[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




                LISTEN TO AMERICANS' VIEWS ON THE FUTURE


                           OF SOCIAL SECURITY

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 18, 2001

                               __________

                           COLUMBIA, MISSOURI

                               __________

                           Serial No. 107-29

                               __________

         Printed for the use of the Committee on Ways and Means

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
74-230                     WASHINGTON : 2001


                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    Subcommittee on Social Security

                    E. CLAY SHAW, Florida, Chairman

SAM JOHNSON, Texas                   ROBERT T. MATSUI, California
MAC COLLINS, Georgia                 LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               BENJAMIN L. CARDIN, Maryland
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  XAVIER BECERRA, California
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin


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.


                              A G E N D A

                              ----------                              
                                                                   Page
Advisory of June 11, 2001, announcing the hearing................     2
1:00 p.m. Welcome and Overview
    Subcommittee Member opening statements, Chairman Shaw and Mr. 
Hulshof. Introduction of Facilitator, Skip Walther, Attorney, Walther, 
Antel & Stamper, P.C., Columbia, Missouri, and Independent Expert, Ron 
Gebhardtsbauer, Senior Pension Fellow, American Society of Pension 
Actuaries.
1:15 p.m. Social Security Quiz
    Facilitator will share quiz answers, call on participant volunteers 
to share their responses, and hear audience comments. Any technical 
questions will be deferred to the Expert for response during his 
presentation.
1:30 p.m. Retirement Security: Ensuring Your Financial Future
    1:30-2:15 p.m. Expert will present overview of the Social Security 
program and it's financial challenges, followed by questions and 
answers from the audience, led by the Facilitator.
    2:15-3:00 p.m. Expert will present options for Social Security 
reform, followed by questions and answers from the audience, led by the 
Facilitator.
3:00 p.m. Be a Legislator
    3:00-3:30 p.m. Expert will explain the ``Be a Legislator'' 
exercise. Participants will debate in groups and develop a legislative 
proposal of their own.
    3:30-3:50 p.m. Facilitator will ask representatives from selected 
groups to present their conclusions and explain the challenges they 
faced in reaching a conclusion.
3:50 p.m. Concluding Remarks

    Subcommittee Members

    Miscellaneous Documents

                       Submissions for the Record

                                                                   Page
American Association of University Women, statement..............    54
Bernstein, Merton C., Washington University in St. Louis, School 
  of Law, statement..............................................    55
Council for Government Reform, Arlington, VA, Charles G. Hardin, 
  letter.........................................................    56
Gateway OWL, St. Louis, MO, Myrna Fichtenbaum, statement.........    57
Hardin, Charles G., Council for Government Reform, Arlington, VA, 
  letter.........................................................    56
Harrell, Aaron, Syracuse, NY, statements.........................    57
Kansas City Labor Council, AFL-CIO, Kansas City, KS, statement...    59
Lake County Center for Independent Living, Mundelein, IL, Mary 
  Jansen Parrent, letter.........................................    60
Leutung, Merrill, National Association of Retired Federal 
  Employees, Missouri Federation of Chapters, Columbia, MO, 
  statement and attachments......................................    66
Martin, Marilee C., St. Louis, MO, statement.....................    61
McFall, Robert, St. Louis, MO, statement.........................    62
Metzger, John, Troy, MO, statement and attachment................    63
Missouri Rural Crisis Center, Columbia, MO, statement............    65
Missouri Women's Network, St. Louis, MO, statement...............    65
Mudrick, Stephen, Columbia, MO, statement........................    65
National Association of Retired Federal Employees, Missouri 
  Federation of Chapters, Columbia, MO, Merrill Leutung, 
  statement and attachments......................................    66
OWL:
    Statement....................................................    67
    Joan B. Bernstein, statement.................................    70
Parrent, Mary Jansen, Lake County Center for Independent Living, 
  Mundelein, IL, letter..........................................    60
Scavone, Nat, Columbia, MO, statement............................    71
Seidmann, Laurence S., University of Delaware, statement.........    71
Stith, Richard T., Jr., St. Louis, MO, statement.................    72
Weitkemper, Harry, Columbia, MO, statement.......................    73

 
      LISTEN TO AMERICANS' VIEWS ON THE FUTURE OF SOCIAL SECURITY

                              ----------                              


                         MONDAY, JUNE 18, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                                 Columbia, Missouri
    The Subcommittee met, pursuant to notice, at 1:18 p.m., in 
the Reynolds Alumni Center, University of Missouri, Columbia, 
Missouri, 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
June 11, 2001
No. SS-5

                    Shaw Announces Field Hearing to

                     Listen to Americans' Views on

                     the Future of Social Security

    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 field hearing to listen to Americans' 
views on the future of Social Security. The hearing will take place on 
Monday, June 18, 2001, at the Reynolds Alumni Center at the University 
of Missouri in Columbia, Missouri, beginning at 1:00 p.m.
      
    The format of the hearing is intended to evoke the highest audience 
participation. Through the use of a facilitator and independent expert, 
members of the public attending will be given the opportunity to ask 
questions, provide comments, and share their views on how Social 
Security should be reformed.
      

BACKGROUND:

      
    Social Security programs have provided income security to America's 
families for almost two-thirds of a century and has been enormously 
successful in reducing poverty among the nation's elderly. However, 
Social Security is important to people of all ages, not just retirees. 
Eighty percent of workers ages 21-64 and their families have protection 
in the event of a long-term disability. Ninety-eight percent of young 
children and their mothers and fathers are insured for Social Security 
survivor benefits if a worker in the family dies.
      
    The benefits Social Security provides to all generations depend 
upon the hard-earned payroll taxes paid by workers of all ages. Social 
Security operates primarily on a pay-as-you-go basis. Income from 
payroll taxes and taxes on benefits are used to pay the benefits of 
today's retirees and other beneficiaries. Since the early 1980's, 
Social Security has collected more taxes than immediately needed to pay 
benefits. The surplus revenue is credited to the Social Security Trust 
Funds in the form of interest-bearing Treasury securities and will 
eventually be used to pay future benefits.
      
    Social Security faces increasing hurdles in paying promised 
benefits in the coming years due to the nation's changing demographics. 
By 2030, there will be twice as many older Americans as there are 
today--growing from 35 million to 70 million. In addition, people are 
living longer and having fewer children. As a result, the ratio of 
workers to beneficiaries has declined from 42 workers per beneficiary 
when the program began to 3.4 workers per beneficiary today and is 
expected to decline to less than 2 workers per beneficiary by 2075.
      
    Social Security's trustees estimate cash revenues will fall short 
of expenditures beginning in 2016. At that point, the Trust Fund 
balances can be cashed in to make up the difference. To cash them in, 
the government will have to raise taxes, borrow from the public (i.e., 
increase the debt), cut other budget priorities, or use any available 
budget surplus. Beginning in 2038, the Trust Funds will be depleted, 
and Social Security tax revenues will only cover 73 percent of program 
costs.
      
    The President has established a commission that will make 
recommendations for restoring fiscal soundness to the Social Security 
system, to include the creation of voluntary individual accounts. 
Congress has also considered numerous Social Security reform plans over 
the years. However, many Americans may not be aware of the range of 
options for strengthening Social Security or of the effect that 
individual accounts or other programmatic changes would have on 
different groups of people.
      
    In announcing the hearing, Chairman Shaw stated: ``Americans need 
to understand the various reform options, along with their 
implications, and have an opportunity to express their views on how 
best to strengthen Social Security. I'm pleased the University of 
Missouri--Columbia, is hosting this hearing--we must hear from our 
young citizens in this debate as it is their lives which will be most 
impacted by changes to the system. Social Security's future is their 
future. Moreover, they will bear the burden should we fail to act.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on frequently discussed options for 
modernizing Social Security (including changes in benefits, taxes, and 
personal accounts), and seek participants' views on how to improve the 
program's financing in the long term.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    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 only, with their name, 
address, and hearing date noted on a label, by the close of business, 
Monday, July 2, 2001, to Allison Giles, 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, c/o 
Office of Congressman Kenny C. Hulshof, 33 E Broadway, Suite 280, 
Columbia, MO 65203, by close of business on Friday, June 15, 2001.
      

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.


    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. We will call this hearing to order and 
recognize the gentleman from Missouri, Mr. Hulshof, for an 
opening statement.
    Mr. Hulshof. Thank you, Mr. Chairman. Would you prefer we 
do this at the seat or at the podium?
    Good afternoon, ladies and gentlemen, and welcome. Welcome 
to this event and let me--especially those of you who are not 
from this area, we welcome you, especially you, Mr. Chairman. 
Mr. Gebhardtsbauer, we appreciate you being here as well.
    My name is Kenny Hulshof, it is an honor to serve on the 
Social Security Subcommittee as part of the Ways and Means 
Committee. I am pleased that today we will have this 
opportunity to hear our community's thoughts on the long-term 
challenges that face Social Security. I think this is a great 
opportunity for us and I appreciate you all having taken some 
time out of your busy schedules to be here today. I appreciate 
the University of Missouri hosting us here today and in a 
moment, I will introduce our facilitator and moderator, Skip 
Walther. Skip, thank you in advance for your willingness to be 
here and help make this a success.
    I think one thing, if we started from points of agreement, 
I think all of us in this room, regardless of our age, 
regardless of our political ideology, would agree that Social 
Security has been one of the most successful programs ever 
administered by the Federal Government. Prior to Social 
Security's inception, as one grew older, one did not 
necessarily look forward to one's golden years. Most of our 
nation's senior citizens back at that time lived in poverty. 
The dramatic improvement in quality of life for older Americans 
since the creation of Social Security I think is a testament to 
the effectiveness of that program.
    Social Security's trustees, they come to Congress every 
year, they provide us sort of a snapshot of time and sort of 
monitoring the progress of how Social Security has been doing. 
Most recently, their report was some good news on the financial 
status of the program. And yet I think again, a majority of us 
in the room would say that that news, short-term news, is good, 
but when you look at the long-term, especially as far as the 
challenges that are ahead of us, that this good news trend may 
not continue forever. When you look at the demographic 
realities, the fact that we have the retirement of the baby 
boomer generation with the blessing of longer life 
expectancies--we are living longer, that is great news, but 
when you combine that with fewer workers in the workplace that 
are paying payroll taxes--those workers per Social Security 
retiree is getting smaller and as a result of that, it really 
is putting the program in a strain.
    It is projected, as our Chairman talks about frequently, 
that beginning in the year 2016, the Social Security trust fund 
will begin to post deficits. In other words, the payroll taxes 
that we collect will be insufficient to cover the checks going 
out. That is by the year 2016. By the year 2038, Social 
Security will be unable to meet the obligations that it has 
made to workers who are currently paying payroll taxes into the 
system.
    As we know, this is not a pre-funded system, it is not like 
a private pension plan. It is in fact a pay-as-you-go system 
where payroll taxes of current workers are used to finance the 
benefits of current retirees, just as when those current 
retirees were in the workforce, their payroll taxes were going 
to pay for the benefits of those ahead of them.
    Since the administration of President Lyndon Johnson, 
revenues from the Social Security payroll taxes had been 
included in the overall Federal budget. In other words, we 
were--Congress was borrowing from the so-called Social Security 
trust fund to meet other obligations of the Federal government. 
Essentially the Social Security trust fund is an accounting 
device filled with special government IOUs that track income 
and distributions from the program. And under this structure, 
future funding shortfalls threaten not only the Social Security 
benefits upon which seniors depend, but other Federal programs 
that are vital to our Nation's interest. In other words, 
failure to begin the process of reforming the most successful 
social program in the history of our Nation would be akin to 
burying one's head in the sand.
    Under the guidance of Chairman Clay Shaw, who I will get to 
introduce here momentarily, the Social Security Subcommittee 
has held a number of hearings on the challenges facing Social 
Security. Those hearings have most often been in our nation's 
capital. We have had witnesses with all different points of 
view that have come before us and talked about their priorities 
or options that they would consider. We have heard from 
respected experts on all points of the political view, all 
points on the ideological spectrum.
    The one point that I think all of those experts who talked 
to us in Washington would agree upon is that Congress and the 
President should act sooner rather than later to address Social 
Security's long-term solvency problems. The longer we wait, the 
more difficult it is going to be to ensure that our children 
and grandchildren will share in this very successful program.
    As many of you have seen on the news, President Bush 
recently appointed a bipartisan commission to formulate a 
comprehensive Social Security reform plan. That commission is 
different than what we are doing today. That commission was 
given certain principles or marching orders, if you will. They 
have been given the six principles to formulate their plan and 
that commission will report back to Congress later this fall.
    But ultimately, it will be Congress that will accept or 
reject that commission's ideas. And specifically it will be our 
Subcommittee, the Social Security Subcommittee that will begin 
to weigh these options, begin to formulate these pieces of 
legislation or this legislation that will reform the program, 
make it viable for future generations.
    While the President's commission's deliberations are 
welcome, we are not going to rubber stamp those 
recommendations. That is why we are here in the heartland, here 
on this campus. In fact, as Chairman Shaw--as we were talking 
about conducting field hearings and leaving that inside-the-
beltway mentality and to come out to real America, the Chairman 
specifically said we need to go to college campuses I look 
around the room and see some familiar faces here. I will not 
tell any stories on you, Merrell or anybody else in the crowd.
    But when you look at the demographic representation we have 
today, for those of you that are on retirement, what we are 
going to do in Congress is not going to affect you. Even those 
of you nearing retirement, any changes to Social Security are 
not going to affect you. The ones most directly affected by 
whatever Congress does is going to be those of you that are 
either in college or who have just graduated, joining the work 
force, you are the ones that are going to be most affected by 
this discussion.
    Someone who graduated from the University of Missouri a 
couple of weeks ago and began in the workforce, assuming that 
they were to continue to work until their retirement age of 67, 
under the same present system, that young person would have to 
live until the age of 100 in order to get out of the Social 
Security system what he or she has put into the Social Security 
system under the present structure.
    So maybe that is something you think is good, but that is 
the reason we are here. Not to hear us--and I am going to have 
a chance to introduce a few folks. Let me say before I talk 
about--I want to be sure I get everyone--where is Bob Duncan, 
Bob there in the back of the room. I wanted to tell you that we 
have certain staff Members. Bob Duncan is--many of you know Bob 
as the head of the local Social Security Administration office. 
It might be that you have a specific problem with Social 
Security. That is the reason Bob is here. Boy, your shoulders 
kind of sagged a little, Bob, when I said that. Is some of your 
staff here too, Bob, as well? Man, that is great. We appreciate 
very much the strong working relationship that we have 
cultivated with your office and thanks for being so responsive. 
It is just a coincidence, folks, that Bob is closest to the 
exit door. [Laughter.]
    But if there is something that you have as far as--thanks, 
Bob--as far as a specific problem, we do have experts that are 
here as far as those that deal with Social Security every day.
    It is my honor to introduce to you the Chairman of the 
Social Security Subcommittee. Clay Shaw is the third most 
senior Republican on the Committee on Ways and Means. He serves 
as the Chairman of our Social Security Subcommittee. He has 
continued to spearhead efforts on this issue of Social 
Security. From 1995 to 1998, he served as the Chairman of the 
Human Resources Committee, where he was credited, with others, 
of authorizing and writing the welfare reform legislation. He 
is also a Member of the Trade Subcommittee. Prior to taking a 
seat on the Ways and Means Committee in 1998, excuse me, 1988, 
Clay Shaw served on four other committees--Judiciary, Public 
Works and Transportation, a Select Committee on Narcotics Abuse 
and Control, as well as Merchant Marines and Fisheries. He has 
been representing the south Florida Congressional District 
since 1981. He has been Chairman of the Florida Delegation 
since early 1996.
    Please join me in a warm Columbia welcome for Congressman 
Clay Shaw.
    [The opening statement of Mr. Hulshof follows:]

     Opening Statement of the Hon. Kenny C. Hulshof, M.C., Missouri

    I am pleased that the Social Security Subcommittee will today have 
the chance to hear our community's thoughts and ideas on the long-term 
challenges facing Social Security. This is a great opportunity, and I 
thank everyone who took time out of their busy schedule to be here 
today. In particular, I would like to thank the University of Missouri 
for hosting this event and express my appreciation of Skip Walther for 
agreeing to moderate today's program.
    Social Security is the most successful program ever administered by 
the federal government. Prior to its inception, old age was not a 
person's golden years. Most of our nation's seniors lived in poverty. 
The dramatic improvement in the quality of life for older Americans 
since the creation of Social Security is a testament to the 
effectiveness of the program.
    Social Security's trustees recently issued their report to Congress 
on the financial status of the program. The news in the short-term was 
good. Recent economic growth increased payroll tax collections, which 
improved the actuarial status of the program.
    The trustees also noted, however, that this is not a trend that 
will continue forever. Demographic changes in our nation--the 
retirement of the baby-boomers and the blessing of longer life 
expectancies--combined with fewer workers paying Social Security 
payroll taxes per retiree will begin to strain the program. It is 
projected that beginning in 2016, the Social Security Trust Fund will 
begin to post deficits. By the year 2038, Social Security will be 
unable to meet the obligations it has made to workers who are currently 
paying taxes into the system.
    Social Security is not a pre-funded system, like a private pension 
plan. It is a pay as you go system where the payroll taxes of current 
workers are used to finance the benefits of current retirees. Since the 
Administration of President Lyndon Johnson, revenues from Social 
Security payroll taxes have been included in the overall federal 
budget. The Social Security Trust Fund is essentially an accounting 
device, filled with special government IOU's that track income and 
distributions from the program. Under this structure, future funding 
shortfalls threaten not only the Social Security benefits upon which 
seniors depend, but other federal programs that are vital to our 
nation's interests.
    In other words, failure to begin the process of reforming the most 
successful social program in the history of our nation would be akin to 
burying one's head in the sand.
    Under the guidance of Chairman Shaw, the Social Security 
Subcommittee has held numerous hearings on the challenges facing Social 
Security. We have heard from respected experts representing all points 
on the political and ideological spectrum. The one point upon which I 
would say there is consensus is that Congress and the President should 
act sooner rather than later to address Social Security's long-term 
solvency problems. The longer we wait, the more difficult it will be to 
ensure that our children and grandchildren share in Social Security.
    As many of you have probably seen on the news, President Bush 
fulfilled a campaign pledge and appointed a bipartisan commission to 
formulate a comprehensive Social Security reform plan. The commission 
is not starting from scratch. They have been given six guiding 
principles to abide by while formulating their plan. The commission is 
expected to make its recommendations to the President and Congress by 
fall.
    But ultimately, it will be Congress and specifically, the Social 
Security Subcommittee that will weigh the options and formulate the 
legislation that will reform the program and make it viable for future 
generations. While the commission's deliberations are welcome, its 
recommendations are not going to be rubber-stamped by the legislature. 
That is why we are here. It is imperative that the subcommittee tasked 
with crafting Social Security reform legislation hears the thoughts and 
concerns of the public. It will take a true bipartisan effort and the 
support of every generation to make this undertaking a success.
    Again, it is my pleasure to welcome you to this hearing, and I look 
forward to listening to your ideas on Social Security reform.

                                


    [Applause.]
    Chairman Shaw. Thank you. Thank you very much.
    It is a real delight to see so many people here. When you 
have these hearings, it is very seldom that you are able to get 
this much attention from the community. But I might also say it 
is very seldom that you go out of Washington and have hearings 
on something as controversial as Social Security.
    For those of you standing in the back of the room, I see a 
few seats down there and there are quite a few down at the 
other end of the room. If you care to be seated, there are 
chairs I think that will accommodate just about all of us.
    When Ken and I started talking about bringing this Social 
Security matter and bringing these hearings to college campuses 
across the country, he was very quick to say that the 
University of Missouri has got to be our priority. And I want 
to tell you something, this is the first hearing of its kind in 
the United States. But depending upon how this one turns out, I 
can assure you, there will be others.
    How many in this room know what the notch is?
    [Show of hands.]
    Chairman Shaw. What would you think about the Congress 
creating another notch for these young people here and give 
them about 70 percent of the benefits that you are receiving or 
that in just a couple of years I will be receiving? How many 
think that would be fair?
    [No response.]
    Chairman Shaw. I did not think so.
    And how many people here think that Congress really can do 
something about it if we work together and get together, 
Democrats and Republicans, and really venture out to save 
Social Security--how many think we can save Social Security 
without creating another notch?
    [Show of hands.]
    Chairman Shaw. At the end of this hearing, I hope every 
hand in here will go up, because Congress can and should.
    Mr. Duncan back there, he can help you out with the current 
problems, but it is the Congress that is going to have to save 
Social Security.
    Social Security was probably the greatest anti-poverty 
program ever created by the Congress. It is so fair, you work, 
you pay into it and when you retire, you have a benefit, you 
have a pension.
    You know, private pension plans cover very few of us that 
are workers here in this country. Less than half are covered by 
pension plans. So Social Security is the pension plan of the 
common man, it is the one that has got to be there and it is up 
to the Congress to save it and not to cut it, but to save it 
for all times.
    When Social Security, almost two-thirds of a century ago, 
was put into place, there were 40 workers per retiree--40. Now 
we are down to just a little over three. And certainly in the 
lifetime of many of the young people here today, it will be 
down to two workers per retiree.
    Now quite obviously, 12.4-percent payroll tax will not take 
care of those younger workers when they get down and these baby 
boomers really get into the system. As a matter of fact, as Ken 
told you, in 2016, we no longer will have enough FICA taxes 
coming into the system to pay off the obligations of the system 
to retirees beginning in 2016. Now some of you will say well, 
my goodness, you have got all those Treasury bills. Yeah, you 
do. We are not going to run out of Treasury bills until 2038.
    But let me tell you something that is going to come as a 
bit of a shock to you. So what--so what? Beginning in 2016, the 
Congress is either going to have to cut benefits or find a way 
to pull money into the system. And the fact that we are paying 
off those Treasury bills does not make any difference, we still 
have to find the money or cut benefits, if we do not start 
planning right now to save Social Security.
    Alan Greenspan, in testifying before the Ways and Means 
Committee, said that these Treasury bills held by the 
government as an obligation by the government to the government 
are not real economic assets--Alan Greenspan said that, not 
Clay Shaw, not Ken Hulshof--Alan Greenspan. Also, the Secretary 
of the Treasury under President Clinton said the same thing.
    You want to be a millionaire? Take out a piece of paper and 
write ``I owe me a million dollars,'' and put it in your 
pocket. Is that a real economic asset? It is the same thing, 
the Federal government wrote ``I owe me a million dollars'' on 
every one of these Treasury bills and go put them in a cave out 
in West Virginia and we say we do not have any problems until 
2038. We are going to have some big problems if we do not get 
busy. And those problems are going to start in 2016. And this 
is a crisis that we need to carry this message across this 
country and be sure that all the American people understand 
that.
    Social Security has always been called the third rail in 
politics. I can tell you after this last election--now my 
district is south Florida. I have got more elderly people in 
that district than anywhere in the country and I will tell you, 
when I finally survived that election, I felt like the last guy 
voted off the island, it was so close. And I am not even going 
to talk about the other elections in Florida. [Laughter.]
    Not even going to start because then somebody will start 
the Florida jokes and then I am going to get mad and leave. So 
we are not going to do that. [Laughter.]
    But it is something that we need to talk about. And the 
third rail of politics today should not be doing something 
about Social Security, it should not be doing something about 
Social Security. Every one of you in here who are my generation 
or even older, you want it to be there for your kids. I have 
got 13 grandkids--13 grandkids. And I am not going to leave 
Congress until I can be sure that they are going to be able to 
enjoy Social Security when they become my age, when they become 
67 or whatever retirement age will be then.
    And I want to be sure that we are not raising the 
retirement age to the extent that people who work outside are 
going to be working until they are 75 or 80 years old. You 
cannot do that. The population of the elderly in the next--I 
hate that term, because I am about ready to be elderly--the 
population of the seniors who will be on the Social Security 
system in the next 30 years is going to double--it is going to 
double. We need to do something about it.
    That is why we are here. We are here in America's 
heartland. We are delighted to be here. We certainly thank the 
University of Missouri for hosting us. I thank each and every 
one of you for being here today. We are going to have an active 
program and I think it is going to be an interactive program. 
We are not here just simply to drive home a point because this 
is still work in progress. We are getting out of Washington.
    I had hoped that we could have had some of the Democrat 
members here because they certainly were invited, but were 
unable to--I am sure through scheduling or whatever. But we are 
going to bring the message back, so give it to us strong. Have 
exchange at your tables. Get busy, do like we do, fight and 
then go home friends. We do that and I think that is what is 
important, just as when we had welfare reform, we had a 
Republican Congress that passed it and a Democrat President 
that signed it. Now we have a Republican Senate--that was a 
little bit of a surprise for some of us--I mean a Democrat 
Senate--that was a little bit of a surprise for some of us; but 
we are very hopeful that we can pass a good bipartisan bill 
that has good bipartisan support and that the President will be 
proud to sign it and we will be proud to say that we saved 
Social Security for all time, not just for the greatest 
generation, but for the next generation, because it is 
absolutely imperative that Congress legislate for the next 
generation and not just the next election.
    Play ball.
    [The opening statement of Chairman Shaw follows:]

  Opening Statement of the Hon. E. Clay Shaw, Jr., M.C., Florida, and 
               Chairman, Subcommittee on Social Security

    Social Security programs have provided income security to America's 
families for almost two-thirds of a century and have been enormously 
successful in reducing poverty among the nation's elderly. Social 
Security also provides protection in case of long-term disability for 
80 percent of workers and their families. It also provides survivor 
insurance for 98 percent of young children and their mothers and 
fathers in cases where a worker dies.
    Yet, as we all know, the Social Security system faces big 
challenges in paying promised benefits in the coming years due to the 
nation's changing demographics. Over the next 30 years, the number of 
people age 65 and older is expected to double-from 35 million to 70 
million. In addition, people are living longer and having fewer 
children. As a result, the number of workers per beneficiary will 
decline from about 3 workers per beneficiary today to less than 2 
workers per beneficiary by 2075.
    Because Social Security benefits depend on payroll taxes paid in by 
today's workers, the current system is on an unsustainable course. Its 
costs are perpetually growing faster than the tax base that must 
support it. Social Security's trustees estimate that Social Security's 
income will fall short of the program's spending beginning in 2016. At 
that point, Social Security will start to pressure the rest of the 
budget, because the government will have to come up with the money 
needed to cash in the Trust Fund balances. By 2038, the Trust Funds 
will be gone, and we will only be able to pay 73 percent of program 
costs.
    In addition to being unsustainable, the Social Security's current 
design also creates substantial inequities between generations. Future 
retirees can expect to get back barely more than they put into Social 
Security, since they must pay higher tax rates than their grandparents 
and parents did in order to support the system.
    A single female with average earnings who is age 81 today receives 
a return of close to 4 percent. A female who is age 16 today can expect 
a return of a little more than 2 percent--around a 45 percent reduction 
in the rate of return. Men and two-earner couples with average earnings 
have experienced similar reductions in the rate of return across 
generations. Even one-earner couples, who have the highest rate of 
return under Social Security, have experienced a \1/3\ reduction in the 
rate of return, when comparing 81 year-olds to what 16 year-olds can 
expect. And the rate of return will continue to drop in the future 
unless we take action.
    Restoring Social Security's financial balance through benefit cuts 
or tax increases makes Social Security's bad deal for younger 
generations even worse. Social Security's current design also denies 
workers the opportunity to maximize their retirement dollars.
    Another way to address Social Security's long-term financial crisis 
is to allow individuals to invest in personal accounts. These accounts 
could earn higher rates of return through prudent investment in private 
equities markets. These accounts would also allow Americans the 
opportunity to accumulate real savings. Real savings, not a promise 
from the government, to ensure a secure retirement income. Real savings 
that can be passed along to their children.
    Fortunately, President Bush has shown true leadership by setting 
out principles for reform and announcing the formation of a 
Presidential Commission to strengthen and modernize Social Security. 
Building on the momentum of bipartisan consensus achieved in a number 
of proposals introduced by leaders of Social Security reform from both 
sides of the aisle, the President has asked the Commission to make 
recommendations to modernize and strengthen Social Security. The 
Commission will report their findings this fall.
    Like many of you I have been blessed with a wonderful family, 
including 4 children and 13 grandchildren. This Social Security debate 
is not about securing benefits for people like me, near retirement or 
already retired. Our benefits will not be touched, as the President has 
repeatedly said. This debate is about the future of our kids, our 
grandkids, and future generations.
    We know that traditional fixes alone, like raising taxes or 
reducing benefits, haven't worked in the past and won't work today. 
Beginning the debate and stepping up to the challenge is the `American' 
way; ignoring it is not. Let's build on the success of the past to make 
a modernized Social Security system an asset to all, not a liability to 
our children.
    Today we hear from the great people of Columbia, Missouri. You will 
have the opportunity to learn more about Social Security, the 
challenges it faces, and the options for modernizing and strengthening 
this important program. Most importantly, we want to hear your views on 
how best to secure Social Security's future.

                                


    [Applause.]
    Mr. Hulshof. Actually I get to introduce you, but you do 
not get to make your presentation next and then I will get to 
Skip.
    A note was handed to me, I especially want to make sure 
that we recognize Public Affairs Specialist from the Kansas 
City Social Security Commissioner's Office, Sue Ault. Sue, 
where are you? Hi, Sue, thank you for being here. Also, Bill 
Hyno, who is I think from the same office in St. Louis, is that 
right? Where is Bill? Hey, Bill; thank you all for being here 
and your participation in this.
    As we make this interactive--and as the Chairman talked 
about, invitations were extended not only to all members of the 
Subcommittee, of course, trying to get here even in Columbia 
International Airport I guess is kind of tough; we also 
extended a courtesy invitation to all the other members from 
Missouri that may want to attend, and again they had scheduling 
problems. But we wanted to make this really non-partisan, so as 
a result of that, we searched far and wide and somebody that 
you are going to be hearing a lot from today, I think in a 
presentation momentarily, is a representative from the American 
Academy of Actuaries. Ron Gebhardtsbauer is the Academy's 
Senior Pension Fellow, is one of the nation's leading experts 
on Social Security, on pension issues as well as other 
retirement issues. Ron has testified in front of our 
Subcommittee on a number of occasions, he's spoken at numerous 
other Congressionally sponsored forums on Social Security 
around the nation. As the actuarial profession's chief policy 
liaison on pension issues, he promotes the formulation of sound 
pension and tax policy by providing Congress and Federal 
regulators with non-partisan technical assistance. He is not 
here today to pick sides.
    If you would, let us welcome Ron Gebhardtsbauer being here 
today. Ron.
    [Applause.]
    Mr. Hulshof. And again finally, in order to make you feel 
at home, we decided to have a facilitator, a moderator, who is 
not someone that is in the political arena, at least not as an 
elected official, although I think some of you here--I probably 
could point out those who called your radio show, Skip, there 
are probably some of them here. In addition to being a 
practicing attorney here in Columbia, Skip Walther is the host 
of Columbia PM, which when the Cardinal baseball is not taking 
over KFRU's local air waves, Skip will be holding court on a 
variety of topics. And I think the fact that Skip, on his radio 
show, tries to present both sides or at least give fair hearing 
to both sides, is one of the reasons that he came to my mind as 
we were searching for someone to moderate this discussion.
    Skip was educated right here. He got his Bachelor's degree 
in 1975, he got his Juris Doctorate from this university in 
1979. He is a Member of the Boone County Bar Association, 
American Bar Association, Missouri Association of Trial 
Attorneys and the Association of Trial Lawyers of America.
    For the rest of this program, he will be he here at the 
podium. Would you please join me in welcoming our moderator, 
Skip Walther. Skip.
    [Applause.]
    Mr. Walther. Thanks, everybody, for coming to this Social 
Security Subcommittee of the House Ways and Means Committee. 
This is an official hearing. Not only have Mr. Shaw and Kenny 
spoken, this is an opportunity for everybody in the room to 
voice their concerns, questions or comments regarding Social 
Security, and specifically the long-term solutions to the 
Social Security problem that Mr. Shaw and Kenny addressed just 
a few minutes ago.
    Because this is an official hearing, we are going to be 
taking a transcript, or a transcript is going to be prepared of 
everything that is said today. We are going to give everybody 
in the audience an opportunity to either make a comment or ask 
a question, but in order to be able to produce a transcript 
that we can understand, we will have to give you a microphone. 
So please, if you want to ask a question or make a comment, 
raise your hand and we will recognize you. As you came in, you 
were given name tags and if you look around, you will notice 
that they are different colors and I think they are color-coded 
for age. [Laughter.]
    I am not sure, I did not get one, but I am 32, whatever--I 
have been painting my ceiling gray is the only problem.
    The idea is that we are going to give everybody of 
different generations an equal opportunity to ask questions or 
make comments. So if you see too many people asking questions 
and they have got a red name tag or a blue name tag, pipe in if 
you have got one of a different color.
    Additionally, because once again, this is going to be a 
recorded hearing, we have asked everybody to fill out index 
cards with your name and I do not know whether we are asking 
for your address or not, but we would like your name on the 
index cards at least, so that we can properly spell your name 
when we prepare the transcript. And when you are asking a 
question or making a comment, please be sure to identify 
yourself, all right? Please be sure to identify yourself before 
you ask, so that we can properly match your name to the 
question that is going to be on the transcript.
    Now because this is an official meeting and I have been 
asked to facilitate or moderate this meeting, I guess it is my 
responsibility to try to maintain order, and this is a 
disorderly looking crowd, at least I see Greg Steinhoff over 
here, he is pretty disorderly. But it is important for you 
please to identify yourself and show everybody the respect that 
everybody here deserves. I think this is a great opportunity 
for all of us to have input on what is obviously a very 
important topic, and to that end, it would be best if we can 
all make our comments or questions in the flavor or the tone 
that we anticipate this meeting to have.
    Now also when you first came in, you were asked to take a 
quiz. Did everybody get an opportunity to do that? We are not 
grading you, but if you would pull out your quiz. There are 
correct answers to these questions. It is a two-page piece of 
paper--two page questionnaire. Did everybody get an opportunity 
to take these? We are not going to give you any more time. If 
you did not get an opportunity, too bad. No, if you can, it is 
really pretty simple. If you did not get an opportunity, please 
try to fill those out or at least follow along with me.
    [The Social Security quiz follows:]
               How well do you know your Social Security?
 1. Approximately ________ Americans receive a Social Security benefit.
    A. 45 million (correct answer)
    B. 20 million
    C. 10 million

 2. Approximately ________ percent of all Social Security beneficiaries 
are retired workers. The remainder receive disability, survivor, 
spousal, or children's benefits.
    A. 99
    B. 63 (correct answer)
    C. 50

 3. If you were born in 1960 or later, you can first collect your full 
retirement benefits at age ________.
    A. 62
    B. 65
    C. 67 (correct answer)

 4. Social Security benefits are raised annually with increases in the 
cost of living in order to:
    A. Make sure the purchasing power of benefits doesn't drecrease 
over time. (correct ans.)
    B. Supplement benefits for people with income below the poverty 
line.
    C. Decrease the deficit.

 5. The amount of your Social Security benefit is based on the:
    A. Amount of taxes you pay.
    B. Your average annual earnings over your career. (correct answer)
    C. Your last three years of work.

 6. The combined (employer and employee) payroll tax for Social 
Security benefits is ________ on earnings up to $80,400.
    A. 3.1%
    B. 6.2%
    C. 12.4% (correct answer)

 7. The FICA taxes you pay into Social Security are primarily ________.
    A. Used to pay the benefits of current retirees (correct answer)
    B. Held in an account under your name
    C. Held in a government bank account

 8. Pay-as-you-go is a term used to describe the method by which Social 
Security traditionally operated to pay benefits. It means:
    A. General revenues are used to pay Social Security benefits.
    B. Taxes on the benefits of rich people are used to pay benefits to 
poor people.
    C. Taxes on current workers are used to pay benefits to current 
beneficiaries. (correct answer)

 9. The surplus income from Social Security taxes is invested in 
Treasury securities. If the Trust Funds need to redeem their Treasury 
securities, the money to do this comes from ________.
    A. Income tax dollars (general revenue) (correct answer)
    B. Payroll taxes
    C. The bank

10. In 1945, there were 42 workers for every Social Security 
beneficiary. Today, there are about ________ workers for every 
beneficiary.
    A. 30
    B. 9
    C. 3 (correct answer)

11. In ________, Social Security taxes will not be enough to pay full 
benefits.
    A. 2016 (correct answer)
    B. 2038
    C. 2075

12. In 2038, Social Security taxes will be enough to cover ________ of 
program costs.
    A. 50%
    B. 73% (correct answer)
    C. 100%

                                


    Mr. Walther. With respect to this particular quiz, let me 
ask this question: Question number 2 read: ``Approximately 
[blank] percent of all Social Security beneficiaries are 
retired workers. The remainder receive disability, survivor, 
spousal, or children's benefits.''
    Now who answered A., which is 99 percent? Go ahead and 
raise your hands if you did.
    [Show of hands.]
    Mr. Walther. Good job. Okay, who answered C., 50 percent?
    [Show of hands.]
    Mr. Walther. And who answered B., 63 percent?
    [Show of hands.]
    Mr. Walther. You guys are pretty smart. That is the correct 
answer.
    What about number 7? That question was ``The FICA taxes you 
pay into Social Security are primarily--.'' Who answered B., 
``Held in an account under your name.'' [Laughter.]
    We know better than that. C., ``Held in a government bank 
account.'' [Laughter.]
    A., ``Used to pay benefits to current retirees.'' Obviously 
that is the correct answer.
    All right, number 9, ``The surplus income from Social 
Security taxes is invested in Treasury securities. If the trust 
funds need to redeem their Treasury securities, the money to do 
this comes from Payroll taxes,'' anybody?
    The bank. Income tax dollars (general revenue) is obviously 
the answer. All right.
    How about number 11. In--well, I guess we have already 
answered this question a couple of times, ``In [blank] Social 
Security taxes will not be enough to pay full benefits.''
    Now before you heard Mr. Shaw tell you what the answer to 
that question was, who put 2038? Nobody?
    Oh, there is one. I would say they are political 
persuasion, but I guess that would not be appropriate here, 
would it? No.
    The answer is 2016, that is the correct answer.
    And then number 12, and we have heard this as well today, 
``In 2038, Social Security taxes will be enough to cover 
[blank] of program costs.'' 73 percent is the correct answer, 
that is right. And as Mr. Shaw correctly pointed out, that is 
obviously not good enough.
    This is 2001, we have got about 15 years to solve the 
problem and we are going to hear now from Ron Gebhardtsbauer, 
who is an expert actuary and he has a rather interesting 
program for all of us. So I will turn the microphone over to 
Ron at this time.
    Mr. Gebhardtsbauer. Thank you, Skip. Chairman and 
Congressman, thank you very much for holding this meeting and 
inviting me to talk. And Americans from Missouri, thank you 
very much for joining us on such a beautiful day. We do not get 
very many days like this in the eastern part of the United 
States. So thank you very much for coming in.
    As you have already heard from the Congressman, my name is 
Ron Gebhardtsbauer and I am an actuary and as he also mentioned 
I am part of an organization, the American Academy of 
Actuaries, which is the professional association for actuaries 
in the United States. So I have Members that are all over the 
spectrum.
    So my job here is to be neutral and just to describe some 
of the options that we have for Social Security. But first, I 
am going to give you just a little background. Actually the 
Members of Congress have already said a lot of good things 
already about Social Security and done it in a very interesting 
way. But I am going to talk a little bit about Social 
Security's basics and give you an idea of how much you are 
going to get from Social Security.
    But first, what you have already heard from both Members of 
Congress and I hear this often, you will see a slide to your 
right or left--you do not have to look at the one behind you--
hopefully you can see them. Okay. One of the reasons why they 
say Social Security has been one of the most successful 
programs in the United States is the poverty levels are way 
down for people over 65. You can see back in the fifties when 
they first started collecting these poverty statistics, the 
poverty level for people over 65 was 35 percent and now it is, 
in 1999, down to 10 percent. So a lot of that is due to Social 
Security. Some of it is also due to SSI and good policies on 
pensions where Congress has actually given tax advantages to 
pensions and encouraged employers to have pensions. But I would 
say the primary reason is because of Social Security.
    So what can you expect to get from Social Security? A lot 
of you maybe already know, but for those of you who have not 
retired, I am going to show you two slides that will give you 
an idea of how much you will get from Social Security. And 
these two slides also show something else about Social 
Security. When Congress and Roosevelt first put Social Security 
together in the 1930s and 1940s, they wanted a system that had 
these two primary goals. One is they wanted the benefits to be 
socially adequate. In other words, they wanted that benefit at 
the low income levels to be at least adequate for very, very 
basic living needs. But they also wanted the Social Security 
system to be equitable.
    So this first slide shows that, for instance, if you make 
about $10,000 on average throughout your career, Social 
Security would replace about 63 percent of your salary, so you 
would get about $6,000 in Social Security per year.
    On the other hand, look at higher salary levels, say 
$60,000, a little off to the right. That person will get about 
one-fourth of their wages replaced when they are in retirement. 
So they would get one-fourth of $60,000 or about $16,000 for 
the rest of their life.
    Now this is maybe not something you would expect because 
everybody is putting in the same rate of pay. You're all 
putting in about 6.2 percent of your wages into Social 
Security, whether you are earning $10,000 or if you are earning 
$70,000 or $80,000, you are putting in 6.2 percent of your pay. 
And your employer puts in 6.2 percent of pay, so together it is 
12 percent. So you are all putting in the same percent of pay, 
you would expect the program then to give you all the same 
result, 30 percent of pay or something like that is what you 
would get out. But no, in fact, the benefits are a little bit 
tilted in favor of low income people.
    So let us go to the next slide because that was percents 
and I have had people tell me percents are not the way to go, 
you ought to talk in dollars. So this slide is slightly 
different, and I apologize, it is a little bit hard to see, but 
let us look at that $10,000 person again. You can see they 
would get a Social Security benefit of about $6,000. Someone up 
around the $60,000 area is getting $16,000 for the rest of 
their life. And this is for someone who has worked 35 years in 
Social Security at about those wage levels. If you work fewer 
years, then you wouldn't get quite this much.
    But one of the other things that this slide shows is 
another important part of Social Security's goals and that is 
that it be equitable. So for someone who is earning more money, 
paying more taxes, their benefits should also be higher. And in 
some countries actually that is not the case. In some 
countries, if you have higher income levels, you get the same 
benefit as somebody at the lower income levels, or you may not 
even get a benefit. And so that has caused problems because the 
people at higher income levels say well why am I continuing to 
put more and more taxes in compared to somebody else. So those 
people would be much happier in the United States because they 
see that they're putting more in but they are also going to get 
a little bit more out of Social Security.
    In addition to knowing how much am I going to get out of 
Social Security, you also want to know when am I going to get 
that benefit. In that last slide I always used to say you got 
the benefit starting at age 65, but that has changed now. A lot 
of people do not know that. In fact, that was in your 
questions. Who says that the retirement age is 65 under Social 
Security for full benefits? It looks like Missouri is doing a 
lot better than the rest of the country. Evidently more than 
half of the people in polls taken did not know that the Social 
Security retirement age for full benefits is going up from 65, 
which it has always been prior to 2000, it is gradually going 
up to 67. So this slide, if you were born in 1960 or later--
anybody who is Generation X or later--is it okay to use the 
word Generation X, I hope? Your retirement age will be age 67. 
And maybe that is not so bad because you are also probably 
going to live more than 2 years longer than people who are 
already retired today. But anyway, as you can see, the normal 
retirement age is going from 65 to 67.
    One other thing that I did in this slide was: you not only 
get a benefit starting at retirement, but you can also get a 
benefit when you become disabled under Social Security. So that 
is why I say in the slide Social Security benefits at normal 
retirement age and also at disability. And in fact, your 
benefit is pretty much the same thing. So for somebody who is 
only age 29, and say their salary was one of those numbers, it 
is going to be pretty much the same dollar benefit even though 
they only work 8 or 9 years on Social Security. So someone who 
is disabled is actually going to get a lot more back from 
Social Security than they put in so far. So that is an 
insurance element of Social Security.
    There is also another insurance element of Social Security 
and that is payable if you die at an early age. If you die at a 
young age, your spouse, while there are kids, would get 
benefits and then your spouse, when she reaches age 65 (I am 
assuming a male worker, female spouse, could just as easily be 
a female worker and a male spouse who did not work) would get a 
benefit too.
    I just wanted to point out in that slide, in year 2000, 
about one-third of Social Security's benefits were payable to 
disabled people or to survivors of workers. So that was another 
question that I think Skip brought up. There are a lot of 
benefits that are going out to disabled people and survivors. 
And that slide also shows a total of about $402 billion, so 
Social Security is a pretty immense program.
    One other benefit that is particularly important for 
traditional couples is where you have the working male spouse 
and a non-working female spouse. And let us suppose the male 
spouse deserves a benefit from Social Security of about $1,000 
a month. It is kind of hard to see, but it is shaded yellow on 
that slide. In addition, his wife would get an extra $500; so a 
monthly benefit equal to half of his benefit would also go to 
his spouse as long as they were both alive. And then when he 
dies, his $1,000 benefit would go away, but her $500 benefit 
would increase to $1,000 and that is that second blue chart. So 
she would get $1,000. So in total, when they were both alive, 
they were getting $1,500 and then if either one of them dies, 
then they would be getting $1,000 after that. So they get about 
two-thirds of what they were getting when they were both alive.
    Oh, one other point I wanted to bring up in a prior slide. 
I mentioned the normal retirement age is 65 going up to 67. You 
can still get a benefit at 62. So if you want to stop working 
and your income is adequate, you can retire at 62 and you can 
get a benefit. It will not be as big as if you had waited until 
the full retirement age, but you can still get a benefit at 62.
    One other important point to mention about Social Security 
is the benefits go up with inflation and people who are already 
retired know that. Every January, their check goes up a little 
bit to cover the fact that costs are a little higher, inflation 
has gone up. Social Security's benefits go up with inflation. 
And that is important, because suppose inflation was about 3 
percent a year. You fall behind say 3 percent a year, that does 
not seem like too much in one or two years, but suppose you 
lived to age 95. This chart shows that if you had started out 
with a $100 benefit, by the time you are age 95, your 
purchasing power, because you have lost this ability to 
purchase things because of inflation--your purchasing power is 
now only $41. So you have lost a lot. So that inflation 
protection is important. Of course, a lot of people who are 
young will say oh, 95, I am never going to get there. But here 
is a slide, and this is where you really need the actuaries. We 
have statistics on how long people will be living and you will 
see at age 95 on this chart, 21 percent of women and 13 percent 
of men are still living. So for that group of people here, you 
are going to want to make sure that you have inflation 
protection. You not only want to know that benefit goes for the 
rest of your life, you also want inflation protection.
    Okay, now I have talked about Social Security's benefits, 
and there are a few more because there are benefits for kids 
and there are lots of little complex benefits. Some of our 
Social Security people are here in case you have individual 
questions about Social Security, but I want to move now quickly 
on to Social Security's financial situation. And as the Members 
have already brought up, Social Security right now is bringing 
in more money in FICA taxes (and taxes on benefits) than it 
needs to pay out. So you can see in the early years, 2000, 
2005, there is a little green on the top and I used that green 
to sort of signify extra money. Social Security has got more 
money now than it needs to pay out. But you will see around the 
year 2016, and I apologize, it is still difficult to read, but 
that little note there says ``Around 2016, the outgo exceeds 
the income.'' At that point, as they mentioned already, Social 
Security is going to go to the Treasury Department and say 
well, I have these Treasury bonds, I need to redeem them in 
order to pay everybody's benefits. So please give me cash so I 
can pay these benefits. And at that point, Treasury says, well, 
actually, you know, we do not have lots of extra bills in our 
pocket, you know, maybe if we had some extra income taxes--we 
have some of that around--but if we don't have extra income 
taxes at that point, what we call on-budget surplus, then we 
are either going to have to raise income taxes, or we'd have to 
increase our deficits. So that is why I put that in red. It is 
kind of hard to see, but what that means is there is authority 
to pay these benefits and Treasury will give Social Security 
the money, but in order to do that, we as taxpayers, have to 
think not only about Social Security's needs, but we as 
taxpayers then realize that we are either going to have to 
contribute more in taxes or we will have deficits. And deficits 
can cause economic problems, so that is not necessarily a good 
solution either.
    And then after year 2038, that is the other key date, at 
that point, there is actually no authority to keep on paying 
benefits, Social Security's trust funds would run out and so it 
is unclear what happens after the year 2038. And so these are 
the reasons why we are here to figure out what can we do to 
fill those back up to 100 percent.
    Some of you may ask, and it has already been mentioned, why 
this is happening. You will notice right now, we have a little 
more than three workers for every retiree. There are 153 
million people paying in and 45 million people getting benefits 
out. But around 2030, when all us baby boomers have retired, 
there will be 176 million workers, so there will be more 
workers, but there will be 83 million people getting benefits 
out. So you will see the ratio is only two workers for every 
person getting a benefit out.
    One way to fix that, of course, is to raise taxes, but 
there are other ways of doing it and I am going to describe 
that a little bit later, but this kind of gives you an idea of 
what Social Security is up against.
    This slide I am just going to leave up there because I want 
to give you an opportunity to ask any questions that you might 
have and clarify anything that I said that you did not 
understand and then in the next part of my talk, we are going 
to talk about what are some of the ways to fix Social Security.
    So the mike is open. If anybody wants to talk--again, as 
Skip said, we have mikes that we will have around the room, and 
I guess we need your name, right? And your question.
    Mr. Walther. Does anybody have any questions? Yes, sir.
    Oh, and before we start, your index card has your name on 
it and make sure again you identify yourself. If you can, in 
order to make your question as concise as possible, if you do 
not mind, try to write your question down on the index card. 
That way you make it concise. You do not have to, but it is 
just a request and it might help us clarify some issues.
    The gentleman over here with the white shirt on. Why do you 
not stand up, give your name and if you have got a comment or a 
question, go ahead.
    Mr. Felix. It is actually partly both.
    Mr. Walther. Okay.
    Mr. Felix. My name is David Felix and I am a retired 
economist from Washington University. So I am somewhat familiar 
with these long-term projections and I know that they are very, 
very dubious. And I also have been looking into the trustees 
who put these numbers together.
    Now what the trustees have done, and this has not been 
mentioned yet, has been to make three alternative projections 
for the 75 years and the 35 years or 38 years. One they call 
the low, the medium and then the high. Everyone here has been 
using the medium. The low is based on projecting most of the 
trend since the post-war period began to continue, such a 2.6-
percent growth of the gross domestic product (GDP), 
productivity of about 1.25 percent per worker per year and 
about the same immigration in-flow. The medium changes that. It 
does not explain why--and let me say another thing about the 
low--with the low, they also point out that there is no Social 
Security problem, that the tax receipts would adequately cover 
even the baby boom bubble, so the crisis disappears.
    With the medium, you get a 1.8-percent increase in GDP up 
to 2038 and then it drops to 1.2 percent thereafter and the 
explanation for that seems to be a combination of a slower 
growth in the labor force, which is based on demographic 
projections and no increase in immigration percentage to offset 
that or increase the labor force participation of women. They 
do not try to justify any of these projections, they are just 
pointed out, that is what it looks like to us and the range is 
pretty wide.
    Now why do we use the medium? Why are we assuming that the 
growth rate will drop, that the productivity per worker will 
drop and that immigration will not increase relative to the 
labor force? What is the justification for that. They do not 
give us any.
    Mr. Gebhardtsbauer. Thank you for the question.
    Actually when I have more time, I actually have another 
slide which shows what he was talking about. The budget 
sometimes is projected 10 years and if you go back a few years, 
we did not know that we were going to have all these surpluses 
now. So if you go 5 years back, we thought we were going to be 
in deficits, and so it is pretty hard to predict what is going 
to happen in 10 years or even 1 year sometimes.
    The Social Security actuaries are predicting--I should not 
use the word predicting--they are making forecasts that are 75 
years out there in the future. And the reason why they do that 
is they want to make sure that Social Security is not only 
going to be around for someone who is already retired, but 
Social Security is going to be also around for someone who is 
20 years old today.
    The gentleman asking the question mentioned there are three 
projections, because the Social Security actuaries do not just 
want to show one. And they call it the trustees projections. 
The trustees produced this big report and they showed three 
projections. One is called the low cost or maybe I will call 
that the optimistic one. And then there is also a pessimistic 
one too. The optimistic one, as you mentioned, says that Social 
Security does not have any problems out there in the future, 
that the trust funds will never run out.
    That also gets back to an issue that was brought up by 
Congressman Clay Shaw though, and that is that Social 
Security's trust funds will not run out but you will still have 
that red area where they will have trust funds and they will 
need to redeem them and so they will need to have tax 
increases.
    There is another concern on the optimistic one and that is 
a lot of people feel that the trustees should have a better, a 
more rosy projection of what the economic assumptions should be 
and a lot of people are sort of pushing in that direction. 
Actually if you go back to 1990, people were pushing in the 
opposite direction. I do not know if you remember, back in the 
eighties, we thought we were going to lose the economic war to 
Japan and so all the economists and actuaries were saying lower 
the economic projections. So they did and that is one of the 
reasons why Social Security does not look as good.
    So now what is the question? What is going to happen in the 
future? Are we going to have that good economy or not? Is that 
Goldilocks economy going to continue, and that is a very 
important question, is it going to happen?
    But one of the things they also notice is that a lot of 
baby boomers are going to start retiring over the next 30 years 
and we are going to start losing their productivity. So the 
question is will we have lots of productivity in the future or 
not.
    The other thing I ought to mention about the optimistic 
scenario, it assumes that we are going to have a lot more kids 
born for every woman and it also assumes that we are not going 
to live as long as some--most actuaries are predicting now. So 
what they do is they actually have every one of the assumptions 
be optimistic, even the fertility and the longevity 
assumptions. So we are not all sure that that is going to 
happen, because some people think well maybe we are going to 
have a slightly better economy, but they also think that we are 
going to live longer. And they are not sure that we are going 
to continue to have about two kids per woman. And so that is 
why you also have a pessimistic set of assumptions which says 
that Social Security could run out of money around 2027. The 
question is which one, and Congress has decided it is the 
middle one and in fact, it is not only the trustees and the 
actuaries and Congress, but these assumptions have been given 
to actuarial organizations, the GAO, technical panels of 
economists and actuaries and they have basically said the 
middle one is the most reasonable one. They call it their best 
estimate.
    So I appreciate the question. We do not really know what is 
going to happen, but it is probably better to be ready for the 
middle one instead of be ready for the optimistic one.
    Mr. Walther. For those of you who may not have heard, Ron 
is a Senior Pension Fellow with the American Academy of 
Actuaries and Ron, could you define--because some of the people 
may not know what an actuary is or does. Could you define what 
an actuary is?
    Mr. Gebhardtsbauer. That is tough. I always want lawyers to 
define what they do too. [Laughter.]
    An actuary----
    Mr. Walther. Come to my office and I will tell you.
    Mr. Gebhardtsbauer. Have an hour to talk about it.
    Mr. Walther. There you go. At a reasonable rate.
    Mr. Gebhardtsbauer. Actually my rate is better than yours.
    Actuaries are often mathematicians, but they do not have to 
be. What we do is we often help companies with their insurance 
and their pensions. There are a lot of actuaries who work at 
Social Security too. And so what we often do is we price risk. 
You know, what is going to cost when they price their product. 
For example, how much did it cost to put this house or car 
together. But if you are an insurance company or if you are a 
pension plan, the costs are in the future, so you need an 
actuary to figure out the cost of that future expectation of 
payment. You know, I am going to pay something if you die that 
year or I am going to pay something if you are still alive. So 
you need an actuary to make those projections and put a cost on 
it for today.
    Mr. Walther. And before we get to our next question, I 
might point out that Ron has appeared in a variety of programs 
throughout the United States with ex-President Clinton and Vice 
President Gore, in addition to a number of Republican Congress 
people and Senators. And so Ron is not here, as Kenny pointed 
out, not here representing either side. He is trying to be as 
objective as he can and I think that is what he has to be 
because that is what his profession is.
    So feel free to ask him any question you want. There is a 
lady back here. Again, identify yourself.
    Ms. Davis. Karin Davis. I do not have a card or a name tag, 
but K-a-r-i-n Davis.
    I would like to know why we cannot take a certain percent 
of the money paid in to Social Security and invest it in 
American business, which would help the economy and this is the 
way that insurance companies make money. They invest the money 
you pay into them, that is why they can afford to pay you back 
if you need it and they can have all these millions of dollars 
in profits, or billions. So why can we not do the same thing 
with Social Security?
    Mr. Walther. Good question.
    Mr. Gebhardtsbauer. Actually, I will be getting to 
solutions and suggestions on how to fix it next. Is that 
appropriate? And maybe to turn your words into a question, I 
guess maybe why did they just invest in Treasury bonds in the 
past, and I guess they created Social Security back in the 
thirties and forties when they were not feeling so good about 
the stock market. Today is much different than back then.
    In addition, you will hear a little bit later, there is a 
concern about the government investing in the stock market. So 
we will get into the ideas of individuals doing it a little bit 
later.
    But if anybody has questions on what I have already talked 
about, that would be good.
    Mr. Walther. We have a question right over here. Stand up.
    [Laughter.]
    Mr. Leonard. Gary Leonard, Columbia, Missouri.
    I have a question for both Members of Congress here today. 
We have heard so far the Social Security system being described 
as the most successful Federal social programs--that was Mr. 
Hulshof who had said that. My question is that if it is such a 
wonderful program, why is it that Congress administers the 
program but does not participate, that they maintain their own 
pension system for themselves.
    [Applause.]
    Mr. Leonard. Now you are both grabbing for your mics, I 
wanted--I do not mean that as a criticism of either individual 
here today because they are not directly responsible for that. 
But the problem with bad public policy is it is the future 
generations that are the ones that have to come in and clean it 
up. And from the standpoint--to balance out my remarks, I would 
like to thank Congressman Hulshof, because I think without him 
as our representative from this area on the Ways and Means 
Committee, we would not even be having this discussion here 
today or in America. So we are finally getting it to the point 
where we are able to talk about this and I think that is very 
helpful, but I would like either or or both of your comments on 
that.
    Chairman Shaw. That is a good question and that question 
would have been very relevant about four or five years ago, but 
Congress does now participate in Social Security and we pay 
into it just like everybody else. And like so many American 
workers who do have the benefit of a pension plan, we pay into 
our pension plan as well. But we are covered under Social 
Security.
    Mr. Hulshof. And the only other point I would add to that, 
and maybe sort of as a question or something, I would like, 
Ron, when you talk about the potential solutions, I know one of 
the--a couple of Members of Congress would like to take the 
Congressional retirement system called the Thrift Savings Plan, 
and use that perhaps as a basis or model of moving the present 
Social Security structure into. So maybe if, during the next 
portion, you could just focus on that a bit.
    Mr. Walther. And I may point out, Gary's question is a good 
one because there is a rather sizable number of employees in 
the United States who do not participate in the Social Security 
system, and that might be something, Ron, that you might be 
able to address. I know that a potential solution is to include 
those people in the future. So from a historical perspective 
why those employees--who they are and why they do not 
participate.
    Mr. Gebhardtsbauer. I will certify that what Congressman 
Clay Shaw said, Federal employees and Congress are definitely 
in Social Security. I every once in awhile see an e-mail saying 
that the Federal government is not in Social Security. And they 
are. I was the chief actuary for the Federal government's 
retirement plan back in the eighties when Congress said all of 
us are now in Social Security. It was one of the ways to help 
put Social Security back into balance, back in 1983 when they 
brought in more money into Social Security. So I had to change 
around the retirement plan for the Members of Congress and 
Federal employees. At one time, they had just one big 
retirement plan. Now they have a smaller plan from their 
employer and they have something like a 401(k) plan, which is 
what Congressman Hulshof said, and they are also paying into 
Social Security too. And a lot of large companies have that 
mixture of the company pension plan, a 401(k) and Social 
Security, but a lot of lower paid people do not have that and 
so we will talk about that in the next section.
    And Skip mentioned, yeah, there are about 10 States still 
where--in fact, this is probably where the e-mail comes from. 
There are still 10 States out there, maybe a few more, where 
police and firefighters, maybe some teachers are not in Social 
Security still. And it is mostly the large States. Even though 
you will see a little bit later, a lot of the public likes the 
idea of bringing them all into Social Security, making it 
universal, these are big States, so it may not happen. I do not 
know.
    Mr. Wickersham. My name is Bill Wickersham.
    I would like to ask you, in terms of your having dealt with 
this with young people, I am certainly not trying to start an 
age war here, but is it your feeling that the people you have 
dealt with understand the three legs of Social Security? 
Because I have a sense that many young people do not understand 
the survivor part and the disability part.
    Mr. Gebhardtsbauer. Yeah, that is why we had a slide there 
that showed that one-third of Social Security benefits are 
disability and survivors. I know someone that I work with, that 
is something that he knew about because his dad did either die 
early or became disabled, so they were actually recipients of 
the disability and survivor benefits. So I am assuming you were 
talking about the three types of benefits that Social Security 
provides.
    Mr. Wickersham. Most people think it is only one--I mean 
many people think it is only one.
    Mr. Gebhardtsbauer. Right. You also mentioned three legs 
and I was thinking of something slightly different. That is 
where a lot of people save on their own, plus they have Social 
Security, plus they have a company pension plan too.
    Mr. Wickersham. My question is do you sense young people 
understand?
    Mr. Gebhardtsbauer. The young people that have received it, 
have been the beneficiaries; yeah, but I think a lot of people 
do not realize that there is an insurance benefit. In fact, all 
of Social Security actually is called insurance. If you look, 
even the retirement part is called old age insurance. So back 
in the thirties, it was if you make it to age 65 and retire, we 
have this insurance policy for you. But now age 65 is not an 
if, it is a when. So that is maybe one of the reasons why we 
are rethinking Social Security, it is going from maybe 
insurance to accumulation of money.
    Mr. Williams. My name is Michael Williams, I live here in 
Columbia.
    Ron, you said something a minute ago that really peaked my 
interest. It was a number that I have never seen before and so 
I have not thought through a lot of this yet. I think I am 
going to need to limit my comments to those of us who are 
probably under 55 because I think people that are over 55 are 
in a different category and have to be handled differently.
    What you showed on a slide up there was that by 2038, 
payroll taxes will only be able to accommodate 73 percent of 
that benefit promise. Is that accurate?
    Mr. Gebhardtsbauer. That is right.
    Mr. Williams. And that seems to be something bad. My 
initial response is so what? For those of who are 50 right now, 
you have got 15 years to get your act together. You have got 
until 2038 to get your act together if you are even younger.
    Now some people are going to require survivor benefits, I 
understand that. Some people are going to require help due to a 
variety of circumstances. I understand that. But most of us in 
this room that are 50 and under right now are going to live to 
be 65--you showed that. Is it too much for us to expect you to 
get your act together by the time this goes down?
    You can save, you can invest in this great United States, 
which is going to go forward, and by the time 2038 rolls 
around, you ought to be able to cover that extra 20 some odd 
percent plus a whole lot more. I think that we should expect 
that of ourselves.
    Chairman Shaw. Can I comment? I cannot sit down for that.
    It is not fair. It is not fair that the young people here 
and your generation pays in payroll taxes for your entire 
working life when Congress can save it now. If that was the 
only way to save it, then I would say that would be the way to 
go. But it is not. There are projections out there right now in 
the Clinton administration where we are showing and projecting 
for the next 75 years, a $20 trillion deficit in the Social 
Security system. There are plans out there that have been put 
forward, including one that I put forward last year that was 
scored by the Clinton administration--not supported by them, 
but scored by them, as creating a $10 trillion surplus.
    So we can solve the problem--we can solve it. So why tell 
the next generation ``tough, you are just going to have to 
tough it out.'' It is not fair and it is not necessary.
    That is the answer to your question. It is just not 
necessary to do that. But doing nothing will do that. I do not 
want to start a debate, but you asked the reason and I wanted 
to be sure that I was clear on that.
    Mr. Williams. Right now, I am 51 years old, heading for 52. 
I have no intentions of relying on the Federal Government to 
support me into my old age. I intend to rely on my family.
    [Laughter.]
    Chairman Shaw. The Federal Government is not supporting--
you are paying into a pension system. Social Security is an 
earned benefit--it is an earned benefit, it is not a welfare 
program. And it should be there for you because you do not have 
a choice as to whether you are going to pay into it, you do not 
have any choice at all. So it is not that you can elect out of 
the system--you cannot.
    Mr. Walther. Thank you. Our next question is right here.
    Ms. Metzger. My name is Lillian Metzger, and I have first a 
comment to make and then I have a question.
    Mr. Walther. All right.
    Ms. Metzger. I was one of the first recipients of survivor 
benefits. I received benefits after the death of my father from 
April 1941 until May 1942. He finished his six quarters on 
March 31 and he died on April 1.
    The question I would like to ask at this time is how much 
has Congress borrowed from the Social Security fund over the 
years that has not been repaid.
    [Applause.]
    Mr. Walther. Ron, you want to tackle that? I think you 
might be surprised at this answer.
    Mr. Gebhardtsbauer. Actually the money that is in the trust 
funds, it is there, and so Congress, when it says that it will 
be able to continue paying benefits out to 2038, it is going to 
still be able to do that.
    Ms. Metzger. How much do they get in Treasury notes?
    Chairman Shaw. It is almost a trillion dollars, to answer 
your question.
    Mr. Walther. Is it not true that all of the money that is 
contributed by workers is immediately placed into--it is used 
to purchase Treasuries, on a daily basis?
    Mr. Gebhardtsbauer. The money is in addition--over and 
above what they need to pay out, so like 85 or 90 percent of 
the money has to go right out to pay benefits, but the 
additional amount that I showed in green earlier bought 
Treasury bonds, and that gets us though into the issue, that is 
the green money that bought Treasury bonds, and that is how we 
got up to the trillion dollars. But again, in order to redeem 
that----
    Ms. Metzger. But there is money that is borrowed from the 
Social Security account that has not been repaid by Congress 
right now.
    Mr. Gebhardtsbauer. Well, actually I guess I would say that 
we all are a part of that decision because we were all living 
in the United States in the past when we did borrow money. But 
the good news I think we can talk about over the last 4 years 
is that when we do have this surplus money now, the government 
is not using that money to buy other government programs. It is 
actually using that money to pay down the debt. So we really 
are saving that money now.
    Ms. Metzger. But that has only been for the last few years 
although this has been in effect since 1930.
    Mr. Gebhardtsbauer. Right. But I think even I and 
everybody, we are all sort of responsible for that.
    Mr. Walther. Is there another question? This lady right 
here.
    Ms. Farhangy. My name is Melinda Farhangy and I live in 
Columbia. And you stated, Ron, that it is not fair for some 
people who have earned more money because they will not be 
getting back everything that they put in.
    It is my understanding that the Social Security never was 
meant to be fair, it was meant to be a social insurance and not 
something--and to help poorer people. In 1950, you mentioned 35 
percent was poverty level; 2001, we are only 10 percent.
    Do we want a kinder, gentler society? Do we want a 
compassionate society? If we do, then we will continue Social 
Security and not rob it.
    Mr. Walther. Thank you very much for your comment.
    [Applause.]
    Mr. Walther. This gentleman up here.
    Mr. Metz. My name is Ed Metz and this is a question for 
Congressman Hulshof.
    You stated that workers starting today would be projected 
to have to live to age 100 to get out of the system what they 
put in. Are you including in that the payments, the part of 
their payments that in fact go for Medicare and go for 
disability and survivor's benefits?
    Mr. Hulshof. Ed, I was talking specifically about, of the 
12.4 percent. I am not talking about the Medicare, the 
additional 2.9 percent on Medicare. I am talking about that 
the--and I will see if the actuary agrees--that in real 
dollars, the real rate of return for someone who just graduated 
from the University of Missouri, who began working this summer 
and over a normal life expectancy and normal work history, that 
that individual will get back roughly a real rate of return of 
about 2 percent.
    Mr. Metz. Well, there is a problem with both of those 
statistics because they are so gross and loose. They totally 
ignore, it seems to me, totally ignore the value of the 
Medicare benefits that are out there, they totally ignore the 
survivor benefits. Let us take the case of the workers who 
starts up, works 5 years and becomes totally and permanently 
disabled for the rest of his life, who has, by that time, 
acquired a wife and fathered two children, and see what kind of 
a return that person gets. And to the survivor's benefits. 
Suppose he dies 8 years after that and his kids are getting 
survivor's benefits.
    There is just a lot of overlooking the benefits other than 
mere retirement. And those kind of figures factor in the total 
input that people pay into the system and ignore the tremendous 
amount of insurance that is there for disability and survivors 
and the Medicare component, with the kind of figures you have 
given.
    Mr. Hulshof. Well again to clarify, the numbers that I used 
were specifically related to retirement only. The Medicare 
portion, by the way, which as we go from the numbers, most 
recent numbers I have seen, from the 39 million beneficiaries 
that are looking to Medicare, the healthcare system for older 
Americans now, when the baby boomers retire will go to about 78 
million seniors. Alan Greenspan told us in our Committee, our 
full Committee, that fixing Social Security will be a walk in 
the park compared to fixing Medicare, which even just from the 
great debate we have had already today, you know, fixing Social 
Security is no walk in the park. And so we will leave Medicare 
to another day. And again, I think everybody, the consensus is, 
Ed, on any changes to Social Security, if we make them--we 
could I guess just leave the system as it is--but no one wants 
to touch the survivor benefits, no one wants to--or they want 
to hold intact the disability portion. In that pie chart we 
saw, roughly a third of it, we are putting aside in these 
discussions and we are focusing on that 63 percent, as the 
chart is up now, on retiree benefits.
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    Mr. Walther. Our next question comes over here.
    Mr. Hurrell. Hello. My name is Aaron Hurrell and I would 
like to thank Congressman Shaw for arranging this meeting and 
Congressman Hulshof for hosting it and Ron Gebhardtsbauer for 
coming.
    My question is revolving around your statement of 
expectation of future cost. As a recent college graduate, I am 
seeing a lot of my peers being forced to work as contingency 
workers or workers who participate in the labor force without 
benefits. And at any point does the American Academy of 
Actuaries take into account the possibility of the rise of 
individuals needing disability benefits and survivor's benefits 
by not getting the proper benefits by being in the labor force? 
Does that make sense?
    Mr. Gebhardtsbauer. That is a good question, but I guess we 
are here mainly talking about Social Security. And for those 
people actually, Social Security is very important, because of 
the disability/survivor benefits and the retirement benefits. 
If you are a contingent worker, you may not be getting 
something through your employer. So hopefully you can save 
some. And a lot of people I talk to in their twenties are 
saving more. It is actually a good thing, some people have told 
me it is a good thing, that a lot of people are not sure they 
are going to get it, so they are actually saving more. So when 
they actually get it, they will have some savings in addition. 
I know my generation did not save enough, the baby boomers. So 
it is good to see that some people in their twenties are saving 
a lot more.
    Mr. Hurrell. I wanted to see, when you are looking at your 
low, medium and high 75-year horizon, has it come into concern 
the fact that the amount of people who need disability benefits 
is most likely going to rise as working conditions become worse 
and worse and job protection is lacking, as the number one 
employer in America is Manpower and they are strictly 
contingency labor force.
    Mr. Gebhardtsbauer. I do not know enough about the 
specifics of predicting future disability rates. I know it can 
go up and down depending on the economy, but I think a lot of 
people would also say, to counter-balance what you said, that 
it is becoming easier to work in today's economy because we 
have less really heavy physical jobs too. So I do not know, is 
it going to go up or down. I think probably what the actuaries 
did is they had a pessimistic and an optimistic assumption on 
that.
    Mr. Walther. Thank you very much for your questions. We are 
going to come back to your questions in just a few moments, but 
Ron is going--on this part of our program, he is now going to 
offer some ideas for what the various options are for 
correcting the problem that we are currently looking at and 
analyzing. Ron.
    Mr. Gebhardtsbauer. Thank you. You will get more chance--I 
sensed a lot of the questions were moving on into how to fix, 
so here we are and this will be the important part for us too, 
after I talk, get to find out how you all react, what do your 
tables think, what should the solution be.
    When I go through my talk, you have some sheets and I think 
it looks like this, right? So get out the sheets that look like 
this. What I am going to say is right on this sheet and what 
you might want to do, I am going to go down from the top and I 
am going to talk about raising retirement ages or cutting the 
cost-of-living adjustments (COLAs), all the way down. And after 
listening to me say here are the pros and the cons of a 
particular idea, you might want to circle that one and say I 
like that one or I do not like that one, because we are not 
only interested in knowing how you individually would want to 
fix Social Security, but the real important one is getting your 
whole table together after we are done talking about all these, 
and seeing if you can get the whole table to come up with a 
solution. It is sort of like being a member of Congress, I 
think they call it ``Be a legislator.'' They have to be members 
of Congress for everybody in their districts. So you will find 
out what it is like to be a member of Congress, because each 
table I think has got some younger people and some older people 
in it. So you will get a feeling of what it is like to be a 
member of Congress.
    [The Options for Strengthening Social Security table 
follows:]

               Options for Strengthening Social Security

Actuaries Look at Options for Reforming Social Security
    The American Academy of Actuaries has described below commonly 
discussed options for reforming Social Security, along with their 
impact on the solvency of the program's trust fund. You can use this to 
determine a combination of options that makes Social Security solvent 
again. (The total impact on solvency must equal or exceed 100%.) In 
addition, in order to keep Social Security solvent permanently, other 
adjustments would be needed in the future. This game is on our web site 
at www.actuary.org.
      


----------------------------------------------------------------------------------------------------------------
                Option                   Supporters say . . .       Opponents say . . .    % of  Imbalance Fixed
----------------------------------------------------------------------------------------------------------------
Raise the retirement age to 70 by      Since Social Security     Could be hard on people   68
 2030 and keep adjusting the age as     was enacted, life         with physically
 people live longer.                    expectancy has            demanding jobs or who
                                        increased from 61 to 76   are partially disabled;
                                        years, and we are         employers may not want
                                        healthier at older        an older workforce with
                                        ages. It makes sense to   associated higher
                                        keep pace by asking       health care costs.
                                        people to work longer
                                        before claiming full
                                        retirement benefits.
                                                                 Alt: Accelerate increase  Alt. 26
                                                                  in retirement age to 67
                                                                  and index thereafter.
----------------------------------------------------------------------------------------------------------------
Reduce the cost-of-living adjustment   A Congressional           The Bureau of Labor       37
 (COLA) by \1/2\ percentage point.      commission felt that      Statistics decreased
                                        the Consumer Price        the CPI estimate by \3/
                                        Index (CPI) was           4\%. COLA reductions
                                        overstated by 1.1         are cumulative, which
                                        percentage points,        means the oldest
                                        meaning the annual COLA   retirees fall far
                                        is too high.              behind in purchasing
                                                                  power. Very elderly
                                                                  women already have very
                                                                  high poverty rates.
----------------------------------------------------------------------------------------------------------------
Reduce benefits by 5% for future       Everyone should be part   This would hit hardest    26
 retirees.                              of the solution.          people with low
                                                                  incomes, who often rely
                                                                  entirely on Social
                                                                  Security for all their
                                                                  retirement income.
Alternative: Tilt formula more. Phase                                                      Alt: 10
 in a reduction in benefits: 0% for
 low-income workers up to 5% for high-
 income workers.
----------------------------------------------------------------------------------------------------------------
Increase number of years used to       Encourages people to      Hurts people who work     24
 calculate average wages from 35 to     work more years,          less than 40 years,
 40 years.                              increasing U.S.           especially women.
                                        productivity.
----------------------------------------------------------------------------------------------------------------
Affluence Test: Reduce benefits for    This option preserves     Discourages saving and    75
 those whose total retirement income    benefits for those most   encourages people to
 exceeds $50,000 per year.              in need. A couple with    hide assets; changes
                                        total retirement income   Social Security from a
                                        (including investment     universal program to
                                        earnings & the value of   one based on need.
                                        Medicare) of $70,000      Social Security enjoys
                                        would lose 30% of their   universal support and
                                        Social Security           this might hurt that.
                                        benefit. Over $120,000,   Some people might try
                                        they would lose 85%.      to avoid paying taxes
                                                                  if they didn't get
                                                                  anything for them.
----------------------------------------------------------------------------------------------------------------
Raise payroll tax on workers and       Increasing the Social     Because we may also have  53
 employers by \1/2\ percentage points   Security payroll tax      to increase the
 each.                                  from 12.4% to 13.4%       Medicare payroll tax,
                                        (gradually) won't hurt    total taxation could be
                                        because real wages are    burdensome,
                                        going up and it would     particularly for low-
                                        solve half of the         income people. Workers
                                        system's financial        might save less, and
                                        problems.                 employers might pay
                                                                  less to pensions.
----------------------------------------------------------------------------------------------------------------
Increase wages subject to Social       Raising the current       Makes Social Security a   26
 Security tax.                          $80,400 limit to          worse deal for those
                                        $100,000 would increase   with higher incomes,
                                        FICA (& SECA) taxes for   who will get little for
                                        those who can afford      their additional
                                        it.                       contribution. Costly
                                                                  for employers too.
                                                                  Erodes universal
                                                                  support.
----------------------------------------------------------------------------------------------------------------
Tax Social Security benefits like      Why aren't Social         This will increase the    16
 pension benefits.                      Security benefits taxed   taxes of middle-income
                                        as much as pension        people.
                                        benefits? Low-income
                                        retirees (30% of total)
                                        would still pay no
                                        income tax. It
                                        simplifies tax rules.
----------------------------------------------------------------------------------------------------------------
Include new state and local            State and local workers   These workers do fine     11
 government workers.                    should pay their fair     under their own
                                        share to keep Social      pensions; this would
                                        Security solvent.         divert contributions
                                                                  from state and local
                                                                  government pension
                                                                  plans.
----------------------------------------------------------------------------------------------------------------
Invest 40% of the Social Security      Could boost return on     Social Security's assets  (1) 48
 Trust Funds in private investments     investment with less      could be 5% of the
 such as stocks.                        risk to individuals;      private market; stock
                                        hiring investment         voting and stock
                                        managers and using        selection could be
                                        indexes avoids            politicized. Could
                                        government                increase income taxes,
                                        interference. Saves       interest rates, and
                                        money outside             borrowing costs.
                                        government.
----------------------------------------------------------------------------------------------------------------
Create personal retirement accounts    Could boost return on     Individuals take on       \(2)\
 (divert 1 percentage point of          investment. Add-on        investment risk,
 payroll tax to a private account).     could increase national   inflation risk,
                                        saving and                longevity risk, and
                                        productivity. Saves       leakage risk. Large
                                        money outside             transition costs must
                                        government. Gives         be paid to cover
                                        individuals more          current retirees and
                                        control over              administrative costs
                                        investments and           could eat into returns.
                                        responsibility for        Could increase income
                                        retirement.               taxes, interest rates,
                                                                  and borrowing costs.
                                                                  Add-on could reduce
                                                                  other saving and
                                                                  pension contributions.
----------------------------------------------------------------------------------------------------------------
\1\ The report of the 1996 Social Security Advisory Council suggested that this would solve about 48% of Social
  Security's current financial problems. However, this is heavily dependent on the assumption for future
  investment returns.
\2\ The Trust Funds would get less income. Guaranteed benefits might have to be reduced, but could be offset by
  benefits from personal retirement accounts for the average investor. Due to transition costs, however, some
  retirees in the next several decades may not do as well and we all may have to pay more in income taxes.


                                


    So let us go to the first solution. The first five options 
that I am going to talk about are cutting benefits. You know, 
if you do not have enough money, one way to do it is cut 
benefits. Another way to do it is increase your taxes or 
increase your return on your money. So the first five are 
decreasing benefits.
    First one, raise retirement ages. As I mentioned before, we 
are living a lot longer. Generation X people here and younger 
are going to live longer than the people who are already 
retired. The retirement age is moving from 65 to 67 already and 
some people would say well, let us move it up to 67 faster or 
let us move it up to 70 and then let us index it.
    What do I mean by index it? Well, if you keep Social 
Security in a static way, if you lock in a particular--all the 
provisions, eventually it is going to go out of balance and 
that is because people are continuing to live longer--a good 
thing. But what that means is that Social Security, you know, 
many, many years out there, it may be set perfectly right now 
so that it is balanced, but eventually it is going to go out of 
balance too. So one of the suggestions is that you gradually 
raise the retirement age every so often as people live longer. 
Another way would be to gradually increase the taxes or 
gradually cut the benefits. So there are three different ways 
of doing that, but this is one of them, gradually raise the 
retirement age.
    So the pros are it makes sense, since we are living longer, 
we are healthier at older ages--actually, we are as healthy at 
70 now as we were at 65 back when Social Security was created. 
So we can do now at 70 what they were doing at 65.
    So those are some of the arguments that a supporter would 
say to this.
    What do the opponents say? The opponents would say well, 
what do you do for people in physically demanding jobs? There 
are not as many of them out there, but there still are those 
jobs and they will have a hard time. Well, maybe you could 
retrain them and they can go back to work. Maybe that is not so 
easy.
    What about slightly disabled people, people who are not 
disabled enough to get a disability benefit, but are not 
disabled healthy enough to continue on their jobs. One possible 
solution there is that Social Security actually makes the 
disability definition a little bit easier to meet at the older 
ages like 60 and above.
    But anyway, there you have some of the pros and cons and so 
you might want to think about whether you think that makes 
sense, does that solution make sense. We are living longer, we 
are healthier longer, should we do it, or is there also concern 
for people in physically demanding jobs and we should look for 
some of these other solutions. So think about whether you like 
that one, mark it down and we will go on to the next one.
    Another possibility is you could reduce the COLA. I guess 
first maybe I should explain the COLA. That is the cost of 
living adjustment. Remember earlier when I talked about 
inflation eating away your benefit? Social Security benefits 
right now go up by inflation every year, so that you can buy as 
much next year as you bought today. There was a commission that 
came out in 1996, informally called the Boskin Commission, and 
they said the government employees that are calculating that 
CPI number, consumer price index, they are over-stating it, it 
is really 1 percent or 1.1 percent too high. So they would say 
it is too high, we ought to fix it by making the COLA equal to 
CPI minus 1 percent. So if the CPI said 3 percent, you would 
get 2 percent of an increase each year.
    So some people are concerned because they said well BLS has 
fixed that problem. BLS, Bureau of Labor Statistics, has 
corrected their problems and they now say yep, you are right, 
our inflation number is a little bit lower than it used to be 
in the past, it is lower by about three-quarters of a percent. 
So we think we have got it right now. So if you were to take 
CPI minus 1 percent and give us--you know, you are only falling 
behind by 1 percent a year, but what about people who live in 
retirement for 30 years? If you fall behind by 1 percent every 
year, after 30 years, you are about 30 percent behind.
    So the opponents of this one would say it is particularly 
hard on people who live into their 90s, who have been retired 
for many years but lose 1 percent every year and it 
particularly hits women who are more likely to live to those 
90s, and women are also where we have some of the highest 
poverty rates. As you saw earlier, poverty rates for retirees 
in general are 10 percent, but the poverty rates for single 
women in their 90s is like 20-30 percent.
    Let us move on to the next one. Write down whether you 
liked it or not and we will move on to cutting benefits.
    On what you have in front of you, it says we could cut 
everybody's benefit by 5 percent and for people here who are 
already getting benefits, I want to assure you, every time when 
I get up here and there is a Member of Congress with me, they 
always say we are not going to cut your benefits. So this 
particular proposal is only going to cut benefits by 5 percent 
for people who are not close to retirement. So if you are close 
to retirement or already retired----
    Voice. What is close? I mean----
    Mr. Gebhardtsbauer. What is close?
    Voice. Like people just getting out of college now and then 
the gentleman over here said he was 55.
    Mr. Gebhardtsbauer. This particular calculation I think was 
based on 60 or 55, I am not really sure.
    Voice. If you were 50 and disabled, this would really 
affect----
    Mr. Gebhardtsbauer. Well, it will not affect you if you are 
already getting a disability benefit. It will only affect 
people who get disability benefits in the future.
    Voice. What about somebody who is 50 in 3 years and they 
become disabled.
    Mr. Gebhardtsbauer. Again, it would be just people who 
retire in the future. And one of the reasons why they do not 
want to hit people who are close to retirement is because if 
you could retire and you heard Congress is talking about 
changing the benefits, you would quick retire. So they would 
probably not also do it to someone who is about ready to retire 
either, because otherwise it just forces everybody to call up 
Social Security and get their benefit.
    So anyway, this would just affect people who retire in the 
future, it would be a 5-percent cut. You guys decide whether 
you think this is a good idea or not. The people who are the 
supporters would say everybody should be a part of the 
solution. The opponents would say yeah, but some people, all 
they get is Social Security, they do not have a pension plan 
and they have not been able to save or they did not save. And 
so if you cut Social Security, then you are cutting everything 
they have. If you have somebody who has got a big pension, they 
probably do not worry about a big cut in Social Security 
because they have the pension. But if you only have Social 
Security, and about a third of the people only have Social 
Security, then it is a concern for them. So they would say cut 
benefits, but do not cut them at the lower levels.
    So you will see I have a little alternative. And I cannot 
even see it myself, but you see cutting benefits is going to 
fix 26 percent of Social Security's financial problems. So if 
you pick that one, you are one-fourth of the way to your 
solution. In fact, that is what you are going to have to do, 
you are going to get up to a 100-percent solution.
    But if you did not like that one because it cut everybody 
and you only want to cut people at the higher end but not at 
the lower end, then it says that fix would be a 10-percent fix. 
So you would still have to do a lot more, choose a lot of other 
painful things in order to get your complete solution.
    So let us move on to the next one. It is called an 
affluence test. There is an organization in Washington, D.C. 
that has suggested an affluence test or means test and what 
they would do is they would say if you have lots of assets or 
if you have really high retirement income, you do not need a 
benefit. My parents really liked this one when I gave them this 
quiz. They really like it, they say the millionaires should not 
get Social Security benefits at all, they do not really need 
it. But then I said well, this particular proposal, mom and 
dad, affects you. They are not millionaires, but they would 
lose about one-third of their Social Security benefit. Their 
Social Security plus their pension gets them around $40,000-
$50,000. And this particular rule would say on top of mom's and 
dad's pension and Social Security, add them all up, what is 
your retirement income, then we will add in the value of 
Medicare too. Medicare for my dad, $7,000; Medicare for my mom, 
$7,000. So wow, my parents are up here close to $60,000. So 
this rule would say you lose one-third of your benefits.
    So the question is on this one for you, do you like that? 
It definitely would help Social Security by reducing benefits 
to people who do not need it. But here are some negatives.
    Some of the opponents would say a means test can really 
cause some problems. And some of you maybe already know about 
this. If there is a means test that is going to say if I saved 
a lot, you know, my twin over here did not save, he took his 
salary and went to Europe every summer. I saved like a good 
person and so I have lots of money now at retirement, and my 
brother, twin brother doesn't have it. Guess what, he gets the 
Social Security benefit and I do not because of this means 
test. So it would discourage good things. It would discourage 
people like me from saving. It would encourage us to spend our 
money. In addition, it encourages maybe some bad things. It 
would encourage people who have lots of money to say, what can 
I do, I can give my money to my kids or I can put it in a trust 
or buy a fancy car and hide all this money, so now I can get my 
Social Security benefit. So Congress then would have to come up 
with rules saying well, you cannot cheat and hide your money 
like that.
    So you can see, there are a lot of negatives on affluence 
tests too. So write down whether you like this or not and let 
us move on to the next one.
    You could increase the number of years for determining your 
average wage. Right now, when they calculate your benefit at 
Social Security, they look at your total wage history and they 
look for your 35 highest years and they find out what was your 
average wage in those 35 years. So you have to work 35 years in 
order to get a full benefit. They could change that 35 and move 
it up to 40 so now you have to work 40 years in order to get a 
good benefit.
    And so the positive, the proponents would say this is going 
to be good for America because it encourages us all to work 40 
years instead of 35 years. You will work for a few more years 
in order to get a better benefit. So it encourages good things, 
we are more productive then.
    The people who would be against it would be people who--
well, if you worked 40 years, you would not mind because you 
would still get the same benefit if you worked 40 years. But 
suppose you only worked 35 years. Your benefit will be cut 10 
or 12 percent, something like that. And that particularly can 
hit women because women often take time to have a child or to 
take care of their kids. And so the proponents do not want that 
to happen necessarily either, so they might say give women a 5-
year dropout.
    So if you like this idea of using 40 years instead of 35 
years, that is going to help you 24 percent, so you are one-
fourth of the way. But if you want to give dropout years to 
women who stayed home to have kids, then it is only going to 
give you about 10 percent. You should write that down because I 
do not think it is up there, it will only help you 10 percent 
of the way. So then you have got to find a lot of other 
solutions to help you.
    I apologize, we need to move quickly because we want to 
hear from you.
    We can also increase taxes. One way to do it is we can 
increase the tax rate. Right now, workers pay 6.2 percent of 
their wages into Social Security and your employer also 6.2 
percent. What we could do is we could raise that by 1-percent 
total, \1/2\ percent to you, \1/2\ percent of your pay, you 
would have to increase your contribution to Social Security, 
your FICA tax, and your employer would have to increase the 
FICA tax to Social Security too by 1\1/2\ percent of pay for a 
total 1 percent of pay. That would fix about half of Social 
Security's financial problems.
    But the question is--the proponents say hey, that helps 
solve it, but the opponents would say where are you going to 
get that money from? Are you going to take it away from your 
401(k) plan contribution or your contributions to IRAs? You may 
hurt somewhere else on that retirement stool. Where is your 
employer going to get the money? The employer may take it out 
of your pension plan and say we do not have this money any 
more, so we cannot put it in your pension plan. Or we may have 
to have layoffs. Another possibility is they could raise 
prices, but in a global economy, it is very hard to raise 
prices, so they may have to cut their labor costs in some way.
    In addition, some people would say we should not increase 
the tax rate for everybody, we should just increase it for 
people at the high end. So that takes us to the next one, 
increased wages subject to tax.
    So you would still pay 6.2 percent of your pay to Social 
Security, but right now we pay it up to $80,400. If your income 
goes above that, then you do not pay Social Security tax any 
more. You do pay Medicare taxes above that, but you do not pay 
Social Security tax. And some people would suggest raising 
that, say raise the $80,000 to $100,000 really quickly. 
Normally every year it goes up a little bit, as we continue to 
earn more, but this would push it up to $100,000.
    There is--one group that is concerned about this though is 
employers. Not only does the employee have to pay more, but the 
employer is going to have to pay more and so the employer is 
going to say where am I going to get that money, I cannot raise 
my prices, so I am going to have to cut labor costs somewhere. 
Where do you do that, do you cut it out of your pension or do 
you lay off people? So none of these are going to seem easy, 
this is not an easy lesson, these are all painful solutions 
here.
    Voice. I would just like to ask a question. I participated 
in a group at the end of 1998 called America Discuss Social 
Security.
    Mr. Gebhardtsbauer. Yeah, I was the speaker for them too.
    Voice. We talked about taking the cap off of this and 
taxing 100 percent of the wages. And if you taxed it and 
increased their benefits proportionately, you would solve 68 
percent of the problem.
    Mr. Gebhardtsbauer. Right. I did not have very much space 
on here to give the details. This is increasing the wages 
subject to tax up to $100,000, but on what you have written 
down there, it actually mentions I think $100,000.
    You are right, you could totally eliminate the cap. So that 
is another option, if you want to put that down, you can write 
that down, and how much was the percent--68 percent?
    Voice. Sixty-eight percent, and if you raised it and did 
not give them any more benefits, you would solve 91 percent.
    Mr. Gebhardtsbauer. Right. So, this can solve a lot, but 
let us think about what this does. Somebody who does earn a lot 
of pay then is going to pay a lot more into Social Security, 
remember it is going to be 6.2 percent plus it is also your 
employer paying another 6.2 percent, so that is a total of 12.4 
percent all the way up on your pay. So you are going to be 
paying in huge amounts and in your last solution, you are not 
getting anything more for it.
    So that takes us to what some other countries I was telling 
you about where you lose one of the principles of Social 
Security, and that is the equity principle, that if you put 
more in, you will get a bigger benefit. And if you do not do 
that, then some people will say why am I putting more money in, 
I am going to try and maybe hide that, that I am making 
additional money.
    Voice. [Inaudible comment.]
    Mr. Gebhardtsbauer. Okay.
    [Applause.]
    Mr. Gebhardtsbauer. The reason for this is Social Security 
was set up as an income replacement program. You want to 
replace people's income, but only up to a certain point, 
because if Bill Gates pays in a huge amount, you know, would it 
make sense for Social Security to get him a huge benefit too. 
And so that is a bit of a concern, so that is why they only had 
that limit. If you want to raise the limit though, you can put 
that down on your sheet.
    But we need to move on to the next one. So thank you for 
your question.
    The next one is tax Social Security benefits a little bit 
more. Right now, Social Security benefits get a break. If all 
you are getting is Social Security, you do not pay tax, but if 
all you are getting is a pension, say of $20,000 from your 
employer, then you would definitely be taxed. And some people 
say why do I not have to pay tax on Social Security, but I do 
pay tax on the pension. Somebody would say we should just tax 
them the same. And actually that does not affect low income 
people at all, because if you are making under $30,000 and you 
are retired, you are probably paying either very little or no 
tax because of all the exemptions and deductions. So it is not 
going to touch low income people. It will mainly hit the people 
in the middle income areas. And then the way it helps Social 
Security is that this additional income tax that you are paying 
on your Social Security benefits then would come back to Social 
Security and help Social Security.
    So let us go to the last one of increasing taxes. We could 
get a little bit more money coming into Social Security if we 
made it truly universal. Right now, as pointed out over here, 
there are some States where the government employees in those 
States are not in Social Security. So if we bring them in that 
brings in a little bit more tax income into Social Security. Of 
course, we eventually have to pay them something too in the 
long run, but that would help you right now and it helps you by 
11 percent.
    Okay, we need to keep on moving because we want to talk 
about the third area of how can we make it better for Social 
Security. We could increase investment returns. And a lot of 
people would say this is the way to go, whether you do it 
through trust funds or whether you do it through individual 
accounts, it is going to give you a higher return. And it is 
not totally a free lunch because if Social Security gets a 
higher return and we give bigger benefits then to Social 
Security people, then it affects other areas in the economy, we 
may end up having to pay a little bit more in taxes, for 
instance, or it may affect the stock market.
    But let us just concentrate on Social Security for now. It 
will give you a bigger return. Now some people would say put it 
in the trust fund and the trust funds will earn a bigger return 
and that will get you part way. But some people would say that 
they are real concerned about the government doing the 
investing. They would say if the government is doing the 
investing, then they will be picking the stocks maybe or they 
will be voting those shares and you know, how do we feel about 
that. Maybe it would be better--we want those high returns, but 
we would rather not have the government do it, so some of the 
Social Security money would be invested by all of you. We are 
not talking about doing the whole Social Security system this 
way, but maybe part of it would be moved into individual 
accounts that you would all have and then you would do the 
investing. So some people are wanting to get the higher return, 
but they do not want the government to do it. Some people 
actually also like this idea for another reason and that is 
they want to encourage more individual responsibility over 
corporate responsibility. And it also would mean that everybody 
has an individual account. Right now, low income people often 
do not have an IRA, they do not have a pension plan. So this 
would be a way for them to buildup their own wealth too. Some 
people do not have any wealth. So there are some pros and cons 
here.
    How do you do it? I will just be real quick, it is really 
hard to see on the bottom of this slide, but it is going to 
require some money. Where do we get this money? We could 
increase the contribution. Right now, we are paying 6.2 percent 
of our wages, we could increase the money going into Social 
Security and that money would go into our individual accounts, 
it would be sort of our money.
    Or we could get the money from Social Security. So some of 
that money from Social Security could be used to get this 
account. But if that is true, then you have to figure out how 
you are going to help Social Security because they have a 
little less money. Maybe you would reduce benefits from Social 
Security by 20 percent, but then you would have this individual 
account and that would maybe replace what you have lost in 
Social Security benefits. Now if you invested well, it would 
replace more than what you lost in Social Security. If you are 
an average investor, you might get about the same thing. If you 
are not a good investor, maybe you would get a little bit less. 
And so there, individuals would have a little bit more risk. 
And so that is the big issue on individual accounts, is better 
returns versus risk. Which do you want?
    And finally, the last one is general revenues. Instead of 
the money coming out of our pocket or from Social Security, we 
could get the money from general revenues. One of the concerns 
of opponents is they would say that a lot of that general 
revenue money has already been spent and so we may have to 
increase taxes some day in order to get those general revenues 
and avoid deficits.
    I went through them real quick. I apologize that I went 
through it real quick. If you have some questions, we can do 
some questions and then we want you then to start thinking 
about what your table would suggest is the right solution.
    Mr. Walther. Okay, our next question comes from this 
gentleman standing.
    Mr. Stevens. I am Tom Stevens, Columbia, National 
Federation of the Blind.
    As you know, in the late 1990s, the earnings ceiling for 
senior citizens was--started to gradually increase and then 
Congress completely eliminated it. At the same time, we in the 
National Federation of the Blind were advocating that the 
ceiling be increased, we were delinked from the seniors so that 
now we continue in a very, very slow pace to increase that. A 
blind person who works 2,000 hours a year must lose some Social 
Security benefits if their income exceeds $14,000 a year, which 
I think is approximately the current ceiling. So my point here 
is to advocate the elimination, total elimination of that 
earnings ceiling.
    Thank you.
    Mr. Gebhardtsbauer. Thank you. Actually, I do not know 
enough about the issue to comment.
    Mr. Walther. Our next question comes from the middle of the 
room.
    Mr. Collier. Justin Collier.
    Part of the reason I have heard some people state that the 
problem we have now is because there are fewer workers to 
support the retirees.
    Mr. Gebhardtsbauer. Right. If you all have kids, we will do 
a lot better.
    Mr. Collier. Well, that is what I was saying, the baby 
boomers--there were so many of the baby boomers and so few of 
us, Generation X if you want to say that; but I have seen some 
studies that we, our generation, are having more children.
    I guess my question is is this just a phenomenon that is 
going to hit our generation or can we believe that the 
generation after us, our children, will not be affected by this 
since we are having more children? Is this just something that 
is going to hit us or is this something that is going to be 
something that we are going to have to come back to in the next 
60 years and so on?
    Mr. Gebhardtsbauer. When we talked about rate of return, 
one of the ways of increasing the rate of return is to have a 
lot more kids. But as the economist mentioned, we do not know 
whether it is going to go up or down. If you look to Europe as 
your example, you will see that fertility rates are much lower, 
they are having only one or one and a half kids per woman. But 
if you look at some of the immigrant populations that we have 
now, the fertility rates are higher. So the question is which 
direction will we go and it gets into that optimistic or 
pessimistic projection, which one--and the question also is 
with immigrants, after maybe one or two generations, their 
fertility rates become the same as the rest of the United 
States. So I do not know, that is a good question.
    Mr. Walther. Our next question.
    Mr. Reed. I just wanted to address taxing the Social 
Security benefits. Right now a person about 21 can expect 2-
percent rate of return. I can go to a local bank and get 6 
percent on the conservative side. And I am being penalized 
about 4 percent a year. And you want to come back and penalize 
the benefit or tax the benefits that I have been taxed on for 
the past 45 years. I cannot support that tax and I probably 
never will.
    Mr. Gebhardtsbauer. Just real quick, the 2-percent rate of 
return that we are talking about here, it is a real rate of 
return, so it is not a nominal. So I always try and talk 
nominal rates of return, I apologize for using economist 
language, but he will understand me. A 2-percent real rate of 
return is more like a 5-percent nominal rate of return, 
assuming 3-percent inflation. So your 6 percent is earning a 
little bit better than that, but it is not six to two, it is 
six to five.
    And when your table gets together, you can talk about how 
to solve it, that is one of the ones I guess you are not going 
to pick.
    Mr. Walther. Our next question comes from over here.
    Mr. Weitkemper. I am Harry Weitkemper, I have lived through 
the Social Security, I was born before it started. I am a notch 
kid too, by the way. I am losing about $100 a month.
    This is a fine gathering worried about the crisis on Social 
Security. Social Security has always been in crisis. It has 
been changed 25 times. All we have to do is adjust it a little 
bit. We have the COLA, now we need the LOLA, length of living 
adjustment.
    [Laughter and applause.]
    That will settle it all. Thank you.
    Mr. Walther. Thank you, Mr. Weitkemper.
    Well, certainly I think this discussion and Ron's 
presentation makes clear that what Mr. Shaw said a few minutes 
ago is exactly correct, that Congress does have the ability to 
correct the problem and this is a wonderful opportunity to hear 
from everybody as to what the best options are.
    This lady right here has a question?
    Ms. Hurst. I am JoAnn Hurst, I am with the American 
Association of Retired Persons (AARP) and I wanted to ask about 
the individual account and would there be any guarantee at all, 
Social Security guaranteed benefit as it stands now. Could you 
talk a little bit about that.
    Mr. Gebhardtsbauer. Okay, there actually are proposals out 
there where the government would provide a floor or a guarantee 
so that if you had terrible investments, and that could be 
because you are a bad investor or that might be because you 
retired in 1974, for instance, and the economy was down, and no 
matter what, everybody was not doing very well in the late 
1970s in the stock market. So that is why some Members of 
Congress would put some guarantees in there and say if you do 
not do well, we will give you a floor so that you will not go 
below this amount. Of course, the only problem with that--and I 
do not have any numbers for you, but yeah, somebody said money, 
it will cost a little bit of money. So then you would have to 
find some other solutions to pay for that.
    Mr. Walther. That is a nice question. We have got a 
gentleman right here.
    Mr. Brestajocamo. Chris Brestajocamo. Had a response to 
that and your response to it. The private sector is starting to 
take care of that problem too. There are a few mutual funds 
that are starting out that are guaranteeing principal. The 
management fees are a little bit higher but the private sector 
is creating mutual funds that will guarantee principal.
    Mr. Gebhardtsbauer. Sometimes the way they do that is they 
do not give you the full return in good years and so they take 
a slice off the top in the good years so that if the stock 
market does really well, then they have that extra money to 
come in and guarantee. So there is a price to it.
    Mr. Walther. There was a question back here.
    Mr. Schlimme. Ron Schlimme from Columbia.
    I have a question I think you addressed a little bit, but I 
did not get the clarification. On bringing in State employees. 
You are showing 11-percent gain. Now is that net liabilities or 
is that prior to liabilities? You are also having additional 
liabilities. You talked a little bit about that, but what is 
that 11-percent figure referring to?
    Mr. Gebhardtsbauer. Okay, I am glad you asked because this 
is something that you all have to do pretty soon, is you are 
going to have to figure 100-percent solution and Social 
Security is short right now, there is not as much money coming 
in as going out over the next 75 years. So we need to fill that 
big trillion dollar number that Chairman Shaw mentioned. And 
this would fix 11 percent of that problem. But you have got to 
find something so that--add three or four or five of them 
together and get up to 100 percent.
    Mr. Schlimme. I understand that, but is that factoring in 
liabilities of bringing those new employees in?
    Mr. Gebhardtsbauer. That is a really good point. The way 
Social Security's projections and estimates and cost numbers 
are done, they just look over the next 75 years and they look 
at the amount of money coming in and the money going out. So it 
does not actually look beyond the 75th year, so bringing in 
some of these State and local employees brings in more cash 
now, but it does not pay them until after the 75th year.
    So that is why when we want to balance Social Security, we 
not only need to get these things to add up to 100 percent, but 
it gets us back to something I mentioned earlier, if people 
continue living longer we are going to have to gradually say 
after the 75th year, we have to gradually raise the retirement 
age or we have to gradually raise the tax. They call that 
sustaining Social Security or sustainability. So you not only 
need to get into balance now by getting up to 100 percent, but 
you have to talk about what are you going to do to keep it in 
balance after 75 years.
    Mr. Schlimme. So this would be in balance for the next 75 
years?
    Mr. Gebhardtsbauer. Right, right.
    Mr. Schlimme. OK, thank you.
    Mr. Walther. The next question comes back here.
    Mr. Burroughs. My name is Oliver Burroughs, I am here for a 
conference, I am a foreigner from the State of Wisconsin.
    I have three comments for the actuarial expert here. First 
of all, have you done any analysis, sir, if the trust fund were 
restored to its original status, that if the moneys were left 
there as they had been before they were withdrawn, what would 
be the impact.
    Second question is if you have a situation where we are 
approaching two to one supporting the system, how can you tell 
us that the original goal of income replacement is going to be 
maintained in the long run.
    And the third question that I would have for you, based on 
the first two, at the rate we are going, at what point in time 
will these fixes or these options put us in a position like the 
gentleman said a few minutes ago where we are back fixing it 
again?
    Mr. Gebhardtsbauer. Let me see if I remember. You said that 
the money was taken out. I want to assure you again, as was 
mentioned on an earlier question, there is a trillion dollars 
in that trust fund, they have kept track of it. That is the 
amount of money that has been put in and none of that money has 
been taken. So that number is what will affect the 2038 date.
    Chairman Shaw. Let me inject here.
    Mr. Gebhardtsbauer. Thank you. I would love to have someone 
else----
    Chairman Shaw. There is no money in the trust fund. There 
are government Treasury bills only. There is no money in the 
trust fund.
    Excuse me, I am sorry.
    Mr. Walther. Did you get your questions answered?
    Mr. Burroughs. We got the first one answered. Now as we are 
approaching two to one, we will jump to the third one, we will 
give you a shot at the third one.
    Mr. Gebhardtsbauer. The third one was how soon do we have 
to come back and fix this.
    Mr. Burroughs. Right.
    Mr. Gebhardtsbauer. If all we do is get up to 100 percent, 
then we may be back here in say 20 years trying to fix Social 
Security and that is why I mentioned that you also have to do 
part two to this earlier answer, which is we have to make 
Social Security sustainable by, in the long run if people are 
going to continue living longer, then we need to gradually 
raise the retirement age, cut the benefits a little bit or 
raise the tax a little bit way out there after the 75th year.
    Mr. Burroughs. Then I would suggest respectfully, sir, that 
it is not going to become income replacement or even remain 
income replacement, and the entire fundamental purpose for 
which Social Security was created is going to have to change, 
if I am hearing what you are saying.
    Mr. Gebhardtsbauer. I guess I did not understand.
    Mr. Walther. The next question comes over here.
    Ms. Valensia. Yes, I am Nancy Valensia, I live right here 
in Columbia. Kenny, I am glad to see you are here. You know, 
for a Republican--I am a Democrat and I do not have any 
problems with you, you are doing a pretty good job for us. I am 
glad to see you are here.
    But to Mr. Shaw, I want you to take a message back to 
Washington for us.
    Chairman Shaw. Hey, I am a Republican too.
    [Laughter.]
    Ms. Valensia. Yes, sir, to the Chairman of the Committee, 
so I will excuse Kenny.
    I became disabled a long, long time ago, but I worked most 
of my life and I finally took the bullet--bit the bullet a 
couple of years ago and applied for Social Security disability. 
And, you know, living on less than $7,200 a year is not fun, 
folks, it is just not fun. But I am grateful it is there.
    There is one option you have not mentioned, Mr. actuarial 
scientist and that is how about leaving it alone, just leave it 
alone.
    You know, I have learned a little bit about numbers when I 
sat for an insurance exam and that was the number system is 
called the law of large numbers and it is so accurate that the 
Census Bureau does not have to take a sampling of but one in 
every five households to get a very, very accurate picture of 
the United States. And I know the actuarial scientists use that 
same law, insurance companies use it.
    It seems to me that insurance companies have gained 
tremendous amounts by investing in those T-bills and those T-
notes. The United States Treasury, there cannot be any better 
place on Earth to invest if you want a return on your money 
because if it does not exist, we do not exist.
    Now I would like to see the people in Washington get this 
message: Keep your paws off of Social Security, because I do 
not believe your data. You know, in 1936 when Social Security 
went into effect, and my dad paid into it all of his life, he 
gained a little bit because he had become disabled when he was, 
you know, 50 years old. But it was never meant to do anything 
except to help the impoverished people in this nation. It was 
not meant to help the middle class or the persons who could 
well afford to pay for their own. Like Bill Gates, he should be 
paying--he should be, you know, giving a certain portion of his 
income into the Social Security system.
    Mr. Walther. Thank you for your comments. I think we know 
what solution she is going to pick.
    [Applause.]
    Mr. Walther. There was a gentleman up here, this gentleman 
right here. This is the last one, we need to go on to our next 
exercise. We will come back--oh, I am sorry, we have got one 
more after that, that is right.
    Mr. Onen. I am Sam Onen from Columbia, Missouri.
    We all hear that the Social Security system is a very good 
system to help the elderly people and we all also agree that we 
should keep it solvent and some of these options seem to be 
very good, but I have not heard any option like we have such a 
big surplus of budget and what about putting some of that 
surplus back into the Social Security system.
    [Applause.]
    Mr. Walther. That might be a question for our Congressmen.
    Mr. Hulshof. Keep in mind that there has been this firewall 
that has been established that is, as we pay payroll taxes and 
our employers match them, that that money should go toward the 
retirement system. Now Lillian makes a good point earlier, that 
Congress had, since the Johnson administration, borrowed from 
that trust fund. As the Chairman points out, there are really 
no assets there, it is really just a piece of paper. And 
Lillian, my numbers I think are roughly $800 million that have 
been borrowed from, with another $700 million of interest, so 
roughly about $1.5 trillion is what we owe the system. And that 
by itself is not enough of course to cover the shortfalls.
    But you raise a good point and that is--but it will take a 
change of the reason that we have had Social Security. Are we 
willing, and that is something your table can discuss, to tear 
down that firewall because when you say we have these budget 
surpluses, we are talking about income taxes that are 
surpluses. And are we prepared--that is what Congress will have 
to answer--are we prepared to say that we want to use income 
taxes to pay for retirement benefits through Social Security. 
If we are willing to do that, then that is--but that will be 
the first time ever that we have changed the fundamental nature 
of Social Security. Shall we use--take income taxes that we 
collect from you at work and put them toward Social Security. 
That is a question that you will have to help answer.
    Mr. Walther. And one last question before we go to our next 
segment.
    Ms. Steele. My name is Ann Steele, I come from St. Ann, 
Missouri and I am a Member of the Older Women's League. I think 
some of you have already mentioned the fact that women make 
less in their lifetime, they have a lower ceiling, it is not 
equal pay and with the emphasis on childcare now picking up, we 
find that women on average are out of the work force 14 years. 
That really hurts when you are taking how many years you worked 
and you subtract 14 from it. No man has to do that.
    Women get far fewer benefits from Social Security, so we 
see, I think you mentioned or someone mentioned that women--26 
percent or 36 percent of the women, older women, are in 
poverty. We must fix Social Security--excuse me, I do not mean 
fix it--it is not broken. We just need to tinker with the 
edges, if that is what you call it, by doing some of these 
things. But we must do it so that it is fair to women because 
we are the backbone of the nation.
    [Applause.]
    Mr. Steele. We raise the kids, we teach the kids, we take 
care of the kids and they are our future.
    Mr. Walther. Thank you very much.
    Chairman Shaw. Could I comment on one thing. I think all of 
us would like to associate ourselves with the lady from St. 
Ann. I think she made a good point.
    One thing that I think does need clarification, under all 
of the plans involving individual retirement accounts, under 
all of those plans--and it is unfortunate that we do not have 
any percentages up there--but these would be in prequalified 
investment houses. It is not a question of just taking a piece 
of the payroll tax or taking a piece of the surplus and giving 
it to the worker and saying go invest it somewhere. Obviously 
that would not work, particularly for your more unsophisticated 
workers. So this would be a direct deposit from the Federal 
government into the individual retirement accounts. And there 
are two ways of handling that. Some would say take it out of 
the Social Security trust fund and pay it directly into the 
individual retirement accounts and on the other hand, other 
people would say take it out of the surplus, as the gentleman 
right there was talking about, and out of the general Treasury 
and put it into the individual retirement accounts.
    So this is not just a situation of throwing dollars up in 
the air and seeing where they come down. This is a closely--
would be a closely regulated activity.
    Mr. Walther. Thank you. We are going to go to the next 
segment. I apologize to those who have more questions. We will 
try to come back to you, but this is going to be perhaps an 
even more interesting component of our program. Ron, do you 
want to discuss it?
    Mr. Gebhardtsbauer. Okay, I think I have pretty well 
described it already. You probably already have a feeling for 
what you individually want to do and that is tough, but even 
tougher now is to get the whole table to come up with a 
solution that gets you a 100-percent solution.
    So talk amongst yourselves and come up with a 100-percent 
solution and then we are all going to give you a chance then--
come up with a table reporter, someone who at your table is 
willing to report to the whole group what you decided.
    There are lots of us around here who can answer questions. 
So just raise your hand if you have a particular question.
    [Recess.]
    Mr. Walther. Time is up, put your pencils down, make sure 
you put your name's on your test and that is it. Time is up, 
put your pencils down, the test is over.
    We are going to--we are not going to have time to hear from 
every single table but if we can, what we would like to do is 
just hit a few of you. In order to make this process go as 
quickly as we can so that we are out of here at the time that 
we identified, we are not going to be able to take all of the 
comments that--I have had a number of requests for comments or 
additional questions, and I apologize that we are not going to 
be able to provide those to you--provide you an opportunity to 
do that at this point.
    However, if you have additional questions or comments and 
you want those to be heard, you can--all of you have received a 
flyer for the President's Commission. You can send your 
comments in on that flyer. If you want to send in your comments 
to Kenny's office, Congressman Hulshof's office, you can do 
that. His address is here in town, it is 33 East Broadway, 
Columbia. I think the zip is 65201. And so Kenny would be more 
than happy to receive your comments.
    I would ask, however, that if you do want to send comments 
in to Congressman Hulshof's office, that you do so within 2 
weeks from today. There is--it is important that we get those 
comments in in a relatively timely manner.
    So, having said that, let us go to this table over here. Do 
you have a representative from the table? If you do, stand up. 
Oh, and on this note, every one of you have probably filled out 
individual responses. You are welcome to take your individual 
responses with you, but please leave your table responses on 
the table and please identify those responses as table 
responses. Just write down on the top, table response, leave it 
on the table. We are going to collect those, they will be 
available on the Internet ultimately, either on the THOMAS 
website or on the Government Printing Office website and I do 
not know what those addresses are, but it will obviously take 
us a little while--or take Congress a little while to tabulate 
the information, but it will ultimately be in a form that you 
can access.
    So let us start with this table over here. Were you able to 
successfully arrive at a 100-percent solution?
    Voice. We did not arrive at a 100-percent solution, we 
arrived at approximately a 35-percent solution only.
    [Laughter.]
    Mr. Walther. Well----
    Voice. We did not make it through the discussion of all of 
the options. I can go through quickly, if you would like, where 
we came out on the options that were offered.
    Mr. Walther. Why do you not tell us which ones you were 
willing to adopt.
    Voice. The two that we were most willing to adopt were 
increase the number of years used to calculate average wages 
from 35 to 40 years, with conditions. The primary condition 
being that there be some provision for women who drop out of 
the labor force for child rearing purposes, that they not be 
penalized for those years. With that condition, everybody at 
the table agreed with the 35 to 40 change.
    Mr. Walther. Okay.
    Voice. The next most popular was the--just above that, tilt 
the formula more, phase in reductions in benefits, zero for low 
income workers up to 5 percent for high income workers. This is 
a reduction of benefits, phase in of 0 to 5 percent.
    Mr. Walther. Okay.
    Voice. The next option which two of us could agree to was 
the first one which was to raise the retirement age to 70.
    Mr. Walther. All right.
    Voice. We adamantly oppose the affluence test at the bottom 
and raising payroll taxes by 1 percent.
    Mr. Walther. Okay, thank you very much. And how much 
difficulty was there in achieving the two solutions that you 
were able to agree upon?
    Voice. Not too difficult.
    Mr. Walther. All right. And just a second, we have got 
another table. This table right here--no, no, this one right 
here. Do you have a spokesman? Yes, for that table. Mike 
Williams.
    Mr. Williams. How did you know that?
    Mr. Walther. You identified yourself a little while ago.
    Mr. Williams. Oh, Okay, I thought you recognized me from 
calling in to your show.
    Mr. Walther. Well, I did as well.
    [Laughter.]
    Mr. Walther. Now that you mention it.
    Mr. Williams. We did not do very well. We decided to repeat 
the Presidential election and split ourselves right down the 
middle and if there happens to be a Supreme Court in the room, 
we need you quite badly.
    We came up with 68 percent and that was the only one that 
we had a consensus on at all, and it was a fair consensus, it 
dealt with raising the retirement age to 70 by 2030 and the 
vote there was 5 to 4.
    So we voted dramatically against increasing the cost of 
living, COLA, and also of increasing the number of years used 
to calculate average wages from 35 to 40 because we felt that 
was grossly unfair to women.
    Mr. Walther. Okay, with respect to raising the retirement 
age question, how did your table come out from an age 
standpoint? Did it make any difference?
    Mr. Williams. Did anyone else track that?
    Mr. Walther. Go ahead.
    Ms. Deutsch. My name is Sara Deutsch. Jokingly I made a 
comment that I did not want to work until the age of 70, but 
the consensus at our table is that we are living longer and I 
did vote for raising the retirement age and so did Scott here 
and Sam, we all three did.
    Mr. Walther. Thanks, I appreciate that.
    Mr. Williams. The one that we were not able to get to, I 
think probably disappointingly, because it was the one that we 
were most interested in, was this issue of privatization, which 
I think is the real big issue anyway. We had a lot of 
discussion around the table but we were unable to reach any 
sort of consensus. Some of us felt leave it alone, do not 
privatize; some of us felt heavily privatize, even up to the 
40-percent level.
    Mr. Walther. Do you think that with more time, you might 
have been able to arrive at a consensus on that subject?
    Mr. Williams. Only with the Supreme Court.
    [Laughter.]
    Mr. Walther. Well, they are good at solving problems.
    How about this table right here.
    Ms. Wilson. Hi, my name is Gemelo Wilson, I am a student 
here at the university.
    We pretty much reached like 100-percent solution. We were 
very good at dealing with the issues and the options there and 
then making decisions upon it.
    One of the number one solutions we had is to tweak the 
Social Security system by creating a Board of Social Security 
similar to the Federal Reserve, with a 12-year time limit. And 
for these persons to invest in a trust fund with both 
government and private area in a broad index fund with a rate 
of return that would be better and higher than individual 
accounts.
    Our second was to raise the retirement age to 68 instead of 
70, because we would like to enjoy our golden years.
    The next would be to increase the tax rate to 6.5 percent. 
And I am not sure if there was a major consensus on that or 
not, but that was one of the options that we provided.
    The fourth would be to increase the wage subject, which on 
the paper, it was 28 percent, so that was good.
    And then a fifth and final, which is an addition to the 
options that were provided, was to eliminate the partial 
benefit and for them not to have the option to opt out at 62--I 
am sorry, yes, to increase it to 64. With the life expectancy 
increase, this gives people opportunity to work longer.
    Mr. Walther. Very good. Thank you. I think we have time for 
perhaps one more table. Right here.
    Ms. Johnson. Okay, my name is Emily Johnson, I am a student 
here at the university.
    Mr. Walther. Emily Johnson.
    Ms. Johnson. Emily Johnson, yes.
    Our table, we thought we came up with some pretty good 
ideas. The first was we liked the idea of the affluence test, 
we did not like the idea of doing it at $50,000 or $70,000 
because we thought that penalized people who really could use 
the money. We liked the idea of raising it maybe to around 
$100,000 or more, because those people can likely afford to pay 
more.
    We also liked the ceiling test. We kind of maneuvered, 
changed that a little bit though because we did not like the 
idea of taxing--only taxing employers up to $100,000 and having 
the employees match the full income, because we thought that 
that would alleviate some of the problems of placing a heavy 
burden on businesses.
    Also we also looked at the idea of raising the retirement 
age perhaps and also including State and local government 
officials in that.
    Mr. Walther. And how much did--did you tabulate your 
results?
    Ms. Johnson. We tabulated it but because we sort of changed 
around and we changed them a bit, we think it might be around 
100, but it's pretty approximate.
    Mr. Walther. Okay, great, thanks so much. Thank you all.
    Kenny, do you want to----
    Chairman Shaw. I want to thank all of you who were able to 
be with us today. I think that the interest that has been 
shown, and I think--and I was walking around and listening to 
the various tables and listening to some of the debate that 
goes on, I think probably all of you now are over-qualified to 
run for Congress. [Laughter.]
    But I would also tell you something, which I think might 
come as a bit of a surprise. I think most of you now know more 
than about 50 percent of the Members of Congress. I say that in 
sincerity, because in talking to the talk show hosts on Sunday, 
they have been letting the candidates for various office and 
the people who appear on these morning talk shows get away with 
murder. They do not understand it, and I am talking about the 
best of them. I have had some of them in my office discussing 
it with them. I have had George Will and Dave Broder, they 
understand it very, very well, but there are a lot of names 
that are even more familiar than theirs that do not really 
understand how the system actually works. I think you probably 
do not know all the ins and outs, but you certainly have a much 
clearer picture than over half the Members of Congress and a 
lot of the people in the media.
    This has been a very worthwhile exercise. I wish we had 
more time to give you more time to come up with solutions 
because Kenny and I are really looking for them and want to 
bring them back to Washington. But I think one of the things 
that I hope is very clear and that everyone in this room really 
understands is that there is a pending crisis out there. We can 
do something about it and the Congress I think should be pushed 
into action so that this system will be here for the younger 
people.
    I want to thank our moderator and our actuary that did an 
excellent job, both of them.
    [Applause.]
    Chairman Shaw. And also I want to congratulate all of you 
for sending us such a fine Congressman as Kenny Hulshof.
    [Applause.]
    Chairman Shaw. I can tell you, you do not just show up with 
a pretty face and get put on Ways and Means. And he has been a 
very hard-working Member, a very bright Member of the Ways and 
Means Committee in the Congress. Our jurisdiction is huge, we 
have jurisdiction over all of--actually it is about 80 percent 
of the budget. We have jurisdiction over welfare, trade, income 
tax, Social Security and Medicare. The jurisdiction of our 
Committee is just gigantic, it just eclipses any other three or 
four committees of the Congress. So this is the type of work 
that your Member does for you every day in the Congress and we 
just hope--and I will insert this as a political statement--I 
hope you keep him going as long as he wants to be there, he 
does a great job for you.
    Thank you.
    Mr. Hulshof. Thank you.
    [Whereupon, at 3:51 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

       Statement of the American Association of University Women

Social Security: Why Reform is Important to Women
    For more than a century, the American Association of University 
Women (AAUW) has promoted equity in the workplace, in education, and in 
all aspects of women's lives. AAUW has long been committed to a Social 
Security program that improves the social status and economic security 
of the elderly. As the 106th Congress considers proposals to reform the 
current Social Security system, the economic wellbeing and security of 
women must be safeguarded. It is critical that the following factors be 
considered:
Women are more dependent on Social Security than men.
    Women earn less than men. For every dollar men earn, women earn 74 
cents, which translates into lower Social Security benefits. In fact, 
women earn an average of $250,000 less per lifetime than men--
considerably less to save or invest in retirement.
    Women are half as likely as men to receive a pension. Twenty 
percent of women versus 47 percent of men over age 65 receive pensions. 
Further, the average pension income for older women is $2,682 annually, 
compared to $5,731 for men.
    Women do not spend as much time in the workforce as men. In 1996, 
74 percent of men between the ages of 25 and 44 were employed full-
time, compared to 49 percent of women in that age group. Women spend 
more time out of the paid work force than do men in order to raise 
families and take care of aging parents.
    Women live longer than men. A woman who is 65 years old today can 
expect to live to 85, while a 65 year old man can expect to live to 81. 
Because women live longer, they depend on Social Security for more 
years than do men.
Women need guaranteed benefits they can count on.
    The poverty rate among elderly women would be much higher if they 
did not have Social Security benefits. In 1997, the poverty rate among 
elderly women was 13.1 percent. Without Social Security benefits it 
would have been 52.2 percent. For elderly men, the poverty rate is much 
lower, at 7 percent. If men did not have Social Security benefits, the 
poverty level among them would increase to 40.7 percent.
    Social Security benefits are the only source of income for many 
elderly women. Twenty-five percent of unmarried women (widowed, 
divorced, separated, or never married) rely on Social Security benefits 
as their only source of income. It is the only source of income for 20 
percent of unmarried men.
    Older women of color are poorest in retirement. Only 25 percent of 
African American and 33 percent of Hispanic women have income from 
savings or assets. The poverty rate is particularly high among African 
American women over age 65, at 28.9 percent.
AAUW believes that any Social Security reform must increase the 
        stability and security of retirement income, including 
        maintaining and protecting:
     Full cost of living adjustments. The current Social 
Security system protects against inflation, a crucial protection 
against the erosion of benefits. This provision is particularly 
important to women because they live longer, rely more on Social 
Security, and lack other sources of income. Pensions and personal 
savings accounts are rarely indexed to inflation, and retirees may 
outlive those assets.
     A progressive benefit formula. Social Security should 
continue to replace a larger share of low-income workers' past earnings 
as a protection against poverty, and beneficiaries who earned higher 
wages during their work life should continue to receive benefits 
related to their earnings history. The current benefit formula 
compensates women for lower lifetime earnings.
     Spousal and widow benefits. Social Security's family 
protection provisions help women the most. Social Security provides 
guaranteed, inflation-protected, lifetime benefits for widows, divorced 
women, and the wives of retired workers. Sixty-three percent of female 
Social Security beneficiaries age 65 and over receive benefits based on 
their husbands' earning records, while only 1.2 percent of male 
beneficiaries receive benefits based on their wives' earning records. 
These benefits offset the wage disparity between women and men.
     Disability arid survivor benefits. Social Security 
provides benefits to three million children and the remaining care-
taking parent in the event of premature death or disability of either 
working parent. Spouses of disabled workers and widows'--workers who 
die prematurely also receive guaranteed lifetime retirement benefits. 
These benefits have enabled women to hold their families together under 
tragic circumstances.
    For more information, call 800/608-5286 AAUW Public Policy and 
Government Relations Department June 1999.

                                


  Statement of Merton C. Bernstein, Coles Professor of Law Emeritus, 
                         Washington University

SOCIAL SECURITY SERVES ALL GENERATIONS
SOCIAL SECURITY'S LONG-TERM FINANCING IS NOT IN CRISIS
PRIVATIZATION DAMAGES WOMEN, MINORITIES & THE YOUNG
Social Security serves all generations:
    It protects children against the full loss of a parent's financial 
support if a worker dies or becomes disabled;
    It provides families of working adults dependable income if 
disablement, retirement or death end their working years;
    It assures working people that their parents and grandparents have 
retirement income;
    It protects all benefits against erosion by inflation with annual 
COLA.
Social Security's long-term financing is NOT in crisis:
    Official projections for Social Security financing have improved 
over the last several years because of improving productivity and high 
employment;
    Improved productivity helps offset demographic changes;
    A tight labor market spurs employers to invest in advanced 
technology to improve productivity and encourages more immigration;
    Raising the cap on covered wages to historic upper limits would 
substantially improve Social Security financing.
Privatization would especially injure women, young people and 
        minorities:
    It requires heavy government borrowing and cutting future benefits;
    Women, who outnumber men as beneficiaries, and other lower wage 
workers depend heavily on Social Security benefits; reducing benefits 
especially hurts them;
    Benefit cuts and tax hikes would be phased in, thereby falling most 
heavily on today's and future young working people.

                                


                      Council for Government Reform
                                  Arlington, Virginia 22201
                                                      June 18, 2001
Testimony of Charles G. Hardin
President, Council for Government Reform
U.S. House of Representatives
Committee on Ways and Means
Social Security Subcommittee

Dear Chairman Shaw:

    On behalf of the 500,000 supporters of the Council for Government 
Reform, I thank you for the ability to submit this testimony for the 
written record. You and your subcommittee are to be commended for your 
interest in jump-starting the national debate on the future of Social 
Security.
    The Council for Government Reform (CGR) is a non-profit grassroots 
advocacy organization concerned with seeking responsible and limited 
government. Our supporters are overwhelmingly senior citizens, most of 
whom survive on little more than their monthly Social Security checks. 
Yet they are concerned with the future and want their children and 
grandchildren to have a secure retirement.
    Much has been said in recent months about the need to change Social 
Security, but we believe that there is little public understanding of 
the truth. Social Security in its current form cannot continue. As the 
70 million baby-boomers begin to retire, the pyramid of Social 
Security's pay-as-you-go structure will collapse. Millions of workers 
will be left holding the tab and will face tax hikes higher than can be 
imagined. Tens of millions of boomers will see benefits far reduced 
from what they were promised and younger generations will be loath to 
pay the taxes to support them.
    That is why CGR believes that we must use the prosperity we share 
today to move Social Security toward a self-financed system of 
retirement. We support the idea of voluntary personal retirement 
accounts (PRAs) based on the following principles:
    First and foremost, the benefits of current and near retirees must 
be protected. Today's retirees should not be shortchanged and those 
nearing retirement have made their plans based on today's system.
    Second, younger workers should be given the choice to save a small 
portion of their current payroll taxes in a voluntary PRA. Payroll tax 
increases or add-on accounts are not a viable option for American 
workers.
    Third, workers must own and control their PRAs and be able to pass 
their accumulated wealth on to future generations. This is particularly 
important to lower income workers who may have no other means to create 
wealth for their families.
    Lastly, the Social Security system must continue to provide a 
government guaranteed safety-net for retirees in need.
    Most American are unaware that the U.S. Supreme Court has ruled 
twice that Social Security benefits are not in any way guaranteed. They 
are dispensed on the political whim of Congress; which may cut, modify, 
or eliminate them. In a nation conceived in liberty, allowing 
politicians such control of how we live after we retire is not 
acceptable. Personal retirement accounts are the best way to give 
American workers the opportunity and responsibility to control their 
own retirement futures. They take retirement planning out of the 
political arena and return it to those with the most at stake--retirees 
and their families.
    You and your committee are to be commended for opening a national 
dialogue on what is the most important fiscal decision our government 
will make. If we don't act now, over our children's lifetime, 
retirement spending will eventually consume 100% of the federal budget, 
leaving no money left for programs such as education, defense or 
transportation.
    While most of CGR's supporters will not directly benefit from a 
modernized Social Security system, they do expect their government to 
be fiscally responsible. Using the power of compounding interest that 
exists in today's private markets to secure a retirement plan for 
future generations of American workers is the responsible thing to do.
    I urge Congress to not take this matter lightly. The decisions grow 
harder with each passing election cycle. Please don't squander any more 
opportunities. Enact voluntary personal retirement accounts before it 
is too late.

                                          Charles G. Hardin
                                                          President

                                


    Statement of Myrna Fichtenbaum, Gateway OWL, St. Louis, Missouri

    My name is Myrna Fichtenbaum. I am a member of the Gateway OWL 
Chapter in St. Louis. OWL is a national organization and the only 
grassroots membership organization focused solely on issues unique to 
women as we age. I can say unequivocally that women of every age are 
the face of Social Security. We have a very clear and unique stake in 
the program. Social Security provides valuable social insurance, 
enabling young widows to take care of their families, women with 
disabilities to live with dignity, and older women to retire after a 
lifetime of hard work.
    In fact, women are 60 percent of Social Security beneficiaries over 
65--and this number climbs to 72 percent among beneficiaries over 85. 
Women depend on Social Security's guaranteed, lifetime benefits. 
Alarmingly, 27 percent of women over 65 rely on Social Security for 90 
percent of their retirement income.
    If Social Security's promise of guaranteed, inflation-adjusted 
benefits is broken through privatization, then over a quarter of 
today's older women would find that virtually all of their retirement 
income is in jeopardy. This is hardly an acceptable outcome.
    The three-legged stool of retirement has never been reliable for 
women. Nearly 40 years after the equal pay act women make less money 
than men, often for comparable work. Women in their 50's, which is for 
most the highest wage-earning years, earn only 2/3 of what men earn for 
the same or similar work. For minority women, the figures are even more 
disparate. The hard reality is simple: you can't save money you don't 
earn and you certainly can't invest money you don't have.
    At a time when policy makers can't decide what to do about long-
term care, America still looks to her Mothers and Grandmothers for 
caregiving. The average women loses 14 years of workforce wages to care 
first for small children, then ailing parents, and finally to 
frequently retire early to care for sick spouses. These are also years 
in which she is not vesting in a pension or earning Social Security 
credits. So women end up with a lopsided stool, leaning heavily upon 
Social Security's dependable benefit. This is even more true for 
minority women.
    OWL is working to shore up all legs of the stool by advocating for 
pay equity, urging America to value its caregivers, and pushing for 
women-friendly pension rules and we refuse to stand by and watch Social 
Security--the strongest leg--be dismantled. We caution Congress and the 
Administration, don't pull the rug out from under the feet of America's 
Grandmothers. The hand that rocked the cradle also votes.
    We do this not just for those who are Grandmothers today, but also 
with the knowledge that today's young Mothers are still the group most 
vulnerable to poverty in retirement tomorrow. The President's newly 
appointed Social Security Commission met in Washington, D.C. just last 
week. The President's mandate that his Commission's recommendations 
include some form of privatization subverts the social insurance 
principles upon which Social Security is based. Instead of pooled 
resources and shared risks--the entire community caring for each 
other--a privatized Social Security will mean every person for 
themselves. The very idea of privatization--partial or otherwise--is a 
red herring. Privatization does nothing to address Social Security's 
so-called long-term solvency issues. In fact, it actually speeds it up 
by 14 years. Since that would be the case, why would privatization be 
proposed as a solution for this alleged, possible problem?
    As one of our members said, ``the financiers will make a killing!'' 
It is difficult not to concur with this assertion and to conclude that 
this will happen at the expense of hard working, decent families.
    If you lose your spouse, incur a disability, work jobs that pay a 
lifetime of low wages, or provide care for this country's young, old 
and infirm--as America's Mothers and Grandmothers are more likely to 
do--you will have to sink or swim on your own. So our message to 
Congress and the Administration is simple: privatization does not work 
for women, and, if it doesn't work for women, it won't work for anyone 
else.

                                


            Statements of Aaron Harrell, Syracuse, New York

    Like many young Americans, I was unaware of the full range of 
benefits that Social Security offers. It was not until I came to 
Washington as an intern at the 2030 Center that I came to a fuller 
understanding not only of the Social Security system, but also of the 
importance of protecting it.
    It was not too long ago that a ten year old lost his father to 
heart disease, and I am sure he wondered what was going to happen to 
his family as he stood on the frozen ground by the open grave on that 
crisp, icy Christmas Eve morning. How was his mother going to raise 
five boys on one salary in rural Upstate New York in the mid 1950s? Had 
it not been for Social Security survivors' benefits, this family of six 
may not have had the opportunities to pay their bills, and provide the 
basic necessities of food, water, and shelter.
    Thirty years have passed; the boy is now grown and has his own 
family. Just like his father before him, he works hard to meet his 
family's needs. One day, a nasty fall at work results in a disabling 
back injury. Because his injury does not fall within the eligibility 
criteria established by the Social Security Administration, he is 
unable to collect a disability benefit. A little over a year later the 
family savings are depleted and his wife's income is barely enough to 
support them. The costs of raising and maintaining a family of five 
kept the specter of need at the door. Two years later, their financial 
situation unchanged, the man's oldest son left home to ease the burden 
on his struggling family.
    As the son of that man, Social Security's effect on my life is 
obvious. Now, that I am grown and am looking forward to a family of my 
own my personal experiences compel me to do whatever I can to preserve 
Social Security for my children, in the event that I can, for whatever 
unforeseen reason, no longer provide for them.
    The current approach to ``saving'' or ``reforming'' Social Security 
that is offered and supported by our President appears on the surface 
to be a legitimate improvement. But upon a closer inspection, 
privatization plans clearly increase the potential for unnecessary 
human suffering and enrich a small number of bankers and brokers at the 
expense of working people. From an actuarial perspective, the Social 
Security system is not in a crisis, nor are any drastic changes needed; 
in fact, no one disputes that full benefits can be paid until 2038, 
without any changes being made. In the 2001 Trustees Report, the 
American Academy of Actuaries stated that an increase of 1.86% in the 
payroll taxes would bring trust funds into balance for next 75 years. 
They also propose an across the board benefit reduction of 13%; 
although these proposals are painful, they do not compare to the pain 
that will be caused by conversion of Social Security into a system of 
Individual Retirement Accounts, as requested by President Bush.
    A diversion of any funds from the current system into these new 
accounts will put an unnecessary strain on the Social Security system, 
as less money will be available to meet demand, at a time when the Baby 
Boom generation is beginning to retire and collect benefits. A 
diversion of only 2% of F.I.C.A. will create a trillion dollar deficit 
over a ten-year period, and twice that the following decade. How can we 
expect to provide benefits when the Trust Fund has no income? The 
general revenue surplus has been nearly entirely squandered on a 
pandering tax cut, so the only recourse left will be to raise taxes, 
raise the retirement age, or slash benefits. The benefits of 
establishing Individual Retirement Accounts, in both the short and long 
terms, do not outweigh the real and potential costs to the American 
workers of tomorrow.
    It seems the rhetoric in the area of Social Security reform 
deliberately avoids discussing privatization's effect on the Survivors 
and Disability aspects of the system. Again, it seems that a lack of 
funds will lead to drastic cuts in these programs, as well as to 
retirement benefits. How will you explain to the millions of recipients 
that benefits are no longer available and poverty waits just around the 
corner for them? Some recent figures from the National Urban League's 
reports give a face to a portion of this group of beneficiaries. One 
million children, currently benefit from the Disability and Survivors 
part of the system.
    Private accounts do more than short current beneficiaries. By 
design Individual Retirement Accounts punish young workers who become 
disabled, as their accounts will not have had enough time to increase 
in value, leaving these unfortunate workers and their families to their 
own devices. The same goes for the young family that loses a parent; 
their account may also lack the funds necessary to meet basic needs. 
Why would we want to create a situation whereby millions of Americans 
can see their lives and livelihoods destroyed in a blink of an eye? The 
current system protects not only the old, but also the young--and all 
those that fall in between. This is to say nothing of the potential for 
loss of funds invested in the stock market, which will leave future 
retirees to depend on retirement benefits that leading economists 
predict will have to be cut by over 50% to meet privatization's costs.
    To go from a system that's guiding principle is that no working man 
or woman, and no child of a working man or woman is left behind to a 
system that relies on the law of averages is one that will prove to be 
costly for America. The current Social Security system, despite its 
flaws, guarantees benefits, while the ``reformed'' system would not be 
able to make that same promise. The people who stand to gain the most 
from this reformation are those individuals and agencies that will 
manage the hundreds of millions of new Individual Retirement Accounts. 
When one considers the quantities of money these individual retirement 
accounts could generate annually just in fees, it is plain why the 
corporate and financial worlds favor privatization. The average 
American worker, however, has nothing to gain from privatization, and 
much--including social insurance during his or her working years and a 
guarantee of a secure retirement income--to lose.
    Social Security does not need to be ``reformed''; it is an 
excellent family-based economic program. However, it does need to be 
strengthened in light of the changing demographics of our population. 
By increasing funding to shore up Social security for the next 
generations, we can ensure a financially secure future not only for 
ourselves, but also for our parents, our children, and our children's 
children. An oft-asked question in formulating public policy is ``Which 
do we seek to improve: people or profit?'' For me, the answer has to be 
people. And that is an answer embodied by Social Security--America's 
most beloved, most successful, longest running social program. The 
American people have repeatedly demonstrated their strong commitment to 
Social Security, to helping people, even when it costs a little profit. 
I hope every Member of Congress will consider this question during 
discussions of Social Security's future, and I hope that we can all be 
proud of the final answer.
    I, Aaron Harrell, respectfully submit this statement to the Ways 
and Means Committee. I speak to this committee as a private citizen and 
do not represent any persons, clients or organizations.

                             Aaron Harrell

    As far as actuarial projections are concerned, I believe that the 
rise in contingency workers or those workers that are employed w/o 
benefits increases,\1\ so will percentage of people requesting 
Disability and survivors benefits.
---------------------------------------------------------------------------
    \1\ In labor force.
---------------------------------------------------------------------------
    [Typed from hand-written statement.]

                                


          Statement of the Kansas City Labor Council, AFL-CIO

    Social Security is critically important to all of America's working 
families. Its protections--guaranteed, lifelong benefits, full 
adjustments to guard against cost-of-living increases, increased 
benefits for families, greater income replacement for low-income 
workers, disability and survivor benefits--are the bricks and mortar of 
economic security in the United States.
    Its monthly checks to retirees are the difference between dignity 
and poverty for millions, and eleven million families depend on Social 
Security to replace the income of a deceased or disabled spouse or 
parent. Through Social Security, all Americans work together to protect 
each other against risks that would be devastating if faced 
individually.
    We all know that we must strengthen and protect Social Security for 
the future. Government experts predict that Social Security has the 
resources to pay full benefits for several decades, until 2038, and 
that after that time there will be enough money to cover about 73 
percent of promised benefits. We do need to take action to strengthen 
and protect Social Security, but we must also take great care to ensure 
that the decisions we make are fully considered and understood by 
Americans. The stakes are too high to do anything else.
    Unfortunately, President Bush has decided to preempt the 
deliberative process. He has already come to a conclusion. He wants to 
replace Social Security's guaranteed benefits with risky private 
accounts. He has appointed a commission made up entirely of individuals 
who have already endorsed privatized individual accounts and ordered 
them to come up with a plan to substitute those accounts for Social 
Security benefits. This is the wrong starting place.
    Given Social Security's importance to our economic security, 
working families must be engaged and active participants in the debate 
over the best way to strengthen the system so that it continues to 
provide economic and retirement security. Ultimately, working 
families--not a commission of ideologues, corporate executives and 
retired politicians--must decide the future of Social Security.
    Working families need to know the full story of how privatized 
individual stock accounts--which weaken Social Security's finances--
will impact their benefits. Unfortunately, today's hearing does not 
address these questions. It is a pep rally for a bad idea rather than a 
serious effort to inform and understand. Most importantly, the public 
needs to know how the huge and unavoidable costs of transitioning to 
private accounts will be paid and who will foot the bill.
    Privatization is an extraordinarily expensive proposition. There is 
no way around the costs of changing over from Social Security's 
guaranteed benefits to privatized individual accounts. The tab for 
privatization can be paid for in three ways--use the on-budget surplus, 
increase taxes, or cut benefits. The President has taken the first two 
options completely off the table with his millionaire tax cut that 
eliminates the budget surplus and a no-new-taxes promise. That leaves 
benefit cuts.
    The big question for the President and his commission is: Whose 
benefits get cut and by how much? Will they raise the retirement age, 
which is already going up to 67? Will they cut the system's inflation 
protections? Will they cut core benefit levels? Will they cut benefits 
for spouses, divorced spouses, children? Will they penalize people who 
do not work 35-year careers? The commission cannot pay for the 
President's individual accounts without answering these questions.
    Simple arithmetic tells us that setting up individual accounts, 
using Social Security resources and complying with the guidelines 
required by President Bush, means that guaranteed benefits must be cut 
for workers under 55 by 40 percent, on average. And even under ideal 
circumstances, workers will see a large cut of 20 percent in their 
total benefits after counting in the individual account. That says 
nothing of the additional cuts that will hit workers who are not 
fortunate enough to have full careers with steady earnings or were not 
lucky enough to live in a time when stock market returns were high. And 
this does not even begin to figure in the drastic hit to Social 
Security's family benefits for surviving spouses and children.
    For far too many people, Social Security's monthly benefit makes up 
all or most of their income in retirement. Nearly two-thirds of older 
Americans count on Social Security for half or more of their income in 
retirement. One in four older unmarried women (the widowed, divorced 
and never married) count on it for all of their income. Two out of five 
African American and Latino older Americans count on Social Security 
for all of their retirement income. These families need more for Social 
Security, not less.
    Social Security is so important because most people do not have 
substantial pensions from their employers, and their savings are very 
modest. Fewer than half of all families have any kind of retirement 
savings account, and among those lucky enough to have one, half have 
less than $24,000 in it. As employers continue to cut back on real 
pensions, retirement security is likely to decline for working 
families.
    This committee, the President and his commission need to tell 
working families why they should and how they can do with less from 
Social Security.
    This committee, the President and his commission must level with 
the American people. Whose benefits are you going to cut and by how 
much are you going to cut them to pay for your privatization agenda?

                                


          Lake County Center for Independent Living
                                          Mundelein, Illinois 60060
Congressman E. Clay Shaw Jr.
Chairman, Subcommittee on Social Security
Committee on Ways and Means
Re: Monday, June 18, 2001, 1:00 pm
Public Hearing on the Future of Social Security
University of Missouri at Columbia, Missouri

    Congressman Shaw, ladies and gentlemen:

    As an advocate in the Independent Living Movement and committed to 
its philosophy, I'm grateful for this opportunity to express concern 
about the future of this successful welfare program.
    It continues to reduce poverty among our nation's elderly but is 
also extremely important to people with disabilities. As our society 
progresses and begins recognizing the civil rights and productivity of 
disabled citizens, Social Security Disability Insurance (SSDI) provides 
needed support.
    Many people with disabilities are productive, tax paying citizens. 
But according to a Harris Poll, unemployment remains high. Does this 
mean we don't want to work? Not at all! Many have the desire to be 
employed, own a home, raise a family and pay taxes just like everyone 
else.
    While the ratio of worker to beneficiaries declines, people with 
disabilities in the workforce should be seen as a vital resource.
    Unfortunately, there are still many disincentives built into the 
Social Security System as well as other bureaucracies that act as 
obstacles to employment of people with disabilities. Add to that, 
stigma and attitude of potential employers and we are a suppressed 
resource.
     Disincentives include (but are not limited to):
     Employers attitudes toward hiring a person with a 
disability.
     Fear by employers of the expense of reasonable 
accommodations.
     SSDI monies provide financial support during trial work 
periods but benefits are often quickly terminated creating a 
disincentive to seeking employment.
     Fear of losing health insurance coverage.
    Some of these concerns are being addressed, but by continuing to 
build employment incentives instead of disincentives into this program, 
increases the potential for a secure future for the Social Security 
program.
    Taking a much broader perspective, some people with disabilities 
enter nursing homes and are ``kept'' there but shouldn't be in these 
facilities. Often they are ``put'' there by well meaning family members 
or doctors. It's been proven over and over again, that when provided 
with the appropriate supports, many persons with disabilities become 
independent and productive. Community-based services provide enormous 
savings to states.
    By creating a more accessible society, we free up workers with 
disabilities so that we can be a resource. An accessible and a barrier-
free society involve much more than curb cuts or ramps. Government 
programs can create barriers, too.
    Seeing workers with disabilities as a resource when considering the 
future of Social Security may not be the entire answer, but with 54 
million of us, it's a good start.
            Sincerely,
                                        Mary Jansen Parrent
                                   Manager of Advocacy/I&R Services

                                


          Statement of Marilee C. Martin, St. Louis, Missouri

    My personal story illustrates how crucial Social Security is for a 
widow with a minor child. When my husband died from cancer I was 
working, having re-entered the work force after nearly 12 years of not 
holding a job. But, naturally, his death considerably reduced our 
family income. Although my husband left a small life insurance policy, 
he had borrowed against it to start his own business; after he died 
those funds helped to pay off some debts he had incurred. I continued 
to work, so was not entitled to Social Security survivor's benefits.
    However, I did collect survivor's benefits for my young son, then 
just 10 years old. The money could hardly replace a husband's income 
(one who had always paid the maximum in Social Security taxes), but 
Social Security survivor's payments certainly helped to cover my son's 
living expenses for the next several years. I could not have gotten by 
without those payments. To the small savings account we had begun a few 
years previously I added the remaining life insurance policy funds to 
cover any emergency that might occur. Since I had had breast cancer at 
the same time my husband was dying, it is an understatement to says the 
future looked problematic to me!
    I finally moved back to St. Louis, where I had family, and I had to 
use the savings account when, except for small free-lance writing jobs, 
I was out of work for a year. During that lean time I collected Social 
Security survivor's benefits for myself as well as my son.
    NOTE: Until the Reagan years Social Security paid survivor's 
payments until a minor child reached 21, the usual age for graduating 
from college. These benefits helped to cover a child's living expenses 
during the most expensive years of their lives for parents, when 
they're still trying to get an education.
    The Reagan legacy was to lower the age for these benefits from 21 
to 18 (now 16), based on the false assumption that if children were 
college-bound they didn't need Social Security survivor's benefits 
because they were eligible for benefits under other federal program--
basic educational opportunity grants, guaranteed student loans, and 
college work study. What this premise overlooks is that children with 
both parents alive are also eligible for these benefits and none of 
these programs provide for living expenses. For my son, and millions 
like him, Social Security survivor's checks covered living expenses.
    In reality, our family's income dropped by several thousand dollars 
a year just because my son became 18 years old and was cut out of the 
program. No amount of educational grants and college work study program 
can cover that kind of diminishment in family income.
    In another story of incredible need, Social Security disability 
payments benefited my older step-son, who developed an inoperable brain 
tumor in his early thirties, received extensive radiation and died 10 
years later. Unfortunately, his wife broke under the strain, they were 
divorced and she moved to a smaller house with their two sons. He moved 
into a small studio apartment, living there until he died.
CONCLUSION
    Only those who do not understand the valuable benefits Social 
Security provides for other than old age, could possibly think that 
younger working people are entitled to invest some of their Social 
Secutity contributions in their own private accounts.
    Social Security does not rob young people at the expense of the 
old. It is an insurance program that provides innumerable benefits to 
all ages. No one knows what will happen to them from their early 
working years until they retire, but Social Security will provide for 
them should they have the need.

                                


            Statement of Robert McFall, St. Louis, Missouri

    I would like to make a statement about the social security system 
as it exists today, and as I hope it will exist in the future. Social 
security is a tremendous success story. The program does exactly what 
it was designed to do: it provides a core retirement to the nation's 
workers. It has reduced the poverty rate among the elderly from more 
than 50% to 10%. In addition it has allowed the elderly to maintain 
their independence and in that way lessen the burden on the next 
generation. My father, for instance, was able to live in his own home 
until he was past 93 years old. It was only when his health had 
deteriorated that it was necessary to come to my house. Even then, he 
could contribute to household expenses. This allowed him a feeling of 
belonging and contributing which was important for his ego. Contrast 
this with my childhood when many families had a grandparent living with 
them. Three generational households were not at all unusual.
    Social security is social insurance. It is based on the premise 
that all are contributing members and all are collecting members. We 
all contribute, some are better or luckier than others and will 
contribute more; we all collect, some are healthier or luckier than 
others and will collect more. We are all in this together. Our life 
account has no time left in it when we depart, and our social security 
account has no money left in it when the death benefits are paid.
    As to the supposed shortfall, under the social security trustees 
pessimistic assumption about economic growth (they assume an average 
growth rate of 1.7% per year--less than half of the average over the 
last 100 years) the fund will have enough money to pay full benefits 
for more than 60 years. Also, if wages are higher, the so-called crisis 
disappears; if the gap between top and bottom narrows, we lose the 
crisis.
    One thing I always hear mentioned is that when the baby boomers 
retire there will not be enough workers in the system to pay their 
benefits. That may be true now, but when they do retire we will simply 
have to import the workers to provide the health services, staff the 
travel agencies, man the restaurants, bars, resorts, etc. These workers 
will pay FICA taxes. If not, the baby boomers will make so much noise 
it will make this brouhaha sound like a tea party. When the boomers get 
unhappy the politicians will spring into action. Few politicians have 
been able to refuse the baby boomers, and retired boomers will have 
time to join AARP and write letters, and VOTE.

                              REAL REFORM

    If you are still concerned about the financing gap I would suggest 
that lifting the cap on the employers share of the FICA would close 
nearly half the gap. Lifting the cap on both employee and employer 
would make the gap disappear. Applying the FICA to stock options would 
also be in the public interest. The interest paid on the bonds in the 
social security could be set at a higher rate. Since 1989, the share of 
national income going to corporate profits has increased by 3.2%. If 
not for this shift the median wage would be $1100 higher. In view of 
this shift, it would make sense to supplement the FICA with a tax on 
non-labor income. Any effort to decrease the distance between the 
highest income and the lowest has to reduce the so-called gap in the 
social security balance.

                             PRIVATIZATION

    Many people would like to see social security partially privatized. 
They claim that the return on their investment is not what it should 
be. They do not consider that the life insurance and disability 
benefits would have to have a premium charged to their account. Make 
this charge to their account and the lower amount they are investing in 
their retirement would make the return much more attractive. I have 
read that a life insurance policy that covers children and spouse to 
age 18 would be the equivalent of a 300 thousand dollar policy; and a 
disability which would pay you for the rest of your life would be about 
a 200 thousand dollar policy.
    If the rate of growth of the last 75 years was forecast for the 
next 75 years there would be no shortfall. Conversely, if the rate of 
return on stocks was projected as the same as the rate of growth of the 
economy, there would be no advantage to privatization. Instead we are 
projecting one rate of growth for the economy and another rate of 
growth for stocks so that privatization will look better. But the stock 
market is part of the economy. It can grow faster than the economy only 
if a larger segment of the economy is turned over to profits. Hence, 
the gasoline, electricity, and prescription drug price gouging. If the 
stock market grows at 7% and the economy grows at 1.1% which are the 
two figures most often used to set up the privatization argument the P/
E ratio would be 1800 to 1. If profits go up by 7% in an economy going 
up by 1.1% by 2015 wages would be down by 45%, by 2035 wages would be 
in the negative numbers.
    This is nothing but an attempt to make more pro-corporation people 
rather than pro-workers. The only people for this are ones that will 
benefit from the continuing spiral from stock prices. It is an attempt 
to create a demand in a market that is already too high.
    There are many problems involved in privatization: transition 
costs, keeping track of many small accounts, finding brokers willing 
and able to handle millions of small accounts, regulating the brokers, 
etc. An article I read in the Post-Dispatch suggested that all of the 
problems will be handled by a little tweak of this regulation or that 
rule. Reminds me of the Morey Amsterdam story about the man and his 
tailor. The one that ends with one observer saying, ``Look at that poor 
man, isn't it terrible that he has to stand and walk that way.'' His 
friend replies, ``Yes, but doesn't the suit fit good.''
    It ain't broke, don't fix it.

                              OTHER POINTS

    Our real income is 71% higher than it was 30 years ago. Yet we are 
told that we cannot afford to honor our contract with the elderly. The 
weakest of our poor, our children just lost a 63 year old entitlement, 
AFDC. Meanwhile the Balanced Budget Amendment of 1997 made sure that 
those who had doubled their money in the stock market would get a 
generous tax break when they cash in their winnings.
    According to Social Security trustees, it would take less than 1% 
of national income to close the shortfall. Workers earning more than 
35% more than today (rising to 75%) would have to pay 1% more in taxes. 
But rising health care costs would eat into wages, lowering them by 14% 
in 35 years. It is health care and not social security that needs 
reformation.

                                


               Statement of John Metzger, Troy, Missouri

    Good afternoon, Mr. Chairman and Member(s) of the Committee. I 
appear before you this morning as a concerned senior citizen of the 
State of Missouri and of the great United States of America. Although I 
am a member of several organizations and federations, I am speaking of 
my concerns, which I believe are the concerns of the vast majority of 
seniors nationwide.
    Privatization for all recipients of Social Security is just not 
good and for many would end in disastrous results.
    We must ask ourselves three questions and insist on answers to 
these questions. First, would the returns on personal accounts actually 
exceed what a reformed Social Security could deliver? I don't think so! 
Second, would benefits under a privatized system be safe? I don't think 
so, too risky! Third, would these privatized alternatives reliably 
fulfill the current program's crucial social functions? I don't think 
so!
    The answers to all three of these questions is a big no.
    Privatization is not the answer because Social Security, with 
changes that would leave its basic structure intact, can provide 
workers with higher returns than could any privatized alternative and 
can provide these returns with much less risk while continuing to 
advance important social objectives that privatized alternatives would 
jeopardize.
    Social Security was created in 1935 to provide all American 
families with a dependable income base upon which they could build 
additional protection against income loss for themselves and their 
families after retirement, disability or the death of a breadwinner. To 
this end, Social Security replaces a larger share of lost income for 
low earners than for high earners, grants more generous survivors' 
benefits to larger than to smaller families, provides extra resources 
for retired couples in which one spouse has had no or limited earnings, 
and gives special consideration to divorced people whose marriages 
lasted at least 10 years.
    In part because of these provisions, Social Security lifts twice as 
many people out of poverty than all other income-tested assistance 
programs, cash and in-kind combined.
    Under a privatized system, in which each participant's benefits 
would depend on the accumulations in his or her individual account, 
there is no room for such social assistance. That burden would have to 
be borne by a separate program, possibly one requiring a demeaning 
means test.
    Social Security provides a secure and predictable financial 
guarantee by tying benefits to the average wages workers have earned 
over their lifetimes. In privatized systems, however, benefits ride the 
financial market roller coaster and we can see good examples of this in 
the past months. A drop in asset value just before a worker reaches 
retirement or becomes disabled can decimate benefits.
    For the average worker, a non-sophisticated investor, average 
returns would be less than received under regular Social Security 
benefits. Of course, some investors would beat the averages--most with 
market sophistication or who can afford to buy expert financial advice. 
Others would do poorly because they invested too conservatively or 
accepted some of the endless supply of bad financial advice that is 
readily available. I suppose that is why there is current legislation 
to reduce the costs of marketing stock/bonds. Convenient.
    So what needs to be done to fix Social Security? First, coverage 
should be made truly universal by covering all newly hired state and 
local government workers, one-quarter of whom are now outside the 
system. Extending coverage would provide additional protections to 
these workers and help Social Security's finances. Furthermore, 
benefits should be treated like other retirement income by subjecting 
them to the same income tax rules that apply to private pensions, that 
is by taxing benefits that exceed what the worker has contributed. 
These tax revenues could be credited to the trust funds to help finance 
future benefits.
    Second, benefits should be slightly reduced by increasing the 
number of years of earnings averaged to compute a worker's benefit and 
by accelerating scheduled increases in the normal retirement age. In 
combination with announced corrections in the Consumer Price Index, 
which would lower annual inflation adjustments to benefits, the changes 
listed so far would close two-thirds of the projected long-run deficit.
    Third, the requirement that Social Security reserves be invested in 
relatively low yielding Treasury securities should be scrapped and the 
trustees empowered to invest in a diversified portfolio that includes 
private as well as government assets. The responsibility for managing 
these funds should be transferred to a new, quasi-private agency 
modeled on the Federal Reserve. The chair and members appointed for 
lengthy staggered terms, should be required to invest reserves only in 
broad index funds and to make sure that shares were voted solely to 
reflect the economic interest of participants.
    This structure would save money and make possible higher average 
returns for beneficiaries than private accounts could offer. It would 
also ensure that Social Security reserves could not be used as an 
instrument of political control over private business decisions.
    And moving the reserves to a quasi-private entity would help guard 
against the possibility that growing fund surpluses would be used to 
justify tax cuts or spending increases.
    The above changes would fully close the projected long-term deficit 
in Social Security and for most people, generate higher and more 
reliable pensions than would private accounts. It is important to 
realize that privatization is not a free lunch. Taxes have to be 
raised, benefits for current retirees and older workers cut, or both. 
The unpleasant reality is that the current payroll taxes, 80 percent of 
which are needed to pay current benefits, do not generate enough money 
to fund meaningful deposits into private accounts unless benefits are 
slashed deeply.
    If the advocates of privatizing Social Security were making valid 
claims, it might be worth paying those higher taxes. But it is hard to 
see why American workers should be asked to fork over more for a new 
system that would deliver lower average benefits for each tax dollar 
they pay, that would subject workers to financial risks they are ill-
equipped to bear, and that would place in jeopardy the social 
assistance on which millions of Americans depend.
    We need to tune up Social Security, not trade it in for a new, but 
flawed model.
    Thank you.

                              Raise SS Caps
------------------------------------------------------------------------
                                            50% Single      MFJ couple
------------------------------------------------------------------------
From....................................             25K             32K
To......................................             35K             45K
                                         -------------------------------
                                              80% Single      MFJ Couple
                                         -------------------------------
From....................................             34K             32K
To......................................             46K             56K
------------------------------------------------------------------------

                                


     Statement of Missouri Rural Crisis Center, Columbia, Missouri

    No Privatization
    [Typed from hand-written statement.]

                                


       Statement of Missouri Women's Network, St. Louis, Missouri

    The Missouri Women's Network is strongly opposed to privatization 
of Social Security. Privatization would do most harm to hundreds of 
thousands of elderly women who depend wholly or partly on Social 
Security benefits. Women live longer and get paid 75 cents to a men's 
dollar during their working lives. They, therefore, receive less from 
company pensions than men and rely on Social Security to fill the gap. 
Women who have not held a job outside the home often depend solely on 
Social Security for their pensions. Without Social Security the poverty 
rate for women over 65 would be at least 53 percent!
    Privatization would benefit only a few with the majority losing 
money in the very risky stock and bond markets. Taking risk into 
account, Social Security has a much higher return than any mix of 
financial assets in private accounts. Many people are not educated 
about the markets and would be taken advantage of by unscrupulous 
brokers/money managers.
    Social Security provides security for women and families because it 
is guaranteed, you can't outlive it, and it keeps pace with inflation.
    The current perceived ``problems'' with Social Security need to be 
repaired--the program not overhauled or abolished!

                                


            Statement of Stephen Mudrick, Columbia, Maryland

    To: U.S. House Ways and Means Committee, Social Security 
Subcommittee
    I believe that Social Security should serve as the major component 
of the ``safety net'' for all American citizens. Many people depend on 
Social Security benefits for their retirement income, but I understand 
that many beneficiaries are not retired. Social Security serves a broad 
spectrum of our population.
    I feel that any attempt to take money out of Social Security by 
``privatizing'' it in any way, or by allowing people to put part of 
their Social Security money into private investments, would hurt the 
system. It would reduce the Social Security funds that provide the 
safety net benefits. I am opposed to attempts to ``privatize'' Social 
Security.
    Encouraging people to put savings into private investments that can 
supplement their retirement is fine, but it must not be at the expense 
of reducing the safety net, the basic Social Security benefits.

                                


Statement of Merrill Leutung, Missouri Federation of Chapters, National 
      Association of Retired Federal Employees, Columbia, Missouri

    Mr. Chairman, I am Merrill Leutung of Columbia and I am an officer 
in the Missouri Federation of Chapters of the National Association of 
Retired Federal Employees (NARFE). I thank you for scheduling this 
hearing on the Social Security. I am grateful to Congressman Hulshof 
for inviting me to make a few comments on an issue of such great 
importance to the 4,600 federal annuitants who live in the 9th 
Congressional District and the 50,272 federal retirees and survivors 
who call Missouri home.
    As a federal annuitant, I would be remiss if I did not raise the 
issue of the Government Pension Offset (GPO) in the context of the 
dialogue you are holding on Social Security reform today.
    In 1935, when the Social Security Act was originally enacted, it 
provided the same benefits to workers, with and without spouses, and no 
survivors' benefits. The amendments of the Social Security Act, enacted 
in 1939, added spousal and survivor benefits to provide extra 
protection to workers with families.
    The GPO Social Security Act amendment, originally enacted in 1977, 
went into effect in 1983, and since then, has affected over almost 
285,000 federal, state, and local retirees. It reduces or eliminates 
the Social Security spousal benefit (wife, husband, widow, or widower) 
to which an affected retiree may be eligible. Two-thirds of the amount 
of the monthly government annuity that the retiree has earned, is used 
to offset whatever Social Security spousal or survivor benefit might be 
payable.
    According to the Congressional Budget Office, ``about 145,000 
retirees from federal, state, and local governments had their Social 
Security auxiliary benefits reduced or eliminated as a result of the 
GPO in December 1991.''\1\ Since then, that figure has almost doubled.
---------------------------------------------------------------------------
    \1\ CBO Testimony--Statement of Nancy M. Gordon, Asst. Dir. for 
Human Resources and Community Development, Congressional Budget Office 
before the Subcommittee on Social Security, Committee on Ways and 
Means, US House of Representatives--April 8,1992.
---------------------------------------------------------------------------
    The Social Security Administration states that the number of social 
security beneficiaries affected by GPO as of December 1997 was 
270,975.\2\ That number increased by December 1999 to 284,383.\3\
---------------------------------------------------------------------------
    \2\ See attachment A--Beneficiaries affected by the GOP as of 
December 1997.
    \3\ See attachment B TABLE 6103--Number of beneficiaries affected 
by the GOP by gender and type of benefit, fully and partially offset, 
December 1999.
---------------------------------------------------------------------------
    Of the 284,383 affected beneficiaries, 229,941 or 80 percent are 
fully offset, which translates into no benefit. It is crucial for you 
to note that 104,137 or 38 percent of the total number of affected 
beneficiaries are widows or widowers and 71,175 or 68 percent of them 
are fully offset.
    Mr. Chairman, I understand that there are members of this committee 
who have concerns regarding ``means testing.'' I am led to believe that 
these concerns specifically relate to H.R. 664 and the provision of a 
$1,200 per month threshold before GPO would be applied.
    When Congress enacted GPO in 1983, it set a ``means test'' 
precedent by introducing a means test provision into the Social 
Security program by denying the full application of spousal benefits to 
persons receiving government pensions. This application of denial is 
not applied to those persons who are the recipients of annuities or 
other retirement benefits from the private sector.
    We, as federal annuitants, share you and your colleagues' concerns 
over the impropriety of ``means testing'' in Social Security and 
believe that Congressman Jefferson's bill H.R. 664 is the most 
pragmatic approach to the modification of the GPO, in lieu of repealing 
it.
    Public Law 106-182, introduced as H.R. 5 by Congressman Sam 
Johnson, was passed in both houses of Congress and signed into law by 
the President on April 7, 2000. This law ``eliminates the earnings test 
for individuals who have attained retirement age.'' The estimated cost 
of the earnings repeal is projected to be $8 billion in the first year 
and $22.7 billion over the next ten years. The projected estimate for 
H.R. 664 is about $300 million in the first year and $4.4 billion over 
the next ten years.
    These preliminary projections for H.R. 664 are based on a threshold 
of $1,200, and indexed by the Social Security COLA over ten years, 
retroactive to December 31, 1999.\4\ Social Security Administration 
actuaries have determined that, just as with the earnings test repeal, 
enactment of H.R. 664 would ``increase the OASDI long-range actuarial 
deficit by an amount that is estimated to be negligible (i.e., less 
than 0.005 percent of taxable payroll).'' \5\
---------------------------------------------------------------------------
    \4\ See attachment C--est. costs of Cong. Jefferson's proposal 
(preliminary and unofficial SSA figures).
    \5\ See attachment D--Social Security Administration actuarial 
memorandum (February 23, 2000).
---------------------------------------------------------------------------
    Members of this committee were able to expeditiously change the 
Social Security Act to benefit older workers through Public Law 106-
182. We are now asking you to expend that same effort to effect change 
through H.R. 664 for government retirees.
    In fact, since repeal of the earnings limit, government workers 65 
and older can receive full social security benefits based on their own 
work or as spouses or survivors. However, as soon as they retire, their 
social security is cut or ceases altogether. Therefore, a benefit 
counted on for retirement is paid while one is working, only to 
disappear when needed most--at retirement.
    We urge you to support H.R. 664, a proposal to modify the Social 
Security Government Pension Offset, supported by the millions of 
federal, state and local government employees and retirees across the 
United States. We also urge you to publicly ask President Bush's Social 
Security Reform Commission to include a recommendation in favor of GPO 
reform it its final report.
    Thank you for the opportunity to express our concerns about this 
important issue.

                    Missouri Federation of Chapters
                              Columbia, Missouri 65205-0623
                                                      June 19, 2001
    I also want to call your attention to another inherently unfair 
provision of the Social Security Act which denies Social Security 
benefits to almost 600,000 retired public servants. That is the so-
called Windfall Elimination Provision (WEP), which was enacted as part 
of the 1983 Social Security Amendments. In short, this provisions 
denies as much as $262 per month of earned social security benefits to 
former government workers who did not have at least 30 years of 
substantial earnings taxed by Social Security. In short, the WEP 
establishes different eligibility and entitlement rules for different 
folk, dependent solely upon their career time spent as public servants. 
Correction of this inequity is almost 20 years overdue, but certainly 
``better late than never.''
    To ask for an end to the WEP is only asking for an end of the 
current inequity!!!
    It is also difficult for us to believe that giving workers the 
option of putting some money in the stock market would be helpful. It 
would keep some money out of Social Security System. Also they may not 
put it in stocks. We oppose it.

                    Missouri Federation of Chapters
                              Columbia, Missouri 65205-0623
                                                      June 19, 2001
    A Social Security tax was raised to 85% on people that had incomes 
above $25,000 single or $32000 married on the basis to help correct the 
Deficit. I appreciate the tax cuts that were made but this one was not 
addressed. Since we do not have a deficit this should be lowered back 
to the 50% level. Another thing that could be considered is to double 
this $25,000 and $32000. This level is way too low.
      Thank you for hearing me.

                                    Merrill Leutung

                                


                            Statement of OWL
    Women are the face of Social Security, comprising 60 percent of 
beneficiaries over 65 and 72 percent of recipients over 85. Women 
depend on Social Security's guaranteed, lifetime benefits: 27 percent 
of women over 65 rely on Social Security for 90 percent of their 
retirement income. A comprehensive discussion of Social Security and 
its future cannot be had without women's realities, perspectives and 
needs being made perfectly clear.
    OWL is the only national grassroots membership organization to 
focus on issues unique to women as they age, striving to improve the 
status and quality of life for midlife and older women. OWL's statement 
today will reflect the realities of midlife and older women's lives, 
but our members also share a concern for the young women of today--
women who remain the group most vulnerable to poverty in retirement 
tomorrow.

Women's Lives: Real Facts

            Women earn less
    Women earn only 72 cents for every dollar a man earns, so they are 
able to save less during their working years. In their 50's, which 
represent for most the highest earning years and a chance to play catch 
up with retirement savings, women earn only two-thirds of what men 
earn. Despite workforce participation gains made by women in the past 
decades, younger women are not exempt from this wage gap. A majority of 
women today work in retail, clerical or service jobs, just like their 
mothers did. Further, three out of four working women earn less than 
$30,000 annually. You can't save and invest money you don't earn. 
Social Security's progressive distribution helps compensate for this 
situation, but private accounts leave low-wage workers, typically women 
and minorities, to fend for themselves.

Women take time out of the paid labor force for unpaid caregiving
    Women take more time out of the workforce--in their younger years 
for child rearing and in midlife for caregiving for spouses and 
parents. For the average woman, caregiving will mean about 14 years out 
of the paid workforce. These are years in which she is not vesting in a 
pension, increasing her earning power, or garnering Social Security 
credits; these lost wages translate to less income in retirement.

Women aren't covered by pensions
    Less than one-fifth of older women receive income from a private 
pension. Even when women are covered by pensions, they often don't 
reach the five-year mark for vesting in the pension. Primarily because 
of caregiving, women change jobs an average of every three and a half 
years. New tax legislation would reduce pension vesting requirements to 
three years, and this is great news for women still in the workforce.
    However, traditional pension coverage for women is shrinking rather 
than growing. Over the past decade, there has been a dramatic shift 
toward defined contribution benefit plans and away from defined benefit 
pension coverage. Unlike defined benefit plans where the worker has a 
set benefit for the rest of their lives, defined contribution plans 
(e.g., 401k, 403b and 457 plans) do not specify the amount to be paid 
upon retirement, but instead offer upfront contributions to an account 
that accumulates in value over time. This shift in types of pensions 
means that even fewer young women will be able to count on a steady 
pension benefit, and instead will have to hope they don't outlive their 
401k funds--plans which are funded by a percentage of their already 
lower earnings.

Women live longer
    When our granddaughters become older women, we certainly hope that 
everyone is living longer, healthier lives. But if today's trends 
continue, women will continue to outlive men by at least six years. 
Living longer may be a blessing, but it is sometimes a financial 
nightmare. Women face the very real threat of outliving their money. 
They have less income to start with, and they have to make it go 
farther for longer. Younger women can't trust the stock market to make 
up for lower earnings, years out of the workforce, and a longer time in 
retirement. The guaranteed, inflation-adjusted, lifetime benefits of 
Social Security are more than a safety net: they are a solid financial 
base on which women can depend.

Result: Women are poorer in retirement
    After battling lower wages, time out the workforce, and reduced 
access to retirement benefit plans, women are faced with less money to 
live longer lives. Today, the average older woman in America struggles 
to make ends meet on a limited annual income of $15,615 (compared to an 
average of $29,171 for men). Women are three times more likely than men 
to have lost a spouse and comprise 80 percent of seniors living alone, 
so they are quite literally on their own.
    Because her retirement income is smaller, she spends a higher 
proportion of her income on housing costs--leaving less for other vital 
necessities such as utilities, rising medical costs, food and 
transportation. The average older woman also spends 20 percent of her 
limited income on out-of-pocket health care costs. The average woman on 
Medicare spends 20 percent more on prescription drugs than men--largely 
because of her greater longevity but also due to her greater tendency 
towards chronic illness.
    Depending on the mythical three-legged stool for retirement 
security--Social Security, pensions and personal savings--has never 
worked as well for women. Her work patterns and lower wages make the 
latter two difficult to depend upon. That's what makes Social Security 
such an important financial foundation for women. Twenty seven percent 
of women over 65 rely on Social Security for 90 percent of their 
retirement income, and the numbers are higher for minority women. 
Without Social Security, OWL estimates that half of all older women 
would fall into poverty.
    OWL is working to shore up all legs of retirement planning's three-
legged stool by advocating for pay equity, urging America to value its 
caregivers, and pushing for women-friendly pension rules. In the 
meantime, we refuse to stand by and watch Social Security--the 
strongest leg--be dismantled.

Women and Social Security Privatization

            Insurance against unexpected events
    How would a privatized system provide a safety net for divorced 
women, widows, survivors with young children, women with disabilities, 
and others? Social Security is just that: a social insurance policy to 
provide security when life takes tragic or unexpected turns. Social 
Security is not just for retirees--it's for the 28-year-old widow who 
must now provide for her children on her own; for the 35-year-old 
single woman who becomes disabled after an accident or illness; for the 
children of a working 40-year-old mother who dies, and for so many 
more. In fact, one-third of all Social Security beneficiaries are 
children, widows and people with disabilities. This system of social 
insurance allows families to count on a minimum floor of financial 
support should they lose their primary or sole breadwinner. A 27-year-
old stay at home mother would probably not have enough saved in her or 
her husband's private accounts to help her keep her family from 
financial ruin, but Social Security's rock-solid guarantee will protect 
her.

Inflation-adjusted guarantee
    Private accounts cannot offer what Social Security does: guaranteed 
benefits that never decrease, benefits that are adjusted upwards for 
inflation, and benefits that you can never outlive. For all the reasons 
listed above--lower wages, lower pension coverage, more time out of 
workforce for caregiving, longer life spans--women must have Social 
Security as a solid financial base they can depend upon.
    If Social Security was converted to private accounts, retirees 
would turn to annuities to convert their cash account into equal 
monthly payments. But the private annuity market does not offer 
inflation-adjusted policies that are reasonable in cost and do not 
further decrease women's monthly payments. The fact that women have 
smaller accounts to start with and are likely to live many years longer 
than men means that annuity policies offer women a reduced benefit from 
the start. Finding a rare inflation-adjusted policy, if she could even 
afford it, would mean a further dramatic reduction in a woman's monthly 
benefit.

Stock market volatility
    A woman's retirement security should not depend on the year she is 
born, the year she starts working, or the year she retires. Averages in 
stock market growth are just that--averages. They don't tell us how an 
individual woman will fare, nor do they protect her against the 
inevitable ups and downs of a risky market. Further, private accounts 
will most likely be subject to processing fees for Wall Street brokers, 
which could eat a larger proportion of women's already smaller 
accounts.

Benefit cuts & higher retirement age
    Privatization would divert a massive amount of money--approximately 
$1 trillion over only the next ten years--out of the Social Security 
program. To pay for this expense, there would have to be sharp benefit 
cuts in the guaranteed portion of the program, or steep increases in 
payroll (FICA) taxes to cover the loss and pay transition costs. The 
private accounts are supposed to make up for these cuts, but they fail 
to do so and leave beneficiaries, especially future beneficiaries, 
short of where they would be under current law. Women will also pay 
more for privatization down the road. Not only will their accounts be 
smaller, but because of their longevity it will also cost women more to 
annuitize their private accounts--which they will have to do in order 
to withdraw the funds--when they do retire.
    Under most privatization plans, the retirement age will have to be 
raised--again. Already slated to reach 67 years old for those Americans 
born after 1960, an increased retirement age is unrealistic and unfair 
for many women. The jobs women and minorities traditionally hold--
service and retail workers and manual laborers--are especially 
strenuous and are often not feasible for 70-year-olds.

Comparing apples and oranges
    Privatization proponents are pitching such reforms with the lure of 
a ``better'' rate of return on the dollar, an argument that can be 
especially appealing to younger people. This is a misleading and 
dangerous argument, not just for the reasons outlined above but also 
because it simply compares apples and oranges. You can't compare the 
social insurance nature of Social Security's guaranteed, inflation-
protected, lifetime benefits with an individual account that carries no 
such protections and many more risks. Given its reliability and 
efficiency, Social Security remains a wise investment.
    Young Americans understand Social Security's social insurance 
nature: a recent poll showed that 85 percent of young adults believed 
that ``senior citizens generally need and deserve the government 
benefits they receive, so it is not unfair to young people.'' In that 
same poll, young people said that ``making sure that people receive a 
decent, guaranteed monthly retirement benefit'' is a higher priority 
than ``making sure that people receive a better rate of return'' by a 
margin of 55 percent to 39 percent.

Privatization Hurts Solvency: Real Ways to Shore Up Social Security
    The first question that is thrown at defenders of Social Security 
is usually, ``What would you do to ``fix'' it?'' This implies that 
privatization is somehow a solution to any potential solvency issue, 
when in fact it actually hastens insolvency--using current 
predictions--by 15 years!
    According to the latest report from the Social Security Trustees, 
the trust fund's surplus will end in 2038 without any changes, leaving 
a gap between incoming payroll taxes and outgoing benefit payments. We 
must remember that estimates are just that, and can vary widely from 
year to year. Two years ago, Social Security was expected to run out of 
money in 2032. If the economy grows faster than the trustees' 
conservative estimates, then Social Security faces no solvency threat 
in the next 75 years. While OWL wants to address long-term solvency 
issues to ensure the longevity and health of these critical programs, 
we must reject alarmist proposals that play off unfounded fears and 
threaten Social Security's guarantees.
    However, there are sound improvements that can make the system more 
secure and solvent far into the future. This is not a comprehensive 
list, but rather some suggested starting points for discussion.
    Social Security's long-term solvency can be strengthened by:
    1. Using general revenues (in addition to the current direct 
payroll taxes) to guarantee that Social Security will be able to meet 
all of its obligations in 2038 and beyond. The surpluses projected for 
the next few years would go a long way to solving any potential 
solvency problems. However, the President's tax cut plan has locked up 
most of these funds for the next ten years.
    2. Adjusting the maximum wage base by making all earnings subject 
to the payroll tax and credit them for benefit calculations. Some 
experts believe this action would make up for 75 percent of the 
solvency gap.
    3. Invest 40 percent of the Trust Fund in stocks. This maintains 
the shared risk, shared benefit nature of Social Security, while 
potentially growing the trust fund surplus at a faster rate, which 
would help close the gap. Private pension plans often use this tactic 
to share the risk while maximizing the return.
    4. Increase the payroll tax for employees and employers in 2020. 
While not a favorite option for most taxpayers, this proposal still has 
a place in the solvency discussion. If it helps preserve the universal 
nature of Social Security, where no one individual is left to sink or 
swim on their own, then it may be worth the cost.

                                


          Statement of Joan B. Bernstein, Vice President, OWL

WOMEN & SOCIAL SECURITY--WHY IT MUST BE PRESERVED & IMPROVED
    Social Security represents about 90% of retirement income for about 
27% of all older women because of women's generally lower wages, fewer 
years in the work force, and scant pension coverage.
     Without their current social security benefit, more than 
half of women age 65 and older would live in poverty. The percentage 
increases markedly the older the women are.
     Women over age 65 are twice as likely as men to live in 
poverty with average annual incomes about $15,600.
     One older woman in four is poor or near poor.
     5.4 million children live in households maintained by 
grandparents or other non-parent relatives; 1.4 million children are 
being raised by grandparents alone.
    Women, particularly single women, both divorced and never married, 
have less discretionary income for savings over a lifetime of work, 
both paid and unpaid.
     Women earn about 73 cents for each dollar earned by men;
     Women earn about $250,000 less in lifetime earnings than 
men;
     Women, who provide about 73% of unpaid care to family and 
friends age 50 and older, average 14 years outside of the paid 
workforce.
    82% of women age 65 and over do NOT receive any private pension 
benefits, because
     Most women work in low wage, service sector or part-time 
jobs, many of which provide no pension benefits;
     Women average a job change every 3.5 years, yet most 
pension plans vest only after 5 years of employment;
     The 18% of women who qualify for pensions receive pension 
amounts about \1/3\ less than men. In 1995, women received on average 
only $4,679 annually compared with $6,442 for men.
    Women & children disproportionately depend on Social Security's 
disability and survivor benefits when a working spouse or parent is 
disabled or dies.
    The Social Security system must be maintained or improved to ensure 
that all persons are guaranteed a decent old age after a lifetime of 
work and care-giving.

                                


              Statement of Nat Scavone, Columbia, Missouri

    Background:
    I retired on January 1, 1996 and receive Social Security and a 
small state pension. (Completely satisfied with the Social Security 
Administration.)
    In January 2000, I was required to start withdrawing my deferred 
compensation required by law.
    I had expected to pay income tax on the portion of my withdrawal 
from my deferred compensation as I withdrew it. This happened--I paid 
my tax--the government got their share before I received mine. This is 
not the problem that I want to address.
    The problem, as I see it comes from the tax in the tax changes 
instituted by the Clinton Administration wherein anyone making $39,000 
GROSS is subject to tax on 85% of their S.S. earnings.
    I did not make any additional money but because I was required by 
law to withdraw a portion of my deferred compensation, which raised my 
adjusted gross income; therefore, I was subject to this additional tax!
    In addition to that, the balance of the deferred compensation was 
invested and I did receive a small dividend which was also taxed.
    Although the amount of tax is not large it opens the way for 
further taxes on our retirement income.
    Thank you for your consideration in this matter.

                                


Statement of Laurence S. Seidman, Professor of Economics, University of 
                                Delaware

FUNDING SOCIAL SECURITY
    Think personally. Suppose you realize today that two decades from 
now you'll face a financial crunch. What should you do now? The answer 
is easy: save for the next two decades, thereby building up a large 
fund that can be tapped when the financial crunch hits. Of course, 
saving involves sacrifice. But the sacrifice is not as bad as facing 
the crunch two decades from now without the help of a large fund. Now 
think about the Social Security system facing the same problem: a 
financial crunch that begins two decades from now due to the retirement 
of the numerous baby boomers. What should it do? Again, the answer is 
easy: build up a large fund--``fund'' Social Security. Once again, 
building the fund involves a sacrifice: we must pay more taxes for the 
next two decades. But this sacrifice is not as bad as facing the crunch 
without the help of a large fund.
    The good news is that we've already begun to fund Social Security. 
In the 1980s, a bipartisan commission headed by Alan Greenspan 
persuaded Congress to enact a gradual build up of the Social Security 
fund. The build up is going nicely, but it needs to be accelerated. A 
modest increase in the amount of payroll subject to tax, and a modest 
infusion of income tax revenue into the Trust Fund, will handle the 
crunch (according to the Social Security actuaries). If Democrats and 
Republicans would both support another round of funding the way they 
supported the initial round in the 1980s, neither party would be able 
to blame the other for the necessary taxes, and Social Security would 
be ready for the baby boomers when they retire.
    Again, think personally. If you build a fund, should you hold it 
all in cash? Certainly not. At a minimum, you want to earn interest. 
But if you are willing to accept some risk, you can probably achieve a 
higher return by investing a portion of the fund in a conservative 
diversified stock index fund. The same logic applies to Social 
Security. So Congress should permit the Social Security Trust Fund to 
do exactly this under prudent guidelines. A Social Security Reserve 
Board should be established to manage the Trust Fund's portfolio, 
holding a large portion in safe government bonds, but a small portion 
in conservative diversified stock index funds (this portion would be 
managed, under contract, by private investment firms).
    Notice that I've said nothing about creating new individual 
accounts under Social Security. That's because they're not necessary to 
solve Social Security's problem. But what's wrong with Social Security 
individual accounts? A few things. Where does the money comes from? If 
each person is allowed to divert 2% of his current 12.4% payroll tax to 
his new individual account, then obviously the Social Security system 
is left with only 10.4% and will build a smaller fund instead of the 
larger one we need. A smaller fund means a smaller regular Social 
Security benefit. That's OK if your individual account earns a high 
return. But it's not OK if your individual account loses money. If it 
does lose money, you can handle it if your income is high, but not if 
your income is modest. Of course, if none of the current 12.4% payroll 
tax is diverted, thereby protecting the regular Social Security 
benefit, the money for the new individual accounts must come from an 
increase in taxes, just like funded Social Security. Individual 
accounts are OK as a supplement to, not a substitute for, funding 
Social Security.

                                


        Statement of Richard T. Stith, Jr., St. Louis, Missouri

    Nowhere have I read a discussion on our Social Security system 
setting out what it is and how it works, and yet a misunderstanding of 
its operation that could be a turning point in congressional 
consideration. Social security is a plan that provides defined benefits 
to the people it covers; that is, the benefits are in the form of a 
definite amount of income determined by formula This income is payable 
at retirement, or at disability, or to orphaned children, or to a widow 
with a young family, or to a widow or widower following the death of a 
spouse retiree.
    The income benefit is earned after a period of work during which 
the individual pays a tax on a certain amount of his income. The 
formula for the future income benefits payable to the worker depends on 
the average earned income on which the social security tax was paid 
over a minimum, continuous period of time.
    The key here is that no amount of money is accumulated in any 
separate account because of the tax that the participant has paid. In 
fact very large benefits could be paid to a deceased's spouse or a 
deceased's family even though the deceased had paid no significant 
amount of social security tax before death. And retirement payments 
sometimes can far exceed the amount contributed in tax by the retiree.
    For retirement, actuaries calculate how many participants will 
retire, and how long they will live, and how large their income 
benefits will be. The tax money put into the system by all participants 
provides the benefits for those retiring. The actuaries also are aware 
of fixture retirees and deaths, and the Social security tax is set at a 
rate to provide for this future. Any tax collected in excess of current 
needs is invested in government bonds at current rates (now near 6%) 
and will provide benefits for those not yet retired nor yet in need of 
family death or disability benefits.
    In a close sense a defined benefit retirement plan (which our 
Social Security plan is) is like life insurance: where those insured 
pay in money not knowing who will die first or last, but knowing there 
will be a payment in behalf of each at death. Under Social Security 
some may live and draw income for a long time and some only for a short 
while, but the contributions of all make this possible. Each 
participant is part of the whole, as he is with life insurance, and 
does not stand alone.
    Any excess Social Security tax money now being collected could be 
invested in stocks, or securities other than government bonds, and 
possibly the long-term-return would exceed government bond earnings and 
thus provide a larger future reserve. Even a small increase in the 
percentage return on investments can mean much over a long period. But 
this would not increase any individual's benefit; rather it would aid 
in meeting the requirements of the income formulae provided under the 
Social Security rules. Computer models could be used to see if there is 
a real benefit in this investment modification, or prohibitive risks.
    No tax money paid into Social Security by any individual 
accumulates in a separate account to provide him any benefit. His money 
goes into the pot, and what he gets depends on the formula under which 
he qualifies at death or retirement. If we paid each participant at 
death or retirement only what he had accumulated--no matter how little 
there would be no social security. Certainly the rank and file would 
have no social security under a defined contribution plan. IRA plans 
can meet individual investment needs without diverting part of the 
social security tax. We need more money in the Social Security system, 
not less, which is why stock investment is being considered, despite 
all its problems.
    We are now lucky to have our social obligations to our community 
covered by a well thought out defined benefit plan.

                                


           Statement of Harry Weitkemper, Columbia, Missouri

    SS Has Cola
    Now We Need A LOLA ``Length'' of ``Living'' Adjustment
    Just one More Adjustment
    [Typed from hand-written statement.]

                                
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