent by 1999 despite the 
fact that more people are moving into the prime ages for 
disabilities. It seems 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 2000 Trustees Report intermediate 
projections show that tax income to the DI fund will exceed 
expenditures through 2006, but that full DI benefits can be 
paid until the fund's assets are exhausted in 2023. Over the 
75-year projection period, the DI fund shows a deficit of 0.37 
percent of payroll, or about 16 percent of the program's 
projected 75-year cost.

Combined OASDI Trust Funds

    If the DI and OASI trust fund projections are combined, the 
exhaustion date for the combined funds is 2037, 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 2015. 
From 2016 through 2024 interest income will be needed to 
supplement current tax income to meet costs, and in 2025 
through 2037, current tax income, interest income plus a 
portion of the trust fund assets will be needed to pay 
benefits. This is the third year in which the combined OASDI 
trust fund exhaustion date has been pushed back, reflecting the 
strong economic growth we have experienced during these years. 
Considered together, the OASI and DI programs have a projected 
long-term deficit of 1.89 percent of payroll, as compared to a 
deficit of -2.07 in last year's report.

Reasons for Change in Actuarial Balance

    The primary reasons for the reduction in the projected 
actuarial deficit in the 2000 trustees report are the continued 
good economic experience in 1999, improvement in the projected 
economic performance in the future, and advances in projection 
methods. In particular, the assumptions in this year's report 
reflect consideration of the recommendations last October of 
the Technical Panel on Assumptions and Methods convened by the 
Social Security Advisory Board, and of the changes also 
announced in October by the Bureau of Economic Analysis (BEA) 
that had the effect, among other things, of increasing the 
annual historical growth rate of productivity. Thus, compared 
to the 1999 report, this year's report generally reflects 
assumptions of faster economic growth.
    On the demographic side, the assumed rate of improvement in 
life expectancy was increased by about one-third, in the 
direction but not to the extent recommended by the Technical 
Panel. The fertility rate also was increased somewhat to 
reflect recent actual experience, and this change somewhat 
offsets the effect of the life expectancy change. Finally, a 
number of separate improvements in the data and methods used to 
project the number of covered workers and their earnings 
levels, the distribution of widows and spouses, short-term 
interest rates, and long-range average benefit levels had the 
effect of improving the actuarial balance. The positive effects 
of these changes were somewhat offset by the negative effect of 
modifications in the methods for projecting the number of new 
disabled-worker beneficiaries. Such improvements in the methods 
used by the actuaries occur almost every year as better data 
and procedures are developed. Over the past decade, such 
changes have occurred in 8 of the 10 years, improving the 
actuarial balance in 4 years and worsening it in 4 years. The 
cumulative negative effects of the changes in methods, however, 
have been almost twice as large as the positive effects. As the 
listing of changes in the 2000 reports illustrate, every aspect 
of the assumptions and projections methods are reviewed in 
preparing each year's report and changes are made as necessary 
to provide the best projections possible.

Process for Constructive Change

    As trustees we were heartened by the debate that has 
occurred over the last 5 years about the future of Social 
Security because that debate did begin to focus on what kind of 
program would best provide necessary economic security for 
current workers and their children in old age. But often that 
debate has seemed to stall, as exaggerated claims are made by 
both sides. These issues are too important to be left to the 
vagaries of partisan politics. Also, the strong economy of the 
last 4 years has weakened the argument that Social Security 
must be radically changed because it is absolutely 
unaffordable. What needs to emerge from the debate is change 
that has broad support and that can restore confidence that 
Social Security will be there for future generations.
    The improved financial projections mean that there are many 
ways to put Social Security back in fiscal balance. The task is 
to choose an approach on positive grounds rather than settling 
for a particular approach just because it will produce 
``enough'' savings. But as we noted earlier, a few good years 
do not reduce the inherent uncertainty about the future. We 
sincerely hope that the debate about the future of Social 
Security continues and provides the information base for the 
public to decide soon what kind of changes they believe will 
serve them best.

Conclusion

    We have been privileged to take part in the thorough and 
careful process by which the annual reports are prepared to 
provide this vital public accounting, and we have been 
impressed with the care and high degree of professionalism of 
the actuarial staffs who assist the trustees. We strongly 
believe that these reports serve as a nonpartisan early warning 
of the need for changes to ensure continuation of these 
programs and not as evidence of their failure to protect future 
generations.
    Based on our experience as trustees over just the last 5 
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 2000 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.
    [An attachment is being retained in the Committee files.]
      

                                


    Chairman Shaw. Thank you, Mr. Kellison. Thank both of you 
for your very fine statements.
    Dr. Moon, your Ph.D., I believe, is in economics. I have a 
masters degree in accounting, so you and I are not going to 
agree on very much. But I think we can explore for some common 
ground, if I may, for just a moment.
    I would make the assumption that there's nothing in your 
remarks that should indicate that we should just stay the 
course and continue to do what we are doing and pile up the 
deficit in the out years. I also would assume, or I would ask 
you, the figures that I used in my opening statements, I 
believe they came from your report, I would assume that you 
agree upon the tremendous deficits that are out there, if we 
don't do anything. Am I correct in that?
    Ms. Moon. Yes. There will be very large deficits over the 
long run that would be difficult to deal with if nothing is 
done until those deficits begin to pile up.
    Chairman Shaw. I'm going to ask you now, and I know this is 
difficult for economists, but I think you're up to it, think as 
an accountant for just a few moments. And I want to take you to 
the year 2015. And now we are going into 2016. And according to 
the report, at that time the Treasury bills are going to have 
to be invaded. We are going to have to start cashing in those 
Treasury bills.
    Where is that money going to come from? It is a dumb 
question, but it has got a very simple answer.
    Ms. Moon. Yes. Well, the money comes from either higher tax 
revenues or changing those bonds from being held by the trust 
fund to rolling over and creating a new publicly held debt.
    Chairman Shaw. So it's either going to be tax dollars or 
debt?
    Ms. Moon. Yes.
    Chairman Shaw. We'll have a basic assumption here that no 
Congress is going to change the benefit structure. I assume 
that the report indicates, or the report makes that basic 
assumption, so we are going to hold to that.
    Ms. Moon. Well, the report makes that assumption. Certainly 
that is one issue that people talk about in terms of another 
alternative and some people have proposed modest changes in the 
benefit structure as well.
    Chairman Shaw. For one, I don't think it will ever happen, 
and I certainly don't intend to support that as long as we know 
that there are other ways that we can go.
    So taking that into hand, would the effect on the taxpayer 
be any different at all if there were no Treasury bills?
    Ms. Moon. I believe that the Treasury bills are a very 
important signal to people of the importance of this program, 
that they are a commitment to support this program over time. 
They mean that currently, we are paying higher taxes than 
necessary to support the current program. I think that is 
totally appropriate, since many of the folks who are paying 
higher taxes right now are my generation, baby boomers.
    Chairman Shaw. I agree with everything you're saying. But 
you didn't answer the question. And remember, you've got an 
accounting hat on now, not an economist's hat. And that is, 
would it have any different effect on the taxpayer, with or 
without the presence of the Treasury bills?
    Ms. Moon. Ultimately, in that year, when there is a 
deficit, the taxpayer will have to either pay additional 
amounts in higher taxes, or new debt will have to be created. 
And that would not be different.
    Chairman Shaw. So the long term effect on the American 
taxpayer is the same, with or without the Treasury bills. So 
following that through, what is the significance of the fact 
that we are not going to run out of Treasury bills until some 
years later, other than extending a visible sign of commitment 
by this Congress and this government to tomorrow's retirees?
    The Treasury bills themselves, the presence of the Treasury 
bills is just that, and that only. Because the taxpayers are 
going to have to come and rescue the system, so that the cash 
flow is going to run huge deficits in the future that are 
either going to have to be bonded off by more debt or benefits 
will have to be paid by increasing taxes, whether it be FICA 
taxes or whether it be income taxes, or some other taxes that 
the Federal Government might think of. The taxpayer is going to 
have to come and bail this system out, beginning in the year 
2016. Is that correct?
    Ms. Moon. That is essentially correct, yes.
    Chairman Shaw. OK. Well, that is the point that I want to 
make. And the only reason I'm making it is not to create an 
argument, but to simply say that we are all in agreement that 
we've got to get this thing solved. Because beginning in 2016, 
I mean, I will now announce that I will not run for office in 
2016. So I will not be here. But I will probably, if I live 
long enough, and I hope I do, and I think I will, I'll 
certainly be around to watch this. And I don't want to shove 
this problem off to my kids and my grandkids. I'm sure none of 
us do.
    So many people think that we don't need to worry about this 
until 2030-something, and I know the President has talked about 
2050-something, by putting more Treasury bills, and the Vice 
President has talked about creating more Treasury bills.
    But that doesn't bail the system out. The taxpayers are on 
the hook beginning in 2016. And we really need to hammer on 
that point and say, we've got to do something.
    Now, I'm not necessarily saying that I have the answer, 
Chairman Archer has the answer, or Mr. Doggett has the answer, 
or Mr. Portman or Mr. McCrery or anyone else that is on this 
Committee or serves in this Congress. But we need to attack the 
issue, and we need to do it early. And I assume you agree with 
that?
    Ms. Moon. Yes, I think that is right.
    Chairman Shaw. Good, thank you.
    Mr. Doggett.
    Mr. Doggett. Thank you, Mr. Chairman.
    First, let me just say that I think there is a significant 
difference in some of the proposals that have been advanced, 
last year's USA accounts, this year a slight variant of that 
from the administration, to supplement the existing Social 
Security system and give people an opportunity to have 
individualized accounts to supplement Social Security versus 
some of the alternatives that have been advanced to take money 
out of the trust fund and use it for individualized or 
privatized accounts.
    I don't see how you could possibly extend the life of the 
current Social Security system if you were taking from it in 
order to have individualized accounts, whether it's partially 
individualized and privatized or wholly privatized. It seems to 
me that is only going to reduce the ability of this fund, be it 
2015, 2016 or thereafter, to meet its obligations.
    But Dr. Moon, I want to focus your attention for just a 
moment if I might on the statements that are in the report 
about the importance of continued economic growth to provide 
promised benefits. Chairman Greenspan, when he testified 
recently to the Senate Aging Committee, also noted that the 
goal of Social Security and Medicare reform must be to increase 
the real resources available to meet needs. And he also pointed 
out that transferring moneys from the on budget to the off 
budget Social Security accounts could make it politically more 
likely that the large projected unified surpluses will in fact 
actually materialize.
    Do you agree with Chairman Greenspan's thoughts on that?
    Ms. Moon. I believe that any policy that results in buying 
down the publicly held debt, reducing that, making sure that we 
are doing reasonable things to invest in the future of our 
economy, will make Social Security more affordable, make 
everything more affordable.
    You don't have to have enormous economic growth in any 
given year if you have good, consistent economic growth in some 
very good years. As we've seen with this trust fund report, you 
can have a major impact on future liabilities. So I think that 
is got to be one major part of any solution, that is an 
emphasis on economic growth as helping with this policy.
    The issue of how you view this trust fund and the 
transfers, I think is a very tricky one. I do think that it's 
important to retain a sense that this is a high priority item. 
We recognize that in the future there are going to be large 
draws on this program. And I view the trust fund as a way of 
signalling that.
    Mr. Doggett. And I believe in the past, you've argued in 
favor of, if we can't do a full 75 years of solvency, at least 
do something to make improvements.
    Ms. Moon. I think to wait until you have the perfect 
solution that gives you 75 years is not necessarily the right 
thing to do, particularly if there are changes that all sides 
can agree make sense to do, it seems to me that they should 
proceed. There are clearly some kinds of adjustments that 
people talk about or changes that may bring, be contradictory 
to one type of an approach or another. So it seems to me that 
one way to think about this is to potentially do things that 
there is some agreement on, and do them as soon as possible.
    Mr. Doggett. Is it your belief that the basic approach that 
the President has suggested, while it does not assure a full 75 
years, by reducing debt, by dedicating the interest savings to 
Social Security, that this will both promote economic growth 
and extend the life of the Social Security trust fund?
    Ms. Moon. It extends the life of the Social Security trust 
fund. I believe it would enhance economic growth, making the 
issues that we'll have to face more affordable. It is not in 
itself a solution. It is a step in the direction of a solution.
    Mr. Doggett. I know that our Chairman in his comments and 
questions to you has just focused on this 2015, 2016 era. And 
while I certainly agree that is important, some Republican 
members have focused on it so much, on grounds that the trust 
funds are not really real assets, they're basically 
meaningless, on the one hand. And on the other, they've told us 
that they're providing great protection to future Social 
Security beneficiaries by locking up what is meaningless.
    Let me ask you if you view the trust funds as being 
meaningless.
    Ms. Moon. I do not believe that they are meaningless. And I 
believe that in the same way that we create Treasury bills and 
sell them to individuals with an intention to pay in the 
future, we create the trust fund and an obligation with an 
intention to pay in the future.
    Mr. Doggett. And if we eliminate or at least significantly 
reduce the debt held by the public by the year 2013, won't that 
promote economic growth and put us in a much better position to 
meet any problems that we might encounter in 2015 or 
thereafter?
    Ms. Moon. I believe that is true as well.
    Mr. Doggett. Thank you very much. Thank you, Mr. Kellison.
    Chairman Shaw. I'd like to, Mr. Doggett, correct you on one 
thing. I don't think anybody said they were meaningless assets. 
But we've had numerous witnesses, including, I believe, Dr. 
Moon, question whether or not Treasury bills held by the 
Federal Government are real economic assets.
    I don't think anybody said they're meaningless. In fact, I 
agreed with Dr. Moon in that it is a symbol of our commitment 
to future retirees. And a visible commitment. But the question 
is, how do you use those bonds, how do you use the resources. 
And the real economic assets are going to have to be extracted 
out of the hide of the taxpayer beginning in 2016. So that is 
the point.
    But I don't want anyone to leave this hearing thinking that 
anybody up here has said that the Treasury bills are 
meaningless, because they certainly are not. Also, I want to 
agree with you, Mr. Doggett, where the carve-outs would be a 
problem. That is why Chairman Archer and I have not supported 
carve-outs, that we've done it completely with add-ons. I would 
welcome your co-sponsorship of our bill. I haven't really gone 
in depth with you about it, but it sounded like you were 
singing our song. And let's just see how close we are some day.
    Mr. McCrery.
    Mr. McCrery. Thank you, Mr. Chairman. This is an 
interesting discussion, as always, when we get together and 
talk about Social Security.
    However, it's going to get less and less interesting as 
time goes on, and these longer term problems that we can now 
sit here in our secure seats and talk about will be much more 
exigent.
    So you know, we talk about doing things incrementally. But 
I would ask the two panelists, what's been done incrementally 
since, say, 1990 to help this problem?
    Mr. Kellison. Well, in terms of legislative changes, not 
much.
    Mr. McCrery. Well, what, if any? What? You say not much. I 
want to know what, incremental changes, legislative that have 
been made.
    Mr. Kellison. I think that is really the only way you can 
make changes in the program on either the benefit or the 
revenue side, primarily, is through legislation. And there's 
been very little that is been substantive that would affect the 
program in the last decade.
    Mr. McCrery. Well, what has been done? You said very 
little. I'd like to know what that very little is.
    Mr. Kellison. I think basically nothing.
    Mr. McCrery. That is the answer I was looking for. Nothing 
has been done in the last decade, incrementally or big picture 
wise. Nothing has been done legislatively.
    We've gotten lucky, because the economy has been good 
through the decade. And that has improved these numbers that we 
talk about almost in the abstract. But we haven't done 
anything, incrementally or otherwise. But we talk a lot about 
it.
    The fact is, we can talk until doomsday, and doomsday will 
come. These figures should be frightening.
    The Chairman and Ms. Moon agreed that in the year 2016, 
when we have to start redeeming the bonds in the trust fund, 
that it can be done only two ways, either increase taxes or 
increase the publicly held debt. That is not correct. We could 
cut spending, couldn't we, Ms. Moon?
    Ms. Moon. Yes. As I indicated--
    Mr. McCrery. So that is a third option. We wouldn't have to 
increase the publicly held debt, nor would we have to increase 
taxes. We could cut defense spending or education spending or 
environmental spending. And who here thinks that we are going 
to do much of that?
    Well, we might, if things are just right politically for a 
year or two or maybe five. But eventually, the pressure is 
going to be so great, as evidenced by your own numbers, the 
debt, the deficit, the cash deficit, is going to be so great 
that it will be impossible to cut spending, and we will have to 
raise taxes or cut benefits or just increase the Federal 
deficit.
    So I hope that Mr. Doggett and Mr. Shaw can get together, 
and all of us, and quit this partisan bickering and whether 
this plan is better or that, and say, we've got do something. 
And I don't really care what it is. We've got to do something 
to solve this problem. I'm tired of sitting here and talking 
about it in the abstract. Eventually this is going to cause a 
huge problem for our society, if we do nothing.
    Same thing with Medicare. Medicare and Social Security are 
like time bombs, and they're ticking. If we do nothing, except 
pat each other on the back about the good economy, then these 
two programs will ensure that we don't have a good economy. 
They will ensure that we have a terrible economy, and the 
standard of living in this country will go down. The dollar 
will be not worth very much. And it will be our fault, because 
we talked and did nothing.
    So with that happy note, Mr. Chairman, I will yield back my 
time.
    Chairman Shaw. Mr. Portman.
    Mr. Portman. Thank you, Mr. Chairman. And I appreciate the 
fact that you continue to focus on 2014, now 2015, rather than 
2037 or 2039, because I think it's important in terms of 
focusing this Congress. And I am concerned, when the President 
talks about the fact that we don't need to worry about Social 
Security for another 40 years, because that is just not the 
case.
    And Mr. McCrery just made the case again that our choices, 
in a very short period of time, a decade and a half, are going 
to be limited, first, and second, very painful. And the sooner 
you begin to adjust, the more likely it is we can avoid that 
fiscal train wreck.
    Ms. Moon, you talked earlier about in the future, in 
response to Mr. Doggett, large draws on this program. It's a 
fiscal nightmare, isn't it? I mean, if we don't do something, 
the escalation of the insolvency problem is so great that baby 
boomers, my generation, who will then be retired and sending 
all those e-mails to all those Members of Congress who are 
going to succeed Clay Shaw and myself, they'll have a lot to 
say about that.
    And I don't think it's going to come out of the benefit 
side. I think it is going to come out of the hide of the 
American taxpayers, those who are left working and paying 
taxes, which will be a smaller percentage of the population as 
compared to now. And it is a huge issue.
    So I want to thank you, Clay, I know it probably gets a 
little old going back to that every hearing, but to focus on 
it. And I want to thank you all for giving us another report. I 
guess if I could summarize what I see in the report, it's very 
little has changed. We've moved from solvency about a year, 
based on some better economic assumptions and slightly 
different modeling.
    But I hope nobody in the press is writing that our problems 
are solved. I've seen some reports more focused on the Medicare 
projections than the Social Security projections saying, gee, 
everything's great now. I just hope that is not the report. I 
basically see very few reasons for optimism to come out of this 
report, but more reasons, as Mr. McCrery said, for us to get to 
work and do something.
    I do think that going to Mr. Doggett's point about the USA 
accounts, we need to realize that sort of approach does nothing 
to affect the solvency of Social Security. Is that correct, Ms. 
Moon, Mr. Kellison?
    Ms. Moon. Yes, if it's done outside of the system, it does 
not affect the solvency of the program. It does not, though, 
take resources away from Social Security, either, which I think 
was Mr. Doggett's point.
    Mr. Portman. Well, it does, though, if you follow the 
President's logic, which is he uses general revenues. It's $250 
billion over 5 years. It's got to come from somewhere. Where 
does it come from?
    Ms. Moon. It would certainly come from the revenues of 
other parts of the Federal budget, but not necessarily--
    Mr. Portman. Bingo. And in a balanced budget era, we don't 
have $250 billion out there. I mean, we could change spending 
patterns. We could not do the marriage penalty relief, I 
suppose. There are other things we could do.
    But the point is, if you look at the President's approach, 
it's basically moving one pot of money to another. He comes up 
with an arbitrary number, which is the interest savings on the 
debt. You can bump the number you want. I mean, correct me if 
I'm wrong, but every proposal has some transition costs. That 
is an interesting number, but it's changing the compact that 
FDR made, which is that this is not going to be in general 
revenue program, it's taking money out of general revenues, as 
do other proposals, including ones that are supported by 
Republicans.
    But it doesn't help the solvency one bit. And it will hurt 
in the sense that it's taking money away from general revenues 
that otherwise could be used for Social Security. And a big 
chunk, a bigger chunk than any other tax proposals out there.
    It's also interesting to me, Mr. Doggett, you said that the 
personal accounts do nothing to extend the life of the trust 
fund. And you know, if you look at the Archer-Shaw proposal, I 
know it's proposed by Republicans, but it's not inconsistent 
with anything you've said. Look at every single approach out 
there. Every one has a transition cost. The Archer-Shaw one is 
a 2 percent tax credit. And what does it do? It gets a higher 
rate of return, so that over time it absolutely affects the 
solvency of the program.
    In fact, the non-partisan analysis coming from the Social 
Security Administration and from the folks here on the Hill who 
project what the economic forecasts are going to be are that it 
not only affects the solvency, but over time, when you look 
long term, out 50 years, it results in no solvency problem at 
all, because you get that higher rate of return year after 
year, and the government will have to pour in less and less of 
the Social Security payroll taxes into people's retirement 
because of these higher rates of return.
    Granted, there is a transition. And the transition is 
funded how? General revenues, right? So this notion that 
somehow personal accounts don't solve the problem, I mean, the 
only way you solve the problem is with general revenues. With 
personal accounts, at least you're only using general revenues 
for a short period of time to get over that hump. And then you 
have a solution to the problem that I think is very creative 
and frankly, given the choices, raising taxes, cutting 
benefits, I think is by far the preferred option.
    So I would just encourage my friends on the other side of 
the aisle to take a serious look at this proposal. Because I do 
think it's not a Republican proposal or a Democrat proposal, 
although some Republicans are calling a Democrat proposal, 
while Democrats beat up on it.
    And I'm sorry to talk so much and not ask more questions. 
But I have read your testimony. What I am concerned about your 
testimony is where you say that the improved financial 
projections mean that there are many ways to put Social 
Security back in fiscal balance. The task is to choose an 
approach on positive grounds, rather than settling for a 
particular approach, because it will produce enough savings. I 
don't know what that sentence means.
    And since it's both your testimony, either one of you can 
respond to it. I will not take any more time, but if you could 
just tell me what that means, I think it would be interesting. 
I mean, a particular approach that just creates enough savings, 
I hope we are going to have an approach that will create enough 
savings. Why is that a bad thing? What do you mean by that? 
What can I read into what you are saying?
    Ms. Moon. What we were trying to say is that the trust 
funds are out of balance, and something will need to be done. 
But we don't believe that they are so far out of balance that 
there is out there only one solution and no other solution that 
can solve this problem. What we were trying to say is that this 
should be an empowering kind of an issue in terms of thinking 
about the future of Social Security, that there are several 
options that you could use. And you need to choose and make 
some tough choices. But there's no one that says, this is the 
only thing that can solve this problem.
    Mr. Portman. Mr. Kellison? But you have to choose one, you 
just said. I don't know quite what that means. I think the word 
empowerment is interesting, too, because then that's consistent 
with the personal account idea, empowering people to save more 
for their own retirement, which we should be doing in our 
private pension side, as well, where we have enormous 
opportunity to provide the backstop to Social Security.
    But Mr. Kellison, what did you mean by that sentence?
    Mr. Kellison. I think Dr. Moon has captured it. It 
certainly was not a call to inaction by any means. I think it 
was basically a statement that recognized that there are 
different solutions for this issue that have been proposed, 
that a consensus has not really emerged behind any one set of 
proposals, and that there are multiple ways in which the 
program can be dealt with.
    Now, none of them are painless, however, as you well 
pointed out. And I strongly would reiterate the need, as 
several of you have expressed, about taking some action 
forthwith on this program. The longer that there is a delay in 
taking action, the more significant changes will have to be to 
bring the system back into balance.
    And that is the risk of looking at this report in sort of a 
good news way that might lead some to say, well, we can delay 
having to deal with these issues. That's a mistake. Because the 
issue is there, the demographic profile of the population is 
there. And the longer that action is delayed, the more 
significant the change is going to have to be to fix it then. I 
think that's clear.
    So perhaps, those words were chosen poorly, if they've 
conveyed an attitude that we can just kind of muddle along and 
not do anything about it. That was not the intent.
    Mr. Portman. Well, thank you. Thank you, Ms. Moon. Thank 
you, Mr. Kellison. I appreciate and agree with your statement.
    Chairman Shaw. Thank you, Mr. Portman. I just wanted to 
underscore, I don't think we've talked enough about what Mr. 
McCrery has talked about, and that is, the economic nuclear 
explosion that is out there that our kids and our grandkids are 
going to have to find shelter against if we don't do anything. 
And it is.
    The figures, and I'd like to ask my economist friend, I use 
the figure in my statement that by the time you get to the year 
2037, that there's going to be a shortfall, cash shortfall of 
$318 billion that's going to have to be made up in some way. 
What would you project? And you all are fortune tellers, that's 
what we look to economists for. Do you agree with Mr. McCrery 
that this is something that's going to have a tremendous 
negative effect on the strongest economy on the face of this 
Earth?
    Ms. Moon. I guess I look at it a little bit differently. 
Because we have an aging society, we're going to have an aging 
society. There are going to be a lot of us baby boomers around. 
I think there are going to be a lot of different challenges, of 
which I actually believe Social Security will be a relatively 
modest one.
    I think one of the challenges is, how do you keep, how do 
you use productively the millions and millions of people who 
will be in their retirement years and encourage them to remain 
active in some way, either in the labor force or in volunteer 
activities.
    There's an enormous richness that we should not let go and 
we should not discourage people from participating in. At the 
same time, I think we should not also bash the generation 
because they stay alive in retirement and think of it as a 
nightmare. Because it's actually what we have all wished for, 
and that is longer life expectancy. It's going to create a 
number of challenges, and there are some things that we are 
going to deal with.
    If we have strong economic growth, $318 billion will not 
seem like a great deal of money. And that clearly is one piece 
of this whole puzzle. So it is very difficult to imagine what's 
going to be viewed as affordable or unaffordable in 30 years, 
or even in 20 years.
    Chairman Shaw. Dr. Moon, I don't know anybody that said 
living longer is going to be a nightmare. I'm just talking 
about not planning. To come up with all these rosy things like 
volunteerism and all these things that you think it's going to 
do, do you disagree that the deficits will increase from $20 
trillion to $21 trillion?
    Ms. Moon. No, I don't disagree.
    Chairman Shaw. You don't think that we've got a projected 
deficit? I believe your own trustees' report projects deficits 
over 75 years in that amount if we don't do anything. And I 
think I got that from the Social Security Administration.
    Ms. Moon. And I'm not saying we should not do anything. 
What I'm trying to say is--
    Chairman Shaw. But do you disagree with that type of 
deficit if we don't correct this, if we don't do something to 
shore up the Social Security program?
    Ms. Moon. No, I don't. And that's why we're here saying we 
should--
    Chairman Shaw. Well, you take a stab at it. How many 
trillions of dollars are we looking at over the next 75 years, 
if we just do nothing?
    Ms. Moon. Well, I think you have the figures in front of 
you, and I don't have them in front of me. I'm not disagreeing 
with your figures. And I'm not disagreeing that this is a 
substantial issue.
    Chairman Shaw. Do you disagree with the figure that I'm 
giving you? I mean, I got it from the Social Security 
Administration. I'm not smart enough to think that up.
    Mr. Kellison, perhaps you'd like to--do you have a memory 
of that particular figure?
    Mr. Kellison. I don't have the numbers right in front of 
me, but I think your numbers sound about right. I don't 
disagree with them. If that was your source, I think that would 
be our source, too.
    Chairman Shaw. You know, one of the things, and I'll make 
just an across the bow blast right now of everybody who's 
running for President, nobody has stepped up to the bag and 
said, we have to correct this now, and here's what I'm going to 
do. And I can tell you, the American people are looking for 
that. And once the word goes out that they know that we are in 
deep trouble starting just 15 years from now, the American 
people expect their leaders to do this.
    The President of the United States told me and Chairman 
Archer at the Blair House Conference that we had just a year 
and a few months ago that he did not want us to come forward, 
that he wants to put together the plan and take the leadership. 
Every significant change in the Social Security system that has 
been made in my memory, and probably in the entire existence of 
the program, has been with the leadership of the White House.
    And we've yet to get that, even though we've received the 
commitment of the President. All we hear, the only thing we're 
hearing from the White House is more Treasury bills, which we 
know, and we certainly established, does not solve the problem 
in 2016, or investing the Social Security trust funds in the 
stock market. And that's something the American people are not 
going to tolerate, and I will certainly oppose as long as I'm 
in the Congress or have anything to say about it.
    So, we put a plan out there, and we're looking for support 
on the Democrat side, just like welfare reform. It has to be 
done in a bipartisan way. And unless you have bipartisan 
cooperation, it will never get done.
    And whether it's the Archer-Shaw plan, whether it's some of 
the other plans that are out there, this Congress has to act. 
Because there is an economic disaster that's out there. And I 
don't care what kind of rosy assumptions you make, I'm not 
going to leave this to my kids in 2016 and beyond, and my 
grandkids, in 2016 and beyond. That just is not something that 
this Congress should do.
    We've got good times, we've got great opportunities. We've 
got surpluses, and now is the time to step up to the plate and 
solve this question. That's what we're here for, to make these 
hard decisions. That's what the White House is, they're 
supposed to give us some leadership. The Founding Fathers saw 
that, even though they propose and we dispose. It's time that 
we do get together and pull this thing together.
    I think this has been a very good hearing. Do any of the 
other members have anything to say before we adjourn?
    Mr. McCrery. Mr. Chairman?
    Chairman Shaw. Yes, Mr. McCrery.
    Mr. McCrery. Just a note, Ms. Moon said that, I think in 
2037 there would be a $318 billion deficit, is that what you 
said?
    Ms. Moon. I think I was reiterating what Mr. Shaw said. I 
didn't have the number in front of me.
    Mr. McCrery. Oh, OK. Is that what you said, Mr. Chairman? 
Is it $318 billion in 2037?
    Chairman Shaw. Right.
    Mr. McCrery. OK. And Ms. Moon said, well, you know, who 
knows, given continued economic growth, how significant a $318 
billion deficit will be in 2037. I know what you're talking 
about, and I agree. But lest anyone in the audience or in the 
press listening thinks that these numbers are not adjusted for 
inflation, they are. So we're talking about $318 billion in 
today's dollars. And we don't know what the figure will be in 
2037, but it will be more than $318 billion in 2037 dollars.
    So I just wanted to make that clear. All these numbers 
we're talking about are inflation adjusted, or not inflation 
adjusted, they're in today's dollars. So the $21 trillion 
accumulated deficit between 2015 and 2074, it's $21 trillion as 
we think of dollars today, not as we will think of them in 
2074.
    Thank you.
    Chairman Shaw. I think it's also important to realize, and 
Dr. Moon, I'll certainly say this to you, you talk about 
increased economic growth. Economic growth is already in your 
report. And there is an assumption for that. And quite frankly, 
Mr. Kellison, all you can do is guess since neither one of us 
are medical scientists, and I don't think medical scientists 
can even project, but I think your life expectancy figures are 
low. I think we can look to live much longer than even your 
assessment of the possibility of increased life expectancy.
    So it may be that $318 billion is too low. It may go way 
beyond that, as we do enjoy longer life, longer retirement. So 
we've really got to do some changes here that will save Social 
Security for all time.
    We appreciate the work you have done on the report. I think 
you have certainly given us some excellent information, and we 
appreciate your being here this morning. And if there's no 
other comments or questions from the members, we will be 
adjourned.
    Thank you.
    [Whereupon, at 10:59 a.m., the hearing was adjourned.]
    [The following questions submitted by Chairman Shaw and the 
responses of Dr. Moon and Mr. Kellison follow:]

    Responses to Questions for the Record to Marilyn Moon and Stephen 
Kellison following Social Security Subcommittee hearing on April 6, 
2000

    1. Are Social Security's growing cash deficits an indication that a 
pay-as-you-go system is not sustainable when the population is aging? 
Do you think we need some saving within Social Security, in some form, 
to make the program viable in the long run?

    Social Security annual balances are projected to be positive until 
2025 and the steep rise in program costs will slow dramatically once 
all of the baby boom generation reaches retirement age in about 2030. 
Aging of the population thereafter is projected to result from 
increases in life expectancy and therefore be quite gradual. Thus, the 
projected aging of the population is not an indication that Social 
Security is unsustainable. The real question is what the cost of the 
program will be 20 or 30 years into the future in relation to the 
nation's wealth and other demands, such as health care, at that time. 
As the 1999 Technical Panel noted, there are ways to reduce the 
uncertainty in program costs due to uncertainty about future 
demographic change by automatically adjusting program rules for 
increases in life expectancy or adjusting tax or benefit formulas over 
time. In regard to trust fund savings, the current buildup of trust 
fund assets invested in U.S. Treasury bonds is a form of saving within 
Social Security and will help pay benefits when the annual cash flow 
turns negative. Further build up of trust fund assets would require 
reductions in current benefits and/or increases in revenues to the 
trust funds: this is one option for extending the solvency of Social 
Security but only one of many that should be explained to the public 
and considered in any financing reform legislative package.

    2. In the Trustees' Report and in your written testimony, you 
express concern about the significant fluctuations in the disability 
program over the past two decades, and you recommend close monitoring 
of the program in the coming years. What would be the best way to 
monitor the Disability Program? Does SSA need to undertake new research 
or analyses specific to this issue?

    The best way to monitor the disability program over the short run 
is to follow the monthly update of program experience provided by the 
SSA Office of the Chief Actuary to the committee and at www.ssa.gov/
OACT/STATS/dibStat.html. For the longer term projections of disability 
costs, the research contract SSA has underway to evaluate the incidence 
of disability in the U.S. population is most promising but will take 
several years to complete.

    3. You mention that while you are heartened by the debate that has 
occurred over the past 5 years about the program, you say that the 
debate has often stalled, as ``exaggerated claims'' are made by both 
sides and that these issues are too important to be left to the 
``vagaries of partisan politics.'' Here is your opportunity to set the 
record straight -which ``exaggerated claims'' are you referring to and 
how have they stalled debate?

    The exaggerations in the debate about Social Security financing 
reform range from ``nothing needs to be done'' to ``invest in equities 
and you will get rich.'' Debate through ``sound bites'' such as these 
do not give the public the information it needs to evaluate reform 
options--it can however stall the political process of developing 
consensus by seeming to offer simple solutions to issues that are 
complex and subject to uncertainty

    4. Social Security's financial status improved slightly in this 
report. The most positive impact on the program's financial outlook was 
created by a change in the methods used to make future projections. Can 
you explain these changes? What would Social Security's 75-year deficit 
have been if the Trustees used the same methods they used in last 
year's annual report?

    Rather than try to condense the description of the changes in 
actuarial methods and other factors that affected the actuarial balance 
in the 2000 OASDI Annual Report, we respectfully refer you to pages 130 
-132 of the report. We would note that improvement in actuarial methods 
occur in almost every report as new data and techniques become 
available. Over the past decade, changes in methods that increased that 
actuarial balance have totalled 0.63 percent of taxable payroll, and 
those that have decreased the deficit have totalled 0.36 percent of 
payroll. Changes in actuarial methods in the 2000 report improved the 
actuarial balance 0.17 percent; without those changes the deficit would 
have been -2.07 (totals do not add due to rounding).

    5. We are now experiencing the country's longest economic 
expansion, yet Social Security is still insolvent in the long run. 
Should we rely on a strong economy to ``grow our way out of this 
problem?''

    It would be inadvisable to stop the debate regarding the best ways 
to improve Social Security's financing and rely only on continuation 
over the next 75 years of current rates of economic growth. The rate of 
growth in real earnings in the U.S. over the last 4 years is higher 
than for any similar period in over 30 years, and if we could maintain 
for the next 75 years such a rate of growth we would more than 
eliminate the projected Social Security financing problem. However, 
even the optimistic economic assumptions in the 2000 report do not 
project long-term average economic growth to be nearly as rapid as that 
we have experienced over the last 4 years.

    6. The 1999 Technical Panel made several recommendations regarding 
the methods and assumptions used in the Trustees' Report. Can you 
please go through each of the Panel's recommendations and explain: (1) 
which recommendations were incorporated; (2) which recommendations were 
not incorporated, and (3) why were these decisions made? In addition, 
did the Trustees implement any changes in assumptions or methods that 
the Technical panel did not recommend?

    It is difficult to compare the Technical Panel's recommended 
economic assumptions with those used for the 2000 Annual Reports 
because after the Panel reported the Bureau of Economic Analysis 
released significant changes in national economic data that changed, 
among other things, the historical rate of growth in U.S. productivity. 
The Panel said that there was ``significant uncertainty both as to the 
level of future productivity and our ability to measure it....'' and 
recommended that the ultimate assumption regarding the rate of average 
annual growth in real wages, which are strongly influenced by 
productivity and are key to trust fund revenue projections, be 
increased from 0.9 percent to 1.1 percent The productivity assumption 
in the 2000 report was increased by 0.2 to 1.5 percent per year, and 
the real wage assumption was increased to 1.0 percent per year. The 
Panel also recommended that the assumption regarding the rate of 
interest on bonds held by the trust funds by lowered by 0.3 percent per 
year, from 3.0 to 2.7 percent. The rationale given for this 
recommendation was to derive it by subtracting the assumed rate of 
inflation from the assumed nominal long term interest rate. Subsequent 
discussion of the Panel's recommendation in January by experts invited 
by the Social Security Advisory Board found strong disagreement with 
reducing the assumed interest rate on trust fund bonds to 2.7 percent 
because of substantial market evidence that a rate of 3.0 or higher is 
more appropriate. Thus, the real interest rate assumption of 3.0 
percent per year in the 1999 Annual Report was not changed for the 2000 
report.

    The most significant recommendation regarding assumptions made by 
the 1999 Technical Panel was to double the assumed average decline in 
mortality rates from those in the 1999 Annual Report. As Public 
Trustees we have followed debate about this assumption by outside 
experts carefully and have found that there is a wide range of views 
about the prospects for faster increases in life expectancy over the 
next 75 years. The Technical Panel thought that life expectancy in the 
U.S. would speed up as it has in such countries as Japan and France in 
recent decades. Other experts believe that biological and social 
factors may slow future rates of decline in mortality (i.e. increase in 
life expectancy) in the U.S. The fact that decline in the mortality 
rate among those age 65 and older has averaged only 0.56 percent per 
year since 1982, in part because for the first time in a century the 
rate of increase for older women has fallen below that of older men, 
raises serious and unanswered questions about current as well as future 
prospects for more rapid increases in life expectancy. After careful 
consideration of the disparate views and evidence regarding future 
increases in longevity, the assumption on the average decrease in 
mortality for older people (the age group in which most of any decrease 
must occur), the assumption in the 2000 report was increased by about 
30 percent, from about 0.5 percent for women and men considered 
together in the 1999 report, to about 0.65 percent per year in the 2000 
report.

    The 1999 Technical Panel considered but did not recommend an 
increase in the fertility rate (the 1995 Technical Panel had 
recommended an increase from 1.9 to 1.95 children per woman). Based on 
the continuance in the most recent data of fertility rates just over 
2.0 percent, the fertility assumption in the 2000 report was increased 
from 1.9 to 1.95 children per woman.

    7. Several proposals have been introduced that would broaden the 
scope of the information provided in the Trustees' Report. Should the 
Trustees' Report include (or more clearly explain) certain information, 
such as the: (1) the long-term sustainability of the Social Security 
program, (2) the program's unfunded liability, (3) rates of return for 
different cohorts, and (4) the effect of newly enacted Social Security 
provisions on the budget and national saving?

    The 1999 Technical Panel generally sought ways to improve the 
presentation of the Social Security program's financial status and 
outlook, including the critical issues of the uncertainty involved in 
any projection and of the sustainability of the program at the end of 
the 75-year projection period. The issue of sustainability at the end 
of the period is presented in discussion of actuarial estimates in the 
2000 report. There was not time to fully consider and make extensive 
other changes in the presentation of the annual report for 2000, but we 
understand that such changes will be studied for the next report. Of 
the specific areas you asked about including in the report, the long-
term financial status--whether described as income compared with costs, 
sustainability or something else, is an objective of the report and 
needs to be conveyed as clearly as possible. The program's unfunded 
liability is a much more complicated concept, which can be defined in 
several ways and is difficult to comprehend for most of us. The 
unfunded liability is therefore not likely to help the public 
understand Social Security's long-term financial status, but it could 
be considered for inclusion in the annual report. The issues of rate of 
return and the effect of Social Security on the budget and national 
savings are, in our view, not proper subjects for inclusion the annual 
trustees report on the financial status and outlook of the trust funds. 
Rather, those issues could better be presented in the Economic Report 
of the President as they concern not the trust funds but national 
economic matters.

    8. You state that the trustees reports serve as an early warning 
system that allows us the opportunity to make changes in a timely and 
responsible manner. Based on your service as Trustees, what changes 
would you support.

    We would hope that the President and the Congress would make 
programmatic changes in Social Security whenever changes that make 
sense and have public support are identified. As we said earlier, the 
recent retirement test legislation could be seen as such a change. The 
financing plans offered by the 1995 Advisory Council included several 
programmatic changes that could be considered. What we are most 
concerned about is the seemingly pervasive assumption in discussions of 
Social Security financing reform that the only way to proceed is to 
develop a package of proposals that will, at the time of enactment, put 
the program into perfect 75-year actuarial balance. That is the model 
of the 1977 and 1983 legislation and of the 1995 Advisory Council 
plans. We think that the enormous uncertainty that exists about the 
future makes waiting to devise the ``perfect'' plan a much less 
desirable goal than making changes whenever they achieve the necessary 
public support.

    [A submission for the record follows:]

Statement of Michael F. Ouellette, Director of Legislative Affairs, 
TREA Senior Citizens League, Alexandria, Virginia

                              TSCL Members
                              [In District]



Representative E. Clay Shaw, Jr., Chairman..........              4,000
Representative Robert T. Matsui, Ranking Member.....              2,980
Representative Sam Johnson..........................              1,842
Representative Michael Collins......................              2,133
Representative Rob J. Portman.......................              3,070
Representative J. D. Hayworth.......................              5,247
Representative Jerry Weller.........................              3,776
Representative Kenny C. Hulshof.....................              3,549
Representative Jim McCrery..........................              1,713
Representative Sander M. Levin......................              3,480
Representative John S. Tanner.......................              2,357
Representative Lloyd Doggett........................              1,944
Representative Benjamin L. Cardin...................              2,915


    Mr. Chairman, The TREA Senior Citizens League (TSCL) 
appreciates the opportunity to submit testimony to your 
subcommittee's hearing to examine the findings of the 2000 
Annual Report of the Board of Trustees on the financial status 
of the Social Security Trust Fund. In this regard, TSCL is 
grateful for the chance to offer a number of insights and 
recommendations for the subcommittee's consideration. TSCL 
hopes that this testimony will be beneficial to the members of 
this subcommittee during their deliberations.
    TSCL is a non profit, issues advocacy organization 
representing over 1.5 million members and supporters and is 
dedicated to serving its members by defending and protecting 
their earned retirement benefits. The League is registered to 
conduct grassroots fundraising, public education and lobbying 
activities in nearly every state, and does not solicit nor 
accept any money from the federal government. For your 
information, over 39,006 of our members are constituents of 
this subcommittee's members. TSCL sincerely thanks the members 
of this subcommittee on the decision to hold a hearing designed 
to closely scrutinize the current near-term prognosis for 
Social Security as well as the long-run solvency picture 
associated with the benefit. TSCL fully agrees with the Board 
of Trustees recommendation that as reform of the Social 
Security program is considered, it will be imperative that 
changes can be phased in gradually and workers will have time 
to adjust their plans to account for the changes.

INTRODUCTION

    Mr. Chairman, TSCL welcomes the Social Security Trustees 
Report showing that the Trust Fund will not become bankrupt 
until 2037 instead of 2034 as reported one year ago. But that 
date is deceptive. The SS Trust Fund's (SSTF) solvency has 
nothing to do with the federal government's ability to pay 
retirees full benefits as promised. The crucial date is really 
2015.
    In 2015, SS spending on benefits will begin to exceed 
revenues. The government at that time will need to draw on 
special issue Treasury bonds that represent I.O.U.s from other 
parts of the government to the SSTF. Before 2015, the 
government will have to choose between cutting future benefits 
to retirees, raising taxes or finding ways to increase the 
rates of return earned on retirement money to finance full 
benefits.

Measures To Protect Social Security

    TSCL supports current the Social Security ``lock box'' 
measures to set aside Social Security payroll taxes in order to 
pay down federal debt. This will do far more to help put the 
nation's retirement system on sounder footing than would 
cutting taxes, but it does nothing to provide for unfunded 
liabilities to future retirees, nor does it insure that current 
retirees will receive full benefits as promised.
    Surveys of TSCL members overwhelmingly favor reform of the 
Social Security system. Assuming that there would be no change 
to their current level of benefits, about 69 percent of TSCL 
members would favor some form of personal retirement accounts 
for younger workers.
    Because 2015 is the crucial date rather than 2037, TSCL 
urges this subcommittee and the Congress to move ahead with 
measures that would protect the financial solvency of SS and 
thus insure that SS pays full benefits as promised. Action 
taken now will allow adequate time for careful study of 
proposals, full and open debate, and for changes to be enacted 
gradually over a period of time to avoid creating another `` 
NOTCH'' in benefits.

Gradual Change Important To Prevent A Notch In Benefits

    TSCL urges this subcommittee and Congress to enact reforms 
gradually, in small incremental steps. Changes to Social 
Security that are too drastic, over too short a period of time, 
may create a ``Notch'' in benefits. TSCL points to the Social 
Security changes of 1977 as a case in point.
    A Notch creating a disparity in benefits between retirees 
born 1917 through 1926 and those born before and after them 
arose from legislation enacted in 1977. The legislation altered 
the way Social Security benefits were computed beginning with 
people who became eligible in 1979--only two years later. 
Disparities in benefits are often very large, in some instances 
exceeding $200 a month, and were not intended by Congress.
    TSCL maintains that Notch Reform, in which benefit 
disparities would be addressed and corrected should be included 
as part of any Social Security reform. Two bills currently in 
the House, H.R. 148 and H.R. 568, as well as the Senate bill, 
S. 390, would offer those born from 1917 through 1926, or their 
surviving beneficiaries, the option of choosing Lump-Sum 
payments, paid over four years, totaling $5,000 or improved 
monthly benefits over a four-year period.
    The total number of those born during the Notch period of 
1917 through 1926 is now estimated at about 9 million. 
Accordingly TSCL estimates the cost of ``Lump-Sum'' Notch 
reform to $45 billion.
    The Congressional Budget Office (CBO) projects that our 
total federal budget surplus for 2000 will be $161 billion, 
$147 billion of which is Social Security payroll taxes. The 
CBO, in fact, projects the budget surpluses will continue over 
the next 10 years. The above Notch Reform bills would require 
financing over a four-year period. The revised estimated cost 
of Notch Reform is $11.25 billion per year over 4 years.

Senior COLAs

    A commonly mentioned reform to Social Security is to change 
the Consumer Price Index (CPI). Some economists have charged 
that the CPI overstates inflation and thus overpays Social 
Security COLAs. TSCL maintains this is not the case.
    Social Security COLAs are indexed to a CPI that does not 
even survey the market basket of seniors, but that of Urban 
Wage Earners and Clerical Workers, the CPI-W. The CPI-W 
specifically excludes the market basket of those receiving 
pension income such as Social Security. It does not accurately 
reflect the rapidly rising costs of health insurance or 
prescription drugs because workers are more likely to have 
employer-provided insurance and do not purchase prescription 
drugs as frequently as seniors do.
    A study of the Consumer Price Index for Elderly (CPI-E) 
consumers confirms that inflation for seniors is rising more 
quickly than for the general public. The CPI-W thus understates 
inflation for seniors. According to the Bureau of Labor 
Statistics over the period from 12/82 through 9/99, the CPI-W 
increased a total of 68.1%; the CPI-E increased 78.5% for a 
difference of 10.4 percent. The medical care component for the 
CPI-W increased 159.7% and the CPI-E increased 169.3%.
    TSCL studies have found that if the CPI-E were used to 
index senior COLAs instead of the CPI-W seniors would have 
received $5,480.10 more over the 16 years for which the 
government has tracked the senior CPI, as illustrated in the 
following table:


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Percentage
                                                                 Average                  Average                difference
                            Year                                 Monthly      CPI-W*      Monthly      Actual   between CPI-     Monthly       Yearly
                                                               Benefit w/              Benefit with    CPI-E*    W and CPI-E   Difference    Difference
                                                                  CPI-W                    CPI-E
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984........................................................      $487.00       3.5%       $487.00       4.3%        22.86%            $-            $-
1985........................................................      $504.05       3.1%       $507.94       3.8%        22.58%       $(3.90)      $(46.75)
1986........................................................      $519.67       1.3%       $527.24       2.5%        92.31%       $(7.57)      $(90.87)
1987........................................................      $526.43       4.2%       $540.42       3.9%        -7.14%      $(14.00)     $(167.97)
1988........................................................      $548.54       4.0%       $561.50       4.2%         5.00%      $(12.96)     $(155.57)
1989........................................................      $570.48       4.7%       $585.08       5.0%         6.38%      $(14.61)     $(175.27)
1990........................................................      $597.29       5.4%       $614.34       6.0%        11.11%      $(17.05)     $(204.57)
1991........................................................      $629.54       3.7%       $651.20       4.7%        27.03%      $(21.65)     $(259.85)
1992........................................................      $652.84       3.0%       $681.80       3.2%         6.67%      $(28.97)     $(347.61)
1993........................................................      $672.42       2.6%       $703.62       3.1%        19.23%      $(31.20)     $(374.40)
1994........................................................      $689.90       2.8%       $725.43       2.9%         3.57%      $(35.53)     $(426.35)
1995........................................................      $709.22       2.6%       $746.47       2.9%        11.54%      $(37.25)     $(447.00)
1996........................................................      $727.66       2.9%       $768.12       3.0%         3.45%      $(40.46)     $(485.49)
1997........................................................      $748.76       2.1%       $791.16       2.4%        14.29%      $(42.40)     $(508.79)
1998........................................................      $764.49       1.3%       $810.15       1.8%        38.46%      $(45.66)     $(547.95)
1999........................................................      $774.43       2.4%       $824.73       2.6%         6.79%      $(50.31)     $(603.69)
2000........................................................      $793.01   .........      $846.18   .........  ............     $(53.16)     $(637.97)
                                                                                    Total benefits lost over 16 years                         $5,480.10
                                                                                   Average loss per year over 16 years                          $342.51
--------------------------------------------------------------------------------------------------------------------------------------------------------

    TSCL supports the creation of more fair Social Security 
COLA by indexing it to the CPI-E as proposed in ``The Consumer 
Price Index for Elderly Consumers Act'' (H.R. 1422) introduced 
by Representative Bernie Sanders (I-VT) and Rep. Robert Ney (R-
OH).
    In addition, the CPI has already undergone a series of 
technical change during the 1990's to address the problem of 
so-called over-statement of inflation. These changes have had 
the cumulative effect of slowing the rate of growth in the CPI 
by about 0.8 percentage points. In the July 15, 1998 report by 
the Congressional Budget Office forecasts were revised in part 
to reflect these changes. The CBO noted that, `` Because of 
changes the Bureau of Labor Statistics has made or plans to 
make in how it measures the CPI, the 2.7 percent inflation 
projected for 2000 is comparable to 3.4 percent inflation 
calculated on the basis of measurement techniques used before 
1995.'' That equals a 0.7 percentage point correction.
    Last year the CBO revised their forecasts once again 
stating that, ``the CBO has increased its estimate of the 
technical adjustment by less than 0.1 percentage point a year, 
on average for the 1999-2009 period.'' This brings the 
cumulative effect of the changes to 0.8 percentage points.
    TSCL has studied the effect a more slowly growing CPI has 
on the retirement benefits and found that the average retiree 
stands to lose more than $4,444 over the next ten years. The 
table below shows the effect of a 0.8% CPI correction:


----------------------------------------------------------------------------------------------------------------
                                              Average Monthly   CPI Assumption      Benefit        Benefit the
                    Year                          Benefit         Old Method        Increase      Following Year
----------------------------------------------------------------------------------------------------------------
1998........................................          765.00              1.9            14.54           779.54
1999........................................          779.54              3.1            24.17           803.70
2000........................................          803.70              3.3            26.52           830.22
2001........................................          830.22              3.2            26.57           856.79
2002........................................          856.79              3.3            28.27           885.06
2003........................................          885.06              3.3            29.21           914.27
2004........................................          914.27              3.3            30.17           944.44
2005........................................          944.44              3.3            31.17           975.61
2006........................................          975.61              3.3            32.20          1007.80
2007........................................         1007.80              3.3            33.26          1041.06
2008........................................         1041.06              3.3            34.36          1075.42
2009........................................         1073.33              3.3            35.42          1108.75
2010........................................         1108.75              3.3            36.59          1145.34
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                                              Average Monthly   CPI Assumption      Benefit        Benefit the
                    Year                          Benefit         New Method        Increase      Following Year
----------------------------------------------------------------------------------------------------------------
1998........................................          765.00              1.3             9.95           774.95
1999........................................          774.95              2.4            18.60           793.54
2000........................................          793.54              2.5            19.84           813.38
2001........................................          813.38              2.4            19.52           832.90
2002........................................          832.90              2.5            20.82           853.73
2003........................................          853.73              2.5            21.34           875.07
2004........................................          875.07              2.5            21.88           896.95
2005........................................          896.95              2.5            22.42           919.37
2006........................................          919.37              2.5            22.98           942.35
2007........................................          942.35              2.5            23.56           965.91
2008........................................          965.91              2.5            24.15           990.06
2009........................................          988.13              2.5            24.70          1012.83
2010........................................         1012.83              2.5            25.32          1038.15
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                                                 Old Method       New Method        Monthly      Annual Benefits
                    Year                          Benefit          Benefit         Difference          Lost
----------------------------------------------------------------------------------------------------------------
1999........................................          779.54           774.95             4.59            55.08
2000........................................          803.70           793.54            10.16           121.88
2001........................................          830.22           813.38            16.84           202.09
2002........................................          856.79           832.90            23.89           286.64
2003........................................          885.06           853.73            31.34           376.05
2004........................................          914.27           875.07            39.20           470.42
2005........................................          944.44           896.95            47.50           569.95
2006........................................          975.61           919.37            56.24           674.87
2007........................................         1007.80           942.35            65.45           785.40
2008........................................         1041.06           965.91            75.15           901.78
2009........................................         1075.42           990.06            85.36          1024.27
2010........................................         1108.75          1012.83            95.92          1151.04
Ten Year Loss (total, year, month)                 1999-2008          4444.16           444.42            37.03
                                                   2000-2009          5413.35           541.33            45.11
Five Year Loss (total, year, month)                1999-2003          1041.74           208.35            17.36
                                                   2000-2004          1457.08           291.42            24.28
----------------------------------------------------------------------------------------------------------------

    TSCL is not only opposed to using the CPI-W as an index for senior 
COLAs, but also favors a moratorium on further corrections to the CPI 
until the Social Security COLA is indexed to the CPI-E.

                               Conclusion

    In closing, TSCL wishes to thank the members of this subcommittee 
for holding this important hearing. In this regard, TSCL believes that 
the future of Social Security will depend on continued efforts of this 
subcommittee to protect the existence of the program. Continued 
combative efforts may give the Congress the levels of funding needed to 
pass legislation that would:
    Provide relief to a group of Social Security recipients who 
were born in 1917 through 1926 who have been receiving less in their 
retirement benefit due to the changes that were made in 1977 to the 
Social Security benefit formula. These ``Notch'' babies, as they are 
referred to, consequently have less in disposal income than many of 
their contemporaries and are facing much more severe financial 
hardships than others. The passage of H.R. 148 or H.R. 568 could 
greatly assist these ``Notch'' victims by providing a $5,000 settlement 
paid at a rate of $1,200 annually for 4 years.
    Provide Social Security recipients with an annual Cost-of-
Living Adjustment (COLA) based on CPI-E calculations that accurately 
reflect or take into account the buying habits of seniors. Senior 
citizens are affected differently than other consumers by changes in 
the cost of certain goods or services. Passage of H.R. 1422, The 
Consumer Price Index for Elderly Consumers Act, would be another major 
step in the right direction to help ease the financial devastating 
situations older Americans currently face.
    Mr. Chairman, TSCL suggests that the insecurity associated with the 
current Social Security system creates an environment of stress that 
take a real toll on the health and welfare of older Americans. Seniors 
simply must be given assurances that their earned retirement benefits 
will remain intact instead of living in constant dread and fear of 
loss. The very fact that this subcommittee is moving to protect their 
benefits in order to meet their needs means a great deal to older 
Americans and their families. Again, TSCL appreciates the opportunity 
to present a number of views on behalf of its over 1.5 million members 
and supporters to this subcommittee.
            Thank You.

                                   - 
