- SOCIAL SECURITY'S FUTURE

[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

SOCIAL SECURITY'S FUTURE

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

HEARING

before the

SUBCOMMITTEE ON SOCIAL SECURITY

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

__________

JANUARY 26, 2004

__________

Serial No. 108-45

__________

Printed for the use of the Committee on Ways and Means

U.S. GOVERNMENT PRINTING OFFICE
99-667 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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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 SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

Allison H. Giles, Chief of Staff

Janice Mays, Minority Chief Counsel

______

SUBCOMMITTEE ON SOCIAL SECURITY

E. CLAY SHAW, JR., Florida, Chairman

SAM JOHNSON, Texas ROBERT T. MATSUI, California
MAC COLLINS, Georgia BENJAMIN L. CARDIN, Maryland
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri XAVIER BECERRA, California
RON LEWIS, Kentucky STEPHANIE TUBBS JONES, Ohio
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.

C O N T E N T S

__________

Page

Advisory of January 16, 2004 announcing the hearing.............. 2

WITNESSES

Social Security Administration, Hon. James B. Lockhart, III,
Deputy Commissioner............................................ 9

______

Alliance for Retired Americans, Larry Winawer.................... 42
Harper, Joel T., Boca Raton, FL.................................. 49
Mae Volen Senior Center, Inc., Leon M. Weekes; accompanied by
Elizabeth Lugo................................................. 47
Moore, Michael W., Boca Raton, FL................................ 40

SUBMISSIONS FOR THE RECORD

Atlantic Auto Glass, Lake Park, FL, Audrey Mullinix, statement... 59
Bogan, Dennis L., Mason, OH, statement........................... 60
Bryant, David R., LaGrange, IL, statement........................ 60
Cuddeback, Nancy Teague, Humble, TX, letter...................... 62
International Leisure Retirements, Inc., Las Vegas, NV, Peter
J.H. Walker, statement......................................... 63
Lichtman, Valerie, San Bernardino, CA, statement................. 69
Mardis, Ellen, Spring, TX, statement............................. 69
McFadden, Stephen A., Dallas, TX, statement...................... 69
Searles, Donna, Odem, TX, statement.............................. 75
Thornton, Mil, Santa Ana, CA, statement.......................... 75
Travis Wolff & Co., L.L.P., Dallas, TX, Gary W. Wyatt, letter.... 75
Vollman, D. Paul, Jr., Chapel Hill, NC, statement................ 80
Work Search Organization, Tamarac, FL, Stephen Zwirn, statement.. 80

SOCIAL SECURITY'S FUTURE

----------

MONDAY, JANUARY 26, 2004

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Boca Raton, FL

The Subcommittee met, pursuant to notice, at 10:00 a.m., at
the Live Oak Pavilion at Florida Atlantic University, 777
Glades Road, Boca Raton, Florida, Honorable 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
January 16, 2004
SS-6

Shaw Announces Field Hearing on

Social Security's Future

Congressman E. Clay Shaw, Jr., (R-FL), Chairman, Subcommittee on
Social Security of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing on Social Security's Future.
The hearing will take place on Monday, January 26, 2004, at the Live
Oak Pavilion at Florida Atlantic University, 777 Glades Road, Boca
Raton, Florida, beginning at 10:00 a.m.

Oral testimony at this hearing will be from invited witnesses only.
Also, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

For over 60 years, Social Security has provided essential
protection against loss of income due to retirement, disability, or
death for workers and their families. As a result, the number of
seniors living in poverty has decreased in the past 45 years. In 1959,
one third of seniors had income below the poverty line compared with
one tenth of seniors today.

Yet, Social Security is much more than a retirement program. In
return for the hard-earned Social Security taxes they pay, workers and
their families can also count on Social Security disability benefits in
the event of a long-term disability. That's important, since almost 3
in 10 of today's 20-year-olds will become disabled before full
retirement age. In addition, Social Security survivor benefits are
available to young children and their parents if the family breadwinner
were to die. Unfortunately, 1 out of every 7 Americans will die before
full retirement age.

It is not only because of disability and survivor insurance that
younger workers have a vital interest in Social Security. The Social
Security taxes paid by both younger and older workers today are the
funds used to pay Social Security benefits to current retirees,
survivors, and disabled workers. In other words, Social Security
benefits would not be paid if workers and their employers did not
contribute about $1 out of every $8 of earnings to Social Security.
Americans of all ages need to understand Social Security's full range
of benefits and how they are financed in order to recognize their stake
in Social Security's future.

While Social Security will continue to be there for future
generations, the 2003 annual report of the Social Security and Medicare
Board of Trustees concluded that in approximately 15 years, the system
will begin to run cash shortfalls that will grow in severity each
subsequent year. Social Security will still be able to pay full
benefits until 2042 by redeeming Treasury bonds held in the trust
funds, but honoring the bonds will place growing pressure on the rest
of the government's budget. After that point, revenues are projected to
cover only about three-fourths of benefit costs and even less
thereafter. This occurs about the same time as today's 20-year-olds
will be entering retirement.

Demographics largely drive the program's financing problem.
Families are having fewer children and advances in medicine are
enabling people to live longer. As a result, there will be fewer
workers supporting each retiree in the future.

In announcing the hearing, Chairman Shaw stated: ``Today's young
people have a huge stake in the choices we make to strengthen Social
Security. I'm pleased that Florida Atlantic University is hosting this
hearing to focus students on Social Security's relevance to their
lives. These young people are Social Security's future, and they will
bear the burden should policymakers fail to act.''

FOCUS OF THE HEARING:

The hearing will focus on Social Security's role in providing
income security, program financing, factors causing Social Security's
financial challenges, the consequences of inaction, choices
policymakers face, and issues for the Subcommittee to consider as they
move forward.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Monday, February 9, 2004.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the West Palm Beach District Office of
Congressman E. Clay Shaw, Jr., 222 Lakeview Avenue, Suite 225, West
Plam Beach, Florida 33401, by the close of business, Thursday, January
22, 2004. Please note that in the immediate future, the Committee
website will allow for electronic submissions to be included in the
printed record. Before submitting your comments, check to see if this
function is available.

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 electronically to
[email protected], along with a fax copy to
(202) 225-2610, in WordPerfect or MS Word format and MUST 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. All statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.

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

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

Chairman SHAW. Good morning, and welcome. Social Security,
as all of us in this room know, is the bedrock of retirement
security for Americans. Without it, almost half of seniors
today would be living in poverty. Social Security is important
to Americans of all ages, not just our parents and
grandparents, and not just to me, who is someone who is soon to
be 65. Sadly, one in seven Americans die before they reach
retirement. Social Security provides benefits to help ensure
the financial security for the families who've lost loved ones
too soon. Today, there will be about 1.4 million young people
under the age 19 receiving survivor benefits due to the loss of
a parent.
Additionally, roughly 30 percent of 21-year-olds today will
become disabled before retirement; that is a startling
statistic. Social Security provides benefits to help these
Americans whose disabilities have hindered their ability to
work. Today, there are about 150,000 young people under the age
of 30 receiving disability benefits. Though younger Americans
tend to believe Social Security is something they won't have to
worry about until they are much older, today's young people may
need Social Security more than they realize. If their goal is
to retire at age 62 and have a retirement income equal to 80
percent of their salary, a 21-year-old earning the average wage
of $36,000 annually will need to save approximately $1.4
million to supplement their Social Security.
Social Security has an immediate impact on your life the
minute you first start drawing a paycheck. You and your
employers pay $1 out of every $8 that you earn to support
Social Security and pay benefits to today's seniors. That means
your Social Security taxes equal about a month and a half of
wages if you work full time. For about 80 percent of families,
Social Security taxes are the largest Federal tax that they
pay. While Social Security has been enormously successful, the
program's ability to pay the benefits we have promised faces
serious challenges in coming years due to the Nation's changing
demographics. Thanks to modern medicine, people are living
longer. In addition, families are having fewer children. This,
combined with the quickly approaching retirement of the baby
boom generations, means there will be fewer workers to support
each person receiving benefits.
Since Social Security taxes are used immediately to pay
benefits to today's seniors, the decline in the number of
workers supporting each beneficiary means the program's costs
are growing faster than the tax base supporting it. By the time
today's 20-something year olds reach retirement age, Social
Security taxes will only cover about 75 percent of the promised
benefits, or even less thereafter. It is interesting, one of
the interesting statistics is that when Social Security was
first put into law, there were some 40 workers for every 1
retiree. Now we are down to about three, and soon it will be
two. The math is very simple. Congress has to act to do this
for future generations.
Every Member of Congress, every Member, is committed to
securing Social Security's future. The question is, and what
divides the Congress, is, how? Ultimately, decisions need to be
made whether to reduce benefits, increase payroll taxes, or
find other ways to increase Social Security's revenues. Last
week, in his State of the Union address, the President
highlighted his view that younger workers should have the
opportunity to build a nest egg through voluntary personal
retirement accounts. I agree, which is why I have introduced
H.R. 75, the ``Social Security Guarantee Plus Plan.'' My plan
would allow workers to voluntarily establish a personal account
that they own, control, and in which their families can
inherit. Everybody would be guaranteed to receive benefits no
less than promised under current law, regardless of how their
investments perform. In addition, my plan increases benefits to
those in need.
Every proposal to strengthen Social Security has benefits
and consequences that must be carefully considered by the
Congress. However, as we move forward, I want to make one point
perfectly clear: the Social Security debate is not about
securing benefits for today's seniors or those nearing
retirement. They will receive every penny they earned and have
been promised. I do not know of any plan that does anything to
today's seniors or people who are near retirement that would in
anyway change the benefit or the basic structure of Social
Security as it is today. This debate is about young workers,
including the students here at Florida Atlantic University
(FAU), and future generations who will pay the price if we fail
to act. Indeed, if we do fail to act, they will pay the price.
I am pleased to welcome the Deputy Commissioner of Social
Security, James Lockhart. I am pleased to welcome the witnesses
on our second panel, which you will soon meet. They are your
friends, colleagues, and neighbors who have taken time from
their busy schedules to share their personal experiences and
recommendations with the Subcommittee. Each of you has a
profound stake in the future of Social Security. I challenge
the students here at FAU to take what you learn here today to
create a forum for discussion in the classrooms, through your
school newspaper, and in public debates. Following these
deliberations, I encourage you to write to me with your
recommendations on how best to save Social Security. Your views
and your vote will make a difference.
[The opening statement of Chairman Shaw follows:]

Opening Statement of The Honorable E. Clay Shaw, Jr., Chairman, and a
Representative in Congress from the State of Florida

Social Security is the bedrock of retirement security for
Americans. Without it, almost half of seniors today would be living in
poverty. But, Social Security is important to Americans of all ages,
not just our parents and grandparents.
Sadly, one in seven Americans die before they reach retirement.
Social Security provides benefits to help ensure the financial security
for the families who lost loved ones too soon. Today, there are about
1.4 million young people under the age of 19 receiving survivor
benefits due to the loss of a parent.
Additionally, roughly 30 percent of twenty-year-olds today will
become disabled before their retirement. Social Security provides
benefits to help these Americans whose disabilities have hindered their
ability to work. Today, there are about 150,000 young people under age
30 receiving disability benefits.
Though younger Americans tend to believe Social Security is
something they won't have to worry about until they are much older,
today's young people may need Social Security more than they realize.
If their goal is to retire at age 62 and have a retirement income equal
to 80 percent of their salary, a 21-year old earning the average wage
of about $36,000 annually today will need to save roughly $1.4 million
to supplement Social Security.
Social Security has an immediate impact on your life the minute you
first start drawing a paycheck. You and your employer pay $1 out of
every $8 you earn to support Social Security and pay benefits to
today's seniors. That means your Social Security taxes equal about one
and a half months of wages if you work full time. For about 80 percent
of families, Social Security taxes are the largest Federal tax they
pay.
While Social Security has been enormously successful, the program's
ability to pay the benefits we've promised faces serious challenge in
coming years due to the nation's changing demographics. Thanks to
modern medicine, people are living longer. In addition, families are
having fewer children. This, combined with the quickly approaching
retirement of the baby boom generation, means there will be fewer
workers to support each person receiving benefits.
Because Social Security taxes are used immediately to pay benefits
to today's seniors, the decline in the number of workers supporting
each beneficiary means the program's costs are growing faster than the
tax base supporting it. By the time today's twenty-somethings reach
retirement age, Social Security taxes will only cover about 75 percent
of promised benefits, and even less thereafter.
Every Member of Congress is committed to securing Social Security's
future. The question is, how? Ultimately, decisions need to be made
whether to reduce benefits, increase payroll taxes, or find other ways
to increase Social Security's revenues. Last week, in his State of the
Union address, President Bush highlighted his view that younger workers
should have the opportunity to build a nest egg through voluntary
personal retirement accounts.
I agree, which is why I have introduced the Social Security
Guarantee Plus plan. My plan would allow workers to voluntarily
establish a personal account that they own, control and which their
families could inherit. Everybody would be guaranteed to receive
benefits no less than promised under current law, regardless of how
their investments perform. In addition, my plan increases benefits to
those most in need.
Every proposal to strengthen Social Security has benefits and
consequences that must be carefully considered. However, as we move
forward, I want to make one point perfectly clear: the Social Security
debate is not about securing benefits for today's seniors and those
nearing retirement--they will receive every penny they earned and have
been promised. This debate is about young workers, including students
here, and future generations, who will pay the price if we fail to act.
I am pleased to welcome the Deputy Commissioner of Social Security,
James Lockhart. I am also pleased to welcome the witnesses on our
second panel, which you will soon meet. They are your friends,
colleagues, and neighbors, who have taken time from their busy
schedules to share their personal experiences and recommendations with
the Subcommittee.
Each of you has a profound stake in the future of Social Security.
I challenge the students of Florida Atlantic University to take what
you learn here today to create a forum for discussion in your
classrooms, through your school newspaper, and in public debates.
Following these deliberations, I encourage you to write to me with your
recommendations for how best to save Social Security. Your views and
your vote will make a difference.

Now, I would like to go over some of the matters pertaining
to this particular hearing. This is a congressional hearing. It
is not a townhall meeting. We have a recorder who will make
everything that goes on here today a part of the congressional
record. Because of time constraints, we will hear the witnesses
who are appearing here today. However, anyone here that wishes
to submit written testimony, certainly can do so and we would
welcome your testimony in writing to be made a part of the
congressional record.
I am pleased also to welcome representatives from the
Social Security Administration (SSA) who have set up a table
just outside of the hearing room. Also, I have my staff from
both the Palm Beach and Broward County office here to assist
you in any ways that you may need if you have personal problem
that you would like to discuss with them that we don't address
during this particular hearing. It is no coincidence that we
are here at FAU. This will be the second college campus that we
have been on. We were at the University of Missouri, and now we
are here.
My motive in being here is that I want to motivate young
people. It is hard to get young people excited about
retirement, but they should know that they are paying into a
system that will be jeopardized by the time they get into the
retirement age. All of us should be very much concerned about
those that come after us, as well as of course the today's
seniors, in being sure that the program stays strong and
intact.
I would like to introduce the President of FAU, Frank
Brogan, who has a few remarks, hopefully of welcome, to the
Committee, and while he is coming to the microphone, state that
Democrat Members were also invited to participate in this
hearing. The staff is here, as well as my own Washington staff.
This is not a partisan hearing. It is a hearing only to inform
and be informed. Mr. Brogan, former Lieutenant Governor of the
State of Florida, and one of my favorites.
Mr. BROGAN. Good morning, Mr. Chairman. Good morning, sir,
and welcome to you. Welcome to Commissioner Lockhart, to the
witnesses who will be part of the two panels today. Thank you
for your time and contributions to this important hearing.
Welcome to your staff, Chairman Shaw, and to our guests at FAU
today. I walked in with several of our guests from the parking
lot and had the opportunity to hear already some of the
feelings that people have toward this incredibly important
issue. I have also had the chance to meet a couple of alum here
this morning who are in the audience who remarked at how much
the campus is changing, Mr. Chairman, and I said that a big
part of our landscape these days includes a crane on every
corner of the campus. We are growing by leaps and bounds. We
are at over 26,000 students at FAU now, spread out on 7
campuses from Fort Lauderdale to Vero Beach. We have every
conceivable college undergraduate program and graduate program,
and, of course, we are rapidly making a significant name for
ourselves in the area of applied research.
So, we are delighted to have all of you here to serve as
hosts for this important hearing, but any time we have the
opportunity to bring people to our campuses for the first time,
I am convinced it sells itself, and we hope that you will
return. We have enormous and successful lifelong learning
programs, more than 25,000 students, in addition to the 26,000
part-time and full-time students at FAU, are lifelong learners.
They are students who come here to take a course or additional
courses in areas of interest in the world of continuing and
lifelong education. So, we not only offer traditional
university life, but also an important slice of life to our
lifelong learners, who are traditionally for us made up of
seniors who just have a thirst for continuing education.
This particular topic, Mr. Chairman, is very important to
those of us at FAU. So, we are glad you are hosting this
meeting, that is, not only those of us who are moving toward
advanced age, but also equally important to those who are 18,
19, and 20 years old, who are in those classrooms today. Now
your comment is right on point; it is very difficult for a 20-
year-old to think about their retirement years, and yet I can
tell you from personal anecdote how important it is.
Many, many years ago, when I was about 3 years old, my 5
brothers and sisters and I lost our father at a very, very
early age. My father, when he passed away, left six children
and a mother with an eighth-grade education and no real-world
work skills other than those that she had honed along the way.
She knew how to clean; she knew how to cook. She took those
skills out into the marketplace. She cleaned people's homes,
and she worked in kitchens and in restaurants to feed us and
clothe us and shelter us because ``dear old dad,'' as I'm fond
of saying, left us with a lot of wonderful things; money just
did not happen to be one of them.
A big part of what we needed was the survivor benefit that
went along with the Social Security program even at that point,
but, my mother would have been the first one to tell you, it
was not very big. Anyone who believes that the survivor benefit
can become the staple to support a family, those of us who know
better, and my mother did, will tell you it was an important
contribution to our quality of life but it in no way, shape, or
form provided us with what we needed as a seven-member family
in those days to get where we needed to go.
I fast forward to about 5 years ago. I lost another Member
of my family at a very early age. Congressman, you, as an old
dear friend, know that I lost my wife, Mary, to breast cancer
at 43 years of age, and I found out again what the survivor
benefit was all about. Fortunately, I was not reliant upon it,
but it did trigger to me again the size of the survivor benefit
and the impact that it has on life--not mine, but I thought
about the many, many people who lose a spouse early on and
those who have children and need to be able to provide for
them. Once again, this is an ongoing and important discussion
about Social Security and its appropriateness and state for the
21st century.
So, for young people, especially in this conversation
today, and for senior citizens, Social Security, how big it is
and what it looks like in the 21st century in your wisdom, is a
very important topic of discussion for all of us. It is every
bit as important to have that discussion with senior citizens
and those who are middle aged, as it is to have with the 18 and
19-year-old students of our community, because, indeed, we are
shaping today, the future of Social Security for those who will
come many, many years after we are gone. It is important that,
as you mentioned Mr. Chairman, we maintain its viability for
seniors today, and also that we begin to look at Social
Security for 20, 30, and 50 years down the road, for those who
are in those classrooms today who may not be thinking about it
the way they should, but who someday will be turning their
attention to this incredibly important discussion.
So, I leave you with two commendations. One, I think these
hearings have the opportunity to continue to educate people on
this important and very complicated issue. Two, these hearings
provide a chance to engage people of all ages and all
backgrounds in the dialog, the discussion, and the debate as to
the future of Social Security in our country. So, we are indeed
privileged to have you, the Members of the Committee, and all
of our guests here today on the campus of FAU.
I believe, as President of the institution, that we are not
just a university in a host community; we are part of this
community, and therefore, we need to engage this university in
the dialogs and discussions that take place for the greater
community. On a personal note, Mr. Chairman, thank you for your
years of service. Not just to south Florida and to Florida, but
also the United States. You are a great friend of this State
and this country. I am not surprised that you are here today
with this very important issue, and I am very grateful that you
have chosen to come to FAU. Thanks for the chance to be here
today.
Chairman SHAW. Thank you, sir. Thank you very much. We very
much appreciate that welcome. I well remember your deceased
wife and how she could light up a room just by her presence. I
say you are very, very fortunate to have had her as long as you
did. I will also say that FAU is also very fortunate to have
you here. We look forward to working with you on not only this,
but many, many projects. I know your excitement about scripts
and other things and it is going to involve the education
process. Excuse me. I thank the President for being here. Thank
you very much, Frank.
Mr. BROGAN. Thank you.
Chairman SHAW. We appreciate it.
Mr. BROGAN. Thank you very much.
Chairman SHAW. Our first witness this morning is James
Lockhart. He's the Deputy Commissioner of the SSA. We very much
appreciate your coming for this particular hearing, and we look
forward to your testimony. Witnesses today, we have a 5-minute
rule which will be enforced. However, for the Commissioner, in
that he is setting forth many of the facts that are going to be
the subject of this hearing, he is not limited. I understand
that he is going to speak for about 15 minutes.
Mr. Lockhart.

STATEMENT OF HONORABLE JAMES B. LOCKHART, III, DEPUTY
COMMISSIONER, SOCIAL SECURITY ADMINISTRATION

Mr. LOCKHART. Thank you, Chairman Shaw. Thank you for
inviting me to FAU to discuss the important issue of
strengthening Social Security. I would like to commend you for
keeping this vitally important issue before the American
people. It affects all Americans. President Bush and we at
Social Security think that strengthening Social Security is a
critical issue. Commissioner Barnhart has made it one of our
four major strategic goals.
Today, Social Security is running surpluses, but the Social
Security program as currently financed is unsustainable over
the long-term. I must emphasize, as President Bush has said
repeatedly, that benefits promised to current retirees and
those nearing retirement are safe. Changes to strengthen Social
Security would not result in benefit reductions for retirees or
near-retirees, but will help their children and grandchildren.
Social Security touches the lives of nearly everyone in
America. That may be why the Social Security Act (P.L. 74-271)
was recently voted in a poll conducted by the U.S. National
Archives as one of the top 10 documents in American history.
We're up there with the Declaration of Independence and the
Constitution. Social Security continues to be one of the most
successful government programs. Last year we paid over $450
billion in benefits to 47 million retirees, survivors, disabled
individuals and their dependents. Social Security is much more
than a retirement program. Thirty percent, a fact you can see
in this chart, are disabled or survivors. Survivors are widows,
widowers, and children.
Nearly 157 million American workers paid Social Security
taxes last year. They, their families, and the millions joining
the system every year, are relying on Social Security for a
major portion of their future financial security.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.001

----------

Social Security is essentially a ``pay-as-you-go'' system
with today's payroll taxes paying today's benefits. The
combined employee and employer payroll tax is 12.4 percent on
earnings up to $87,900 this year. Over the years, the Social
Security payroll tax has actually been increased 19 times, and
now 80 percent of workers are paying more in the combined tax,
employee and employer payroll taxes, than they are in income
taxes.
Benefits have also changed over the years as well. Just
last year, due to a reform enacted 20 years ago in 1983, the
normal retirement age is gradually starting to increase to
eventually age 67. This year the age to collect full benefits
is 65 years and 4 months. People can still collect Social
Security retirement benefits at an early retirement age of 62,
but the reduction will be greater as the normal retirement age
increases.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.002

----------

[GRAPHIC] [TIFF OMITTED] T9667A.003

----------

As the first two bars on bar chart four show, the bottom
quintile of retirees rely on Social Security and our means
tested Supplemental Security Income program for 92 percent of
their income while the middle quintile still relies on the two
programs, almost all Social Security, for 68 percent. Of
course, this is just retirees. It's an extremely important
source of income for over 14 million disabled workers and
survivors.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.004

----------

The Social Security Trust Funds are growing because payroll
and income taxes paid on benefits currently exceed benefits. In
this chart I've tried to show that. In 2002, we had about $85
billion in excess income over expenditures; tax income of $548
billion and expenditures of about $462 billion, and then we
also had interest on the Trust Fund of about $80 billion. All
these amounts were invested in special issue U.S. Department of
the Treasury bonds making the money available for other
government needs. In 2002, the Trust Funds grew to $1.4
trillion, an increase of almost 14 percent.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.005

----------

For many years, the trustees have stated that Social
Security is unsustainable at scheduled benefit and tax rates.
The pressure on the program's finances will begin in just 4
years, in 2008, when the first baby boomers, of which I'm on
the leading edge, will reach early retirement age. After that
year, Social Security tax surpluses begin to decline. Beginning
in 2018, the program is projected to begin paying out more in
benefits than it collects in taxes. At that time, the program
will begin redeeming Trust Fund assets, consisting of those
special issued government bonds, which will need to be repaid
from funds from somewhere else in government.
By 2042, the trust fund will be exhausted. In addition to
the $1.4 trillion I mentioned that's in the trust funds today,
the trust funds would need another $3.5 trillion today, and we
would need that today earning interest to be able to pay all
scheduled benefits for the next 75 years. No one can really
understand trillions, but to put it in context that's about
equal to the total public portion of the national debt today.
This unfunded obligation increased $200 billion just last year.
Without reforms, it will just continue to grow and grow, year
after year.
The goal of strengthening Social Security is not simply to
make the program solvent through 75 years, but rather, to
achieve sustainable solvency; making Social Security
permanently solvent. Absent any benefit or tax changes, adding
$10.5 trillion to the trust fund today is required to achieve
sustainable solvency for the infinite future. That is the
equivalent of almost $100,000 for each American family today.
Without action, the shortfall will continue to grow at a
compounding rate.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.006

----------

The reason Social Security is unsustainable is very simple;
it's the aging of America. People are living longer, which is
very good news, the birth rate is low, and the first baby
boomers, as I said, will be eligible to retire in just 4 short
years. This combination means that the growth rate of retirees
shown by the solid line in this chart will begin to greatly
exceed the growth rate of workers, and over the 75 years it's
always higher. As the chart shows, it is a looming iceberg we
are about to face.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.007

----------

The ratio of workers to beneficiaries has fallen, as the
Chairman has said, from about 8 to 1 in 1955 to about 3.3
today. In less than 15 years, it will fall below what is the
unsustainable level, and what I mean by unsustainable, under
current law is that scheduled taxes would be insufficient to
cover scheduled benefits. It will continue to fall thereafter
hitting almost 2 to 1 in 2031.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.008

----------

Last year the U.S. General Accounting Office (GAO) issued a
report on what may happen to the Social Security program when
the trust funds became exhausted. The answer is shown on this
chart. In 2042, scheduled benefits would be cut by 27 percent;
that means anyone born in 1975 and thereafter, including my two
children and many of the students in this audience, will never
have a year of full benefits as promised under current law,
even though they'll be continuing to pay full years of taxes.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.009

----------

In today's dollars, that's a reduction of about $600 per
month, or $7,200 a year for a typical one-earner married
couple. Even many of the later baby boomers will have many
years of reduced benefits. By the end of the 75-year period,
the benefit reduction would be 35 percent and continue to fall
thereafter. The trustees of Social Security and the Comptroller
General call for action sooner rather than later. Starting
sooner, changes can be phased in more gradually reducing the
need for any sudden and severe impact on American workers and
their families. It will allow them plenty of time to properly
plan for retirement.
[The chart follows:]

[GRAPHIC] [TIFF OMITTED] T9667A.010

----------

As I said, action is needed sooner rather than later. The
reform alternatives are very well known. First of all, payroll
tax increases have been the traditional reform. Over the last
50 years, taxes have grown almost 8fold in today's dollars for
the average earner, and for the maximum earner they've actually
grown 14fold. Benefit reductions have been rare, although the
increase in the retirement age that I mentioned is effectively
a reduction in the growth of benefits. Again, I think this is
critical. I want to emphasize that the President's first
principle is that any changes to the benefit structure will not
affect today's retirees or near-retirees.
[The charts follow:]

[GRAPHIC] [TIFF OMITTED] T9667A.011

[GRAPHIC] [TIFF OMITTED] T9667A.012

[GRAPHIC] [TIFF OMITTED] T9667A.013

----------

A more creative solution is to set aside money to pre-fund,
and increase the rate of return from Social Security funds.
This can be done in either of two ways: by direct investment by
the government of the Social Security Trust Funds in corporate
stocks or bonds, or by allowing individual Americans to invest
in personal accounts. The President has expressed his support
for voluntary personal accounts, and opposes government
investment of the trust fund in the stock market. Personal
accounts can reduce the burden on future generations of workers
and increase the benefits that Social Security can afford to
pay.
Now, let me turn to tax increases, because that has been
the traditional way to fix the program. To pay scheduled
benefits over the next 75 years the combined Social Security
tax would have to increase from today's 12.4 percent to almost
17 percent when the trust fund runs out of money in 2042, and
by the end of the 75-year period it would have to be 18.9
percent. That is that is more than a 50-percent increase in
payroll taxes. If we had an increase anywhere near that, that
would have a very negative impact on the American workers and
their families, on American savings, and really the whole U.S.
economy.
Clearly, achieving sustainable solvency will be no easy
task. However, delay only makes the task much more difficult.
Solely as an illustration, if you look at the top boxes there,
to reach 75-year solvency, there would need to be an immediate
15-percent increase in payroll taxes, and if we wait until
2018, there would need to be a 22-percent increase. If we wait
until the trust funds are exhausted in 2042, a 46-percent
increase. Likewise, benefit reductions would grow, from 13
percent needed in cuts last year, and 16 percent in 2018, to
almost a third by 2042. Obviously, the unattractiveness of
relying exclusively on tax increases and benefit reductions has
led Republicans and Democrats to look for other options. Mr.
Chairman, your own thoughtful proposal, the Social Security
Guarantee Act of 2003, and many other proposals, including
those of President Bush's Commission to Strengthen Social
Security, would establish personal accounts within Social
Security. Combined with other changes, personal accounts can
lead to a permanently sustainable Social Security system.
Personal accounts for younger generations would help most
workers, and in some plans, all workers receive much higher
total retirement benefits than are presently payable, or even
scheduled. The accounts will allow more personal choice, and
will be inheritable. They also would raise the American savings
rate and economic growth.
Volatility of stock market returns is overcome with regular
investing and long-term diversified index funds, which have
done much better than Treasury bonds even at the bottom of the
last bear market, and certainly after last year's recovery.
Some have suggested that the seed financing from general
revenue, that many personal account proposals require, is not
affordable. However, if we do not reform Social Security, $10.5
trillion, as I said, would be needed to enable the current
program to pay scheduled benefits over the infinite future.
Most proposals analyzed by the SSA's independent actuaries
containing personal accounts would significantly reduce the
taxpayer's long-term cost. Each of these proposals contains its
own balance between additional funding and the amount of
benefits paid to future retirees. Families throughout America
face a similar choice: how much can they afford to put aside in
savings toward their own retirement? The more they put aside
now, the less they will need to produce later; the same is true
for Social Security. Truly, ``a stitch in time could save
nine.''
In March 2003, Social Security's Board of trustees
presented its annual report to President Bush personally. At
this meeting, the President reiterated his support for action
to strengthen Social Security soon. He said, ``benefits for
today's seniors are safe and secure.'' Social Security, in its
present form, is unsustainable for the long term. If we give
workers the opportunity to invest a portion of their wages in
personal accounts, Social Security will be able to offer higher
benefits than would otherwise be the case.
Lastly, I hope that Members of Congress will join with the
SSA and other interested parties in a national dialog about how
best to strengthen and protect Social Security for today's and
tomorrow's retirees. This hearing is part of that process of
working together. We will continue to work with Congress and
outside groups to build a bipartisan consensus on how to
strengthen Social Security for future generations. As important
as the program is today, it will become even more important
when today's boomers become tomorrow's aged. Since 1935,
America has provided financial security for its older citizens,
and, since 1957, for the disabled. We can, and must, do so in
the future.
In conclusion, I would like to just quote the old seafaring
wisdom, which is, ``the world isn't interested in the storms
you encountered, but whether or not you brought in the ship.''
We can sail straight into that perfect storm or we can change
course. The sooner we change course, the smaller the changes
will be, and the sooner we can remove the uncertainties about
Social Security's future. As we look at those here today, we
can be proud that Social Security is here for today's seniors
and we double our commitment to ensure that Social Security
will also be there for their children and grandchildren;
today's students. Mr. Chairman, I again thank you for your very
strong leadership in the bipartisan effort to strengthen Social
Security. I will be happy to answer any questions. Thank you.
[The prepared statement of Mr. Lockhart follows:]

Statement of The Honorable James B. Lockhart, III, Deputy Commissioner
of Social Security, Social Security Administration

Chairman Shaw, Members of the Social Security Subcommittee, thank
you for inviting me to Florida Atlantic University today to discuss the
important issue of strengthening Social Security. I would like to take
this opportunity to commend the Chairman for holding this hearing, and
keeping this vitally important issue before the public.
It's always a pleasure to get outside the Washington Beltway to
discuss this issue, as it is one that affects all Americans, all around
the country. President Bush and we at Social Security think
strengthening Social Security is a critical issue and Commissioner
Jo Anne Barnhart has made achieving sustainable solvency one of
Social Security's four major strategic goals.
I would like to begin by discussing the current status of the
Social Security program and how it works. Then I will address the
financial challenges Social Security will face in the future. The
numbers I will cite come directly from the 2003 Annual Report of Social
Security's Board of Trustees.
Today, Social Security is running surpluses, but the Social
Security program as currently financed is unsustainable over the long
term. I must emphasize, as President Bush has repeatedly, that the
benefits promised to current retirees and those nearing retirement are
safe. Changes proposed to address Social Security's future financing
shortfalls will not result in benefit reductions for retirees or near-
retirees.
Social Security touches the lives of nearly everyone in America by
paying benefits, issuing Social Security cards, and recording tax and
earnings records. That is why the Social Security Act was recently
voted in a poll conducted by the National Archives as one of the top 10
documents in American history, sharing that distinction with the
Declaration of Independence and the Constitution among others. The
Social Security Act and the Civil Rights Act were the only two pieces
of legislation selected.
Social Security continues to be one of the most successful
government programs. (Chart 1) Last year SSA paid over $450 billion in
benefits to 47 million retirees, survivors, and disabled individuals
and their dependents. Social Security is much more than a retirement
program. Thirty percent of our beneficiaries are disabled or
survivors--widows, widowers and children. Nearly 157 million American
workers paid Social Security taxes last year. They, their families, and
the millions joining the system every year, are relying on Social
Security for a major portion of their future financial security.

[GRAPHIC] [TIFF OMITTED] T9667A.001

Social Security is essentially a ``pay-as-you-go'' system with
today's payroll taxes paying today's benefits. (Chart 2) The combined
employee and employer payroll tax is 12.4 percent on earnings up to
$87,900 in this year. Over the years, the Social Security payroll tax
rate has been increased 19 times. According to the Congressional Budget
Office, 80 percent of workers are paying more in combined employee and
employer payroll taxes than in income taxes.

[GRAPHIC] [TIFF OMITTED] T9667A.002

Benefits have also changed over the years. (Chart 3) Just last
year, due to a reform enacted 20 years ago, the normal retirement age
is gradually starting to increase to eventually age 67. This year the
age to collect full benefits is 65 years and 4 months. People can still
collect Social Security retirement benefits as early as age 62, but the
reduction will be greater as the normal retirement age increases.

[GRAPHIC] [TIFF OMITTED] T9667A.003

Using the highest 35 years of earnings, the program has been
designed to protect lower income workers such that their wage
replacement rate is approximately 56 percent versus only 30 percent for
a maximum wage earner.
Those lower wage-earner retirees are very reliant on Social
Security benefits in retirement. As Chart 4 shows, the bottom quintile
of retirees rely on Social Security and our means-tested Supplemental
Security Income (SSI) program for 92 percent of their income while the
middle quintile receive 68 percent from Social Security and SSI. And of
course, Social Security is an extremely important source of income for
over 14 million disabled workers and survivors.

[GRAPHIC] [TIFF OMITTED] T9667A.004

The combined old age and disability trust funds are growing because
payroll and income taxes paid on benefits currently exceed benefit
payments. (Chart 5) Historically, the excess of taxes less benefit
payments and small administrative payments is invested in special issue
Treasury bonds, making the money available for other current government
needs. In 2002 the funds grew to $1.4 trillion--an increase of 14
percent over the prior year. It should be noted, however, that half of
that growth was from bonds issued to the fund to pay interest on
existing assets.

[GRAPHIC] [TIFF OMITTED] T9667A.005

For many years, the Trustees have stated that Social Security is
unsustainable at scheduled benefit and tax rates. (Chart 6) They point
out that pressure on the program's finances will begin in 2008, when
the first baby boomers reach early retirement age and Social Security
tax surpluses begin to decline. Beginning in 2018 the program is
projected to begin paying out more in benefits than is collected in
taxes. At that time the program will begin redeeming trust fund assets,
consisting of government bonds, which will be repaid using Federal
funds. By 2042, it is projected that all of the Treasury bonds that
make up the trust fund assets will have been cashed in, and the Social
Security trust fund assets will be exhausted.

[GRAPHIC] [TIFF OMITTED] T9667A.006

The trust funds would need an additional $3.5 trillion today to be
able to pay all scheduled benefits for the next 75 years. That means
that, in addition to current Trust Fund assets, a lump sum of $3.5
trillion today, earning interest at the Treasury bond rate, would be
sufficient to meet annual revenue shortfalls over the next 75 years.
This $3.5 trillion is a figure roughly equal to the total public
portion of the national debt. This measure of unfunded benefit
obligations increased $200 billion in just one year. Absent any action
to address this situation, this steady growth in the shortfall will
continue, year after year.
Traditionally, the Trustees have measured the long-term financial
health of the Social Security system by evaluating the system's
operations over a 75-year period. However, the goal of strengthening
Social Security is not simply to make the Social Security program
solvent through 75 years but rather to achieve sustainable solvency,
that is, to maintain solvency beyond the 75-year period and make Social
Security permanently solvent. For this reason, the 2003 Trustees Report
included a measure of the program's funding shortfall over the infinite
horizon. Absent any benefit or tax changes, adding $10.5 trillion to
the trust fund today would achieve sustainable solvency. This is the
equivalent of almost $100,000 for each American family today. Without
action the shortfall will continue to grow at a compounding rate.
The reason Social Security is unsustainable under current law is
very simple--the aging of America. (Chart 7) People are living longer,
the birth rate is low and the first baby boomers will be eligible to
retire in 4 years. This combination means that the growth rate of
retirees will begin to greatly exceed the growth of workers. As the
chart shows, it is a looming iceberg.

[GRAPHIC] [TIFF OMITTED] T9667A.007

The ratio of workers to beneficiaries has fallen from 8 to 1 in
1955 to 3.3 today. (Chart 8) In less than 15 years the ratio will fall
to the unsustainable level of 2.9, at which time taxes received will be
less than benefits payable.

[GRAPHIC] [TIFF OMITTED] T9667A.008

Last year the General Accounting Office (GAO), at the request of
the Congress, issued a report on what would happen to the Social
Security program when the trust funds became exhausted. As both the GAO
report and the Trustees' Annual Report show, in 2042 scheduled benefits
would be cut by 27 percent. (Chart 9) That means anyone born in 1975
and thereafter, including my two children, will never have a year of
full benefits as promised under current law.

[GRAPHIC] [TIFF OMITTED] T9667A.009

In today's dollars, that would mean a reduction of over $600 per
month or $7,500 a year for a married couple. Even many of the later
baby boomers will have many years of reduced benefits. By the end of
the 75-year period, the benefit reduction would be 35 percent. As the
Comptroller General of the U.S. has testified, the study ``dramatically
illustrates the need for action sooner rather than later.''
The Trustees said in their Annual Report, ``The sooner adjustments
are made, the smaller and less abrupt they will have to be.'' Changes
can be phased in more gradually and spread over generations, reducing
the need for any sudden and severe impact on American workers and their
families. For example, the changes enacted to increase the retirement
age in 1983 started last year--20 years later--and were phased in over
several decades.
Early action will also allow current workers plenty of time to
properly plan for their retirement. And finally, the sooner action is
taken, the sooner confidence can be restored to the Social Security
program.
Reform alternatives are very well known as follows: (Chart 10)

[GRAPHIC] [TIFF OMITTED] T9667A.010

Payroll tax increases have been the traditional reform.
Over the last 50 years they have grown almost eight-fold in today's
dollars for the average earner and over 14-fold for the maximum earner.
Benefit reductions have been rarer although the increase
in the retirement age is effectively a reduction in the growth of
benefits. Again, I want to emphasize that the President's first
principle is that any changes to the benefit structure will not affect
today's retirees or near-retirees.
A newer and more creative solution is to set aside money
today to prefund future benefits and to increase the rate of return on
Social Security funds. This can be done either by direct government
investment in corporate stocks and bonds or by allowing individual
Americans to invest in personal accounts The President has expressed
his support for voluntary personal accounts, and opposes government
investment of the Trust Fund in the stock market. Proponents suggest
that moving Social Security partially toward a funded rather than a
pay-as-you-go program can reduce the burden on future generations of
workers and increase the benefits Social Security can afford to pay.

Turning to tax increases, to pay scheduled benefits over the next
75 years the combined Social Security tax would have to increase from
today's 12.4 percent to almost 17 percent in 2042 and to 18.9 percent
by 2077. (Chart 11) That is over a 50 percent increase in taxes, which
would have a very negative impact on American workers and their
families, on savings, and on the whole US economy.

[GRAPHIC] [TIFF OMITTED] T9667A.011

Clearly, achieving sustainable solvency will be no easy task.
However, delay only makes the task more difficult. (Chart 12) Solely as
an illustration of the costs involved to reach solvency just through
2077, there would need to be either an immediate 15 percent increase in
payroll taxes or a 13 percent reduction in benefits. If we wait until
2018, there would need to be a 22 percent increase in payroll taxes or
a 16 percent reduction in benefits. And if we wait until the trust
funds are exhausted in 2042, if nothing is done, payroll taxes would
have to be increased by 46 percent, or benefits cut by nearly one-
third.

[GRAPHIC] [TIFF OMITTED] T9667A.012

The unattractiveness of relying exclusively on tax increases and
benefit reductions to bring Social Security to balance, has led
Republicans and Democrats to look for additional options. Mr. Chairman,
this includes your own thoughtful proposal, the Social Security
Guarantee Act of 2003. Your proposal and many other proposals,
including those of President Bush's Commission to Strengthen Social
Security, would establish personal accounts within Social Security.
Combined with other changes personal accounts can help lead to a
permanently sustainable Social Security system.
Personal accounts for younger generations could help most workers
receive much higher total retirement benefits than are presently
payable. The accounts, which allow more personal choice and control,
would be inheritable in many of these proposals. They also would raise
the private savings rate.
Opponents of personal accounts cite the volatility of stock market
returns as a major negative. However, with regular investing proponents
point out that over the long term, balanced, diversified funds have
done better than Treasury bonds even at the bottom of the last bear
market, and certainly after last year's recovery. Absent changes,
scheduled benefits under the current program would have to be reduced
27 percent by 2042.
The other counter argument is that the required ``seed'' financing
from general revenue that many personal account proposals require is
not affordable. If we do not reform Social Security, as I have noted,
$10.5 trillion in present-value dollars would be needed to enable the
current program to pay scheduled benefits indefinitely. By setting
aside money today in personal retirement accounts the expected cost to
the taxpayer of paying scheduled benefits could be considerably
reduced.
Most proposals analyzed by SSA's actuaries containing personal
accounts would significantly reduce the long term cost of paying
benefits. Each of these proposals contains its own balance between
additional funding and the amount of benefits paid to future retirees.
Families throughout America face a similar choice: how much can they
afford to put aside in savings towards their own retirement? The more
they put aside now, the less they will need to produce later; the same
is true for our Social Security system.
Truly, ``a stitch in time could save nine.'' As President Bush has
said, ``We will not deny, we will not ignore, we will not pass along
our problems to other Congresses, to other presidents and other
generations. We will confront them with focus and clarity and
courage.''
In March 2003, Social Security's Board of Trustees presented its
annual report to President Bush personally. At this meeting, the
President reiterated his support for action to strengthen Social
Security, saying: (Chart 13)

[GRAPHIC] [TIFF OMITTED] T9667A.013

``. . . the Trustees confirmed that benefits for today's
seniors are safe and secure. Promises made can and will be
kept. The Trustees also once again have delivered a sobering
message--Social Security, in its present form, is unsustainable
for the long term. I share the Trustees' view that we need to
explore new ways to ensure that Social Security remains strong
and financially secure for America's children and
grandchildren.

``I am encouraged by the unprecedented level of bipartisan interest
in Social Security modernization. Many comprehensive proposals have
been put forward to strengthen Social Security for the long term.
Although these proposals differ in details, they are consistent in
showing that if we give workers the opportunity to invest a portion of
their wages in personal accounts, Social Security will be able to offer
higher benefits than would otherwise be the case.
. . . I hope that Members of Congress will join with the Social
Security Administration and other interested parties in a national
dialogue about how best to strengthen and protect Social Security. I
look forward to working with Congress to see that Social Security
remains sound and strong for today's and tomorrow's retirees.''
This hearing, I hope, will be part of that process of working
together to fulfill our obligations to the Social Security program and
the hundreds of millions of Americans it serves, today and in the
future. The Social Security Administration will continue to work with
this subcommittee, other Members of Congress and outside groups to
build this national dialogue into a bipartisan consensus on how to
strengthen Social Security for future generations.
There is no other Federal program that touches the lives of so many
Americans. And as important as the program is today, it will become
even more important in the next few decades, when today's boomers
become tomorrow's aged. Since 1935, America has found a way to provide
financial security for its older citizens and, since 1957, for the
disabled. We can and must find the way to do so in the future without
unduly burdening succeeding generations.
In conclusion, I would like to just quote the old seafaring wisdom
that I found applicable in my Navy days, which is ``the world isn't
interested in the storms you encountered, but whether or not you
brought in the ship.'' We can sail straight into that perfect storm or
we can change course. The sooner we change course, the smaller the
changes will be and the sooner we can remove the uncertainties about
Social Security's future.
I believe that this will be the true test of our own work. Storms
of controversy often surround the issue of how to provide retirement
security. As we look at those here today we can be proud that Social
Security is here for today's seniors and redouble our commitment to
ensure that Social Security will also be there for their children and
grandchildren--today's students.
Mr. Chairman, I again commend you for holding this hearing and for
your efforts in keeping this issue before the public and, especially,
for your very strong leadership in the bipartisan effort to strengthen
Social Security. I will be happy to answer any questions you or the
other Members have.

Chairman SHAW. Thank you, Mr. Lockhart. One of the
problems, and I think you hit on it in your last sentence, is
the bipartisan effort that is desperately needed. I was
Chairman of the Subcommittee on Human Resources, and offered
the Welfare Reform Bill (P.L. 104-193). It was vetoed several
times by President Clinton, but then President Clinton came
aboard for the final draft, and he signed that into law, and I
think, that because of the bipartisan nature, it has been one
of the most successful pieces of social legislation, I think in
decades. It has reduced the welfare rolls all across this
country by 50 percent. People are proud. So, many of these
parents, particularly single moms, have become role models for
their kids. The kids are proud of what has happened, and it's
done, I think, a tremendous amount of good.
Had this bill gone through with an override of President
Clinton's veto, it would not have been nearly as successful. It
would have looked as if it were a Republican ambush on the
poor, which of course, it was not. It was designed and built to
strengthen the poor, and give them control of their lives, and
get them away from the addiction of welfare. Similarly, we are
looking at a situation where we should reach out and continue
to reach out for bipartisan support. You brought up the fact,
and this is something that I would like to underscore here,
that, what is the year, 2018?
Mr. LOCKHART. Yes, sir.
Chairman SHAW. That Social Security will no longer be
sustainable as a pay-as-you-go system, and that is simply
because there will not be enough paid into the system to pay
the bills and to take care of the seniors in the system in
2018. Now, many will comment and say that, well, you still have
those Treasury bills, and the Treasury bills certainly are
secure. Well, yes, but we've got to figure out how to get the
money.
I think it was Chairman Greenspan that testified before my
Committee in Washington that said the Treasury bills held by
the SSA are not real economic assets. Now, a lot of people
would be startled with that until you start thinking about it.
I could take Mr. Weeke's IOU and it would be a real economic
asset if I have it. If he writes it to himself, as the Treasury
does to itself, then that would not be a real economic asset.
As a matter of fact, I think if you took it to the bank, and
showed it as part of your assets, that you maybe get involved
in some kind of fraud that you could end up going to jail for.
So, I think that it is very clear that our deadline is not
somewhere way out as when we have run out of Treasury bills.
The problem is going to start in 2018, and that is a number
that is constantly in flux. It was 2016, it went up to 2018,
and that could change again. One of the problems, and one of
the concerns that I have is that if we start taking money out
of the Federal Insurance Contributions Act (FICA) tax and put
it into individual retirement accounts--and I am all for using
individual retirement accounts--but if we start using the FICA
money for that, Social Security tax for that, than the 2018
will come earlier because that money would be siphoned off of
the money paid into the SSA. Would you comment on that?
Mr. LOCKHART. First of all, I agree with you that 2018 is a
very significant date in that if we do not do anything, we will
make a call on the general revenues of the Treasury to redeem
those bonds and pay the interest on the bonds which today are
just being paid in forms of bonds. The Treasury would have to
borrow elsewhere, which might cause interest rates to go up. We
might have to raise taxes or cut spending somewhere else in the
government. By that time Social Security and Medicare will be,
by far, the biggest two elements of the government. They
already are, and they will be significantly higher. So, there
is a big issue in 2018.
I would also suggest that it even starts earlier when us
baby boomers just start retirement, because then the surpluses
start to shrink. So, it is a big issue, and the sooner we fix
it, the better off we will be. As for the issue of how we pay
for personal accounts, I think the key thing I always keep
trying to remind people is, if we do not do anything over the
next 75 years, the cost will be $3.5 trillion, and over the
infinite horizon, $10.5 trillion.
So, many of the proposals I have seen are taking short-term
seed financing from Treasury to help bridge the gap. In some of
the proposals, that happens 20 or 30 years in the future. The
key thing is that seed financing will alleviate that whole big
drain of $10.5 trillion and instead require significantly less
financing, and in many ways it would be a great investment for
the American people to put additional money temporarily into
Social Security to help fund personal accounts so that
Americans can continue to receive significant Social Security
benefits.
Chairman SHAW. Well, actually, those that look into the
growth within personal accounts have come up with a conclusion
under both the Clinton as well as the Bush Administration, that
the return on the individual accounts would be greater than the
return on the Treasury bills, which would also indicate that if
this money were actually borrowed by the Federal government and
then invested back into the private sector for each individual
worker. I think you are familiar with my plan, which does
precisely that. Both the Bush Administration as well as the
Clinton Administration have scored this as actually creating a
surplus over 75 years and paying every dollar back.
I know I am not going to put you on the spot as to endorse
any plan or condemn any plan as the Administration has not
rolled theirs out yet, and that will be the one that you are
supposed to sell when it comes out, but I hope that the plan
that I have will get a fair and complete hearing before the
Administration. As we know, the alternative of doing nothing is
not acceptable. Our kids will curse us for it or there will be
just tremendous amount of borrowing. What is the current figure
now if benefits were to stay the same, for this generation and
future generations, over 7 years without increasing the payroll
tax and without decreasing the benefits, what is the total
deficit that we would be looking at over the 75-year period?
Mr. LOCKHART. Over the 75 year, the deficit is at $3.5
trillion, which as I said, is equal to the national debt of
today. So, it's a giant number.
Chairman SHAW. I had heard higher figures than that.
Mr. LOCKHART. Well, certainly if you look longer term,
infinite horizon, it is $10.5 trillion, and that to me is the
real number if you want to create a system that really works,
and we should do that. The cost of personal accounts programs,
all that I have seen, have been in the range of $1 to $3
trillion. So, there is a very significant return on investment,
if you will, and, as you say, many of those plans, over time,
start to repay the Treasury. At the same time, most
beneficiaries will receive significantly higher benefits than
are payable today, and many will receiver higher than scheduled
benefits today. So, if you look at some of the proposals,
personal accounts should play a role. Now, my view is that
there is a variety of ways to structure personal accounts, and
the proposal you have made is certainly one that will be
considered as we go forward.
Chairman SHAW. I hope so. I have now 14 grandkids that I
would like them to remember their grandfather as having saved
it for them without decreasing the benefits. So, my commitment
with regard to Social Security reform is, of course, number one
to maintain the benefit structure as well as the cost of living
increases for the generation of Americans who are in Social
Security and soon to be in Social Security. I think it would be
less than fair to future generations if we did not look at that
and make that part of our commitment to them as well. So, I
think we need the big tent there to bring all of them under it,
and if we can, we should.
When you look at borrowing by the Federal government to put
it in these individual accounts, and knowing that you are going
to be able to pay it back and create a surplus in doing so
within the system, I think it is also important to realize that
that money, where it may come out of the private sector, will
be going back into the private sector. So, I think that the
effect that it would have on interest rates or capital is
negligible, if at all. I think also, it would make--and I think
one of the beauties of doing this under all of the plans that
involve individual accounts, they're inheritable. That we would
be giving to low income people the only chance they would ever
have to accumulate any wealth and to create an estate.
Particularly with minorities who, more than the caucasians, die
before they receive their benefits; they are really getting
hammered by the existing system, and this would give them
something that would tend to balance the scale a little better,
and I think we should be rallying behind these particular
programs.
Mr. LOCKHART. Well, I certainly agree with you that we
should take a big tent approach, and that is certainly the way
Social Security has gone about it. We are trying to build a
national dialog on the topic. We have been working with some
very major groups, including the American Association of
Retired Persons (AARP), and the National Association of
Manufacturers (NAM), and I know the AARP will be going out and
talking about this topic. We are going to be going out and
talking about it, and certainly the NAM. In fact, all three
groups agreed on a set of principles, and one of the important
things that we agreed on, first of all, was that no reforms
will reduce the benefits of retirees and near-retirees.
Another very important thing that the AARP, NAM, and we
agreed on, is that we need action sooner rather than later, and
I think that is the critical issue here. If we can make the
changes sooner, we will have time for people to plan for the
future. We will relieve this uncertainty from future
generations, and I will stop getting emails from my children
about their future Social Security.
Chairman SHAW. Our witnesses on the second panel will make
a number of recommendations to help save Social Security.
Before we lose you, I would like you to comment on some of the
suggestions that we will hear. We may not lose you. I do not
know if the airports are even open in Washington.
Mr. LOCKHART. I will stay here.
Chairman SHAW. After looking at the weather this morning.
If we were to allow the tax cuts to expire, thereby rising
taxes on moderate income American families with children,
married and couples, and others who benefit from the tax cut,
would that eliminate Social Security cash flow problems for
good?
Mr. LOCKHART. To a certain extent, or to a large extent,
they are not that related, as we explained. Social Security has
an excess now, and that money is invested in Treasury bonds.
The key thing to me is getting the money in Social Security in
the form of some sort of investment. If it stays outside of
retirement savings, that does not help. Some of the proponents
suggest that raising taxes would be a good thing. Obviously,
changes in tax rates have dramatic impacts on the economy and
economic growth and jobs. All of those are good for Social
Security. Certainly economic growth is good for the trust fund.
So, to the extent we increase taxes, that would not be good for
the trust fund over the long term if it led to lower economic
growth and fewer jobs.
Chairman SHAW. Increasing the Social Security tax, as you
walked us through in your statement, would certainly have a
tremendous hardship effect on low-income people?
Mr. LOCKHART. Yes, sir. As I said, over 80 percent of
American workers now pay more in Social Security taxes and
Medicare taxes than they do in income taxes. So, it really has
become the biggest tax for most Americans, and it is a
regressive tax, and certainly raising it would be very bad for
the typical American worker.
Chairman SHAW. It has also been recommended by some that
the trust fund actually be invested in the private sector. I
personally am against that. I think that could take us down a
slippery slope that would have some pretty bad effects far out
as to putting the Federal government in the board room of
corporations as well as showing favoritism for one corporation
over another, stock manipulation, and all of these things. What
is the Administration's position on that?
Mr. LOCKHART. The Administration very much agrees with you.
One of President Bush's principles is against the government
investing the trust fund in the stock market. Chairman
Greenspan of the Federal Reserve has come out against it. A few
months ago, the Congressional Budget Office did a paper on the
topic, and again raised some significant issues about the
conflicts of interest.
We are talking about trillions of dollars potentially, and
the government owning a large part of the American economy. We
could just see if some company was shutting down a factory,
there would be a lot of pressure on Social Security not to
allow that to happen, and that is the wrong thing. I think it
should be left to the individuals, President Bush thinks that,
and I think that's important.
Chairman SHAW. Today's retirees and the past retirees have
generally received a good return on their Social Security
taxes, but that is not expected to be the case for future
generations. Could you tell us about what the rates of returns
were for past and present retirees, what they are expected to
be in the future, and why is this rate of return falling off?
Mr. LOCKHART. I would be happy to. It's only sort of a rate
return. I come from the private sector, and rate of return
means that you have an asset that is earning something, and
some people think Social Security is doing that, but really it
is not. It is a pay-as-you-go system. If you mean rate of
return from the standpoint that I paid in so many tax dollars
and I will get out so many benefits, I can give you those
numbers.
Certainly the earliest generation did extremely well from
Social Security. Just last year the oldest woman in America
passed away, and so we looked up her records. She had paid in
only $300 into Social Security in her lifetime, and got out
over $150,000. Now, that is a pretty hefty return on
investment.
If you look at, for example, my parents' generation. My
father has probably paid into Social Security right at the
start and throughout his working career. His generation's real
return would have been between 7 and 3 percent. Low earners got
the higher end and high earners got the lower end in real
return. That is well above Treasury bond returns.
My generation will be somewhat lower, 5 to 2 percent. My
children's generation will probably have rates of return of 5
to a little above 1 percent. Their children's generation, may
have even lower rates of return.
So, the returns are slowly and surely shrinking. It is
really hard to tell someone as they enter Social Security
today, ``oh you are going to put your money away but you are
not going to get a good return on it.'' In fact, you are going
to get a negative return on it, and that is another very
important reason to look at reforming the system.
Chairman SHAW. That is wrong. It is really wrong that we
are not doing something. I want to thank you, again, for being
here. Thank you for your testimony, and maybe you could work
out some reason you can stay around for a few days, because I
tell you it is brutal up north.
Mr. LOCKHART. Thank you, Mr. Chairman.
Chairman SHAW. Thank you, Mr. Lockhart. Okay. Our next
panel, if you would come up to the witness table. We have
Michael Moore, who is an Immediate Past Student Body Governor
of the Boca Raton Campus of FAU. At last, we are going to hear
from a young person. Larry Winawer, who is a State organizer
for the Alliance for Retired Americans from Wellington. Leon
Weekes, who is immediate past President and on the Board of
Directors of the Mae Volen Senior Center in Delray Beach,
Florida, and he's accompanied by Elizabeth Lugo, who is the
President and chief executive officer of that center in Delray
Beach. Dr. Joel Harper, Professor, College of Business at FAU.
We were going to have Audrey Mullinix here, but she is not able
to be here because of an illness in her family. Welcome to all
of you. We have a copy of your written testimony, which will be
made a part of the record. You may proceed as you see fit. Mr.
Moore.

STATEMENT OF MICHAEL W. MOORE, BOCA RATON, FLORIDA

Mr. MOORE. Thank you, Mr. Chairman. Ladies and gentlemen,
my name is Michael W. Moore of Lighthouse Point, Florida, a
student of FAU in the College of Business studying small
business and entrepreneurship. I am truly honored to speak to
you today regarding an extremely important issue that affects
all Americans.
Social Security was originally set up to be a safety net
and not as a means of income for the remainder of retired
people's lives. This has however, become not the case as a
growing number of retired individuals now rely solely on their
Social Security benefits.
Currently, 10 percent of the Nation's population is of
retirement age, however by 2033, that number is expected to
leap to 20 percent. While there will be an increase in the
number of individuals paying in by 20 million, the number of
individuals drawing from Social Security will rise by 40
million, creating an enormous disparity. Social Security is a
trust between the government and the American people, but it is
destined to go bankrupt if something isn't done soon to ensure
its solvency.
Something needs to be done. This body needs to act, and the
time for action is now, which is why I would like to thank all
of you for the efforts that you are putting in to make Social
Security benefits a reality for my generation, and generations
to come. A couple major ideas are being tossed around,
buzzwords and acronyms are flying from one side of the aisle to
the other, i.e., Trust Fund and Personal Retirement Accounts
(PRAs).
The Trust Fund idea gives the government too much control
of what is actually the people's money. Social Security is the
government's way of ensuring that those who squander away their
money in their early years will at least be able to live past
the age of 65. That ought to be the limit to where the
government needs to step in. The government at that point has
ensured that the public has a retirement fund, however now that
the public has the retirement fund, it should have many of the
attributes that other private sector retirement accounts have.
That is where the trust fund goes awry. The Trust Fund is not
inheritable. I, as a concerned citizen, must ask, why? If I was
diligent enough to save properly and didn't need to use much of
the trust fund that was set up for me by the government, why
can I not sign it over to my children?
The trust account idea has other faults as well. The trust
account is truthfully a portfolio of government lOUs. The
question the people have for our government is when the time
comes to redeem these lOUs, will the government raise taxes,
borrow money, or significantly cut benefits to make ends meet?
The PRAs make more sense, specifically the Archer-Shaw
proposal. Many critics of the PRAs feel that it would be unfair
for a retiree that retires during an economic downturn to
receive significantly reduced benefits than a retiree that
retires during economic prosperity. The Archer-Shaw plan
incorporates a Cohort Equalization Rule. The rule is simple and
ties the size the Social Security check directly to the size of
the PRA-annuity. This plan is effective not only because it
preserves the fairness to all recipients of Social Security,
but keeps the current Social Security system intact.
The fact that PRAs could be inheritable, offer
substantially higher returns on the dollar than what Social
Security offers today, and the obvious benefits of compound
interest over years, just makes it the right route to take.
Coming from a family that has owned a small business since
I was a year old in the manufacturing sector, I know the impact
that raising taxes has on a small business. Tax increases not
only hurt the employee, but can cripple a small business. Often
times the average person overlooks the fact that their employer
is paying the other half of tax contributions. The PRAs offer
an opportunity to leave the contribution amount alone and to
allow the people to invest a portion of it in our economy.
While economists may disagree on the exact percentage gain over
10 years, there is no disagreement that investments make money
over a decade.
In closing, I would like to ask that this Committee not
fall into partisan fighting. While it is all too easy to sit
behind the party lines and fire endless shots across each
other's bows, it accomplishes absolutely nothing, and the
people are truly the ones who suffer. Thank you and Godspeed in
your new legislative session.
[The prepared statement of Mr. Moore follows:]

Statement of Michael W. Moore, Immediate Past Student Body Governor,
Boca Raton Campus, Florida
Atlantic University, Boca Raton, Florida

Ladies and Gentlemen of the House my name is Michael W. Moore of
Lighthouse Point Florida, a student of FloridaAtlantic University in
the College of Business studying Small Business and Entrepreneurship. I
am truly honored to speak to you today regarding an extremely important
issue that affects all Americans.
Social Security was originally set up to be a safety net and not as
a means of income for the remainder of retired people's lives. This has
however become not the case as a growing number of retired individuals
now rely solely on their social security benefits.
Currently 10% of the nation's population is of retirement age,
however by 2033 that number is expected to leap to 20%. While there
will be an increase in the number of individuals paying in by 20
million, the number of individuals drawing from Social Security will
rise by 40 million creating an enormous disparity. Social Security is a
trust between the government and the American people, but it is
destined to go bankrupt if something isn't done soon to ensure its
solvency.
Something needs to be done, this body needs to act, and the time
for action is now, which is why I would like to thank all of you for
the efforts that you are putting in to make Social Security benefits a
reality for my generation, and generations to come.
A couple major ideas are being tossed around, buzzwords and
acronyms are flying from one side of the aisle to the other. ie. Trust
Fund, and PRA.
The trust fund idea gives the government too much control of what
is actually the people's money. Social Security is the government's way
of ensuring that those who squander away their money in their early
years will at least be able to live past the age of 65. That ought to
be the limit to where the government needs to step in. The government
at that point has ensured that the public has a retirement fund,
however now that the public has the retirement fund, it should have
many of the attributes that other private sector retirement accounts
have. That is where the Trust Fund goes awry. The trust fund is not
inheritable. I as a concerned citizen must ask--why? If I was diligent
enough to save properly and didn't need to use much of the Trust Fund
that was set up for me by the government, why can I not sign it over to
my children.
The Trust account idea has other faults as well. The trust account
is truthfully a portfolio of government IOUs. The question the people
have for our government is when the time comes to redeem these IOUs
will the government raise taxes, borrow money or significantly cut
benefits to make ends meet?
PRAs make more sense, specifically the Archer-Shaw proposal. Many
critics of PRAs feel that it would be unfair for a retiree' that
retires during an economic downturn to receive significantly reduced
benefits than a retiree that retires during economic prosperity. The
Archer-Shaw plan incorporates a Cohort Equalization Rule. The rule is
simple and ties the size the Social Security check directly to the size
of the PRA-annuity. This plan is effective not only because it
preserves the fairness to all recipients of Social Security but keeps
the current Social Security system intact.
The fact that PRAs could be inheritable, offer substantially higher
returns on the dollar than what social security offers today, and the
obvious benefits of compound interest over years, just makes it the
right route to take.
Coming from a family that has owned a small business since I was a
year old, I know the impact that raising taxes has on a small business.
Tax increases not only hurt the employee, but can cripple a small
business. Often times the average person overlooks the fact that their
employer is paying the other half of tax contributions. PRAs offer an
opportunity to leave the contribution amount alone and to allow the
people to invest a portion of it in our economy. While economists may
disagree on the exact percentage gain over 10 years, there is no
disagreement that investments make money over a decade.
In closing I would like to ask this committee to not fall into
partisan fighting. While it is all too easy to sit behind the party
lines and fire endless shots across each other's bows, it accomplishes
nothing and the people are the only ones who suffer.
Thank you and Godspeed in the new legislative session.

Chairman SHAW. Thank you, Mr. Moore. Mr. Winawer?

STATEMENT OF LARRY WINAWER, FLORIDA STATE ORGANIZER, THE
ALLIANCE FOR RETIRED AMERICANS

Mr. WINAWER. Thank you Chairman Shaw. Thank you for holding
this field hearing on the future of Social Security. I am glad
you called this hearing, because young workers, like all
Americans, have a big stake in Social Security and its future.
My name is Larry Winawer and I live in West Palm Beach,
Florida. I am 35 years old. I am here today representing the
Alliance for Retired Americans. The Alliance is a national
organization of over 3 million Members that works to create an
America that protects the health and economic security of
seniors, rewards work, strengthens families, and builds
thriving communities. It was launched in January 2001 by a
national coalition of labor unions and community-based
organizations dedicated to improving the quality of life for
retirees and older Americans.
Working for the Alliance, I see older Americans who are
able to have comfortable retirements because of Social Security
and the guarantees that it brings. My mother, who works for New
York State and just recently retired, will soon be one of those
people. Social Security is the most important source of income
to four out of five retirees. This fact is not expected to
change in the future. Pensions and individual retirement
savings accounts simply do not cover enough people or deliver
large enough benefits to be able to replace Social Security.
Some quick numbers. Just under half of the private work
force has any kind of retirement plan on the job. Only one-in-
five private sector workers is covered by a traditional pension
plan delivering guaranteed benefits. A little more than half of
American families have any kind of retirement account, whether
they be 401(k)s, or Individual Retirement Accounts from past or
current jobs, and that also includes a family's own savings. If
a family is lucky enough to have any accounts, the typical
balance is only $29,000. Even if you double that to around
$58,000 it really only translates to a monthly income of
between $230 and $360 a month, depending on how conservative a
person's financial strategy is.
Social Security is the only defined benefit retirement
income available to all American workers. Employer-provided
defined benefit plans are declining, while defined contribution
plans, with no guarantees and which place the entire
responsibility for saving and investing on individual workers,
are increasing. For example, if a retirement plan is a 401(k),
then benefits depend on workers' voluntary contributions to an
account and cumulative investment gains and losses. Low-wage
workers are less likely to make contributions, even if the
employer makes matching contributions, and therefore are
unlikely to reach retirement with adequate savings.
As you know, Social Security is not just for retirees.
Young people also need the disability and survivor protection
that Social Security provides. No one knows who among us will
become disabled or suffer a premature death. In fact, today, a
20-year-old faces a 3-in-10 chance of becoming severely
disabled, either physically or mentally, and unable to work for
some period before retirement. That same worker also faces a
roughly one-in-five chance of dying before reaching retirement.
Social Security provides inter-generational protections crucial
to the basic financial security of the American family, and my
generation needs this guaranteed safety net just as badly as
the previous generations. Here in Palm Beach County just ask
the 17,000 disabled workers or the nearly 340,000 throughout
this State who depend on Social Security's disability benefits
to support their families. Social Security is strong today but
needs to be strengthened for the future. In 2001, President
Bush's Social Security Commission attacked the financial
soundness of Social Security, charging inaccurately that Social
Security would ``go broke'' by 2016. The Federal government's
own actuaries contradicted this charge, and the Social Security
Board of Trustees' official estimates now show adequate
resources through at least 2042. After 2042, the system will
have enough resources to cover approximately 70 percent of
promised benefits.
While some have tried to portray Social Security as a
program in crisis, which must be dismantled in order to save
it, these kinds of characterizations quickly collapse when
exposed to the light of day. The long-term costs of the tax
cuts enacted and proposed by President Bush are more than three
times the size of Social Security's actuarial deficit.
Advocates of Social Security privatization are now selling
private accounts as a way to strengthen Social Security in the
face of projected shortfalls. Really it's a matter of simple
arithmetic: current benefits are now paid for by current
revenues, payroll taxes paid by people now working. If current
workers take some of their money out of Social Security and put
it into their own accounts, there is less money to pay
currently needed benefits.
Redirecting just 2 percentage points of the Social Security
payroll tax to carved-out private accounts more than doubles
the size of Social Security's long-term shortfall. The benefit
cuts required by private account plans will be painful and
unfair. Some proposals, such as one endorsed by President
Bush's Social Security Commission, have the effect of raising
the retirement age, forcing workers to delay retirement to 69
or 70 or even later if they want to collect full benefits. This
kind of benefit cut would cause the most pain for American
workers who do the hard physical labor that makes our country
run.
Other proposals, including two endorsed by this same
Commission, rely in part on steep benefit cuts for future
disabled workers and the young surviving children of deceased
workers to pay for this privatization and make the numbers add
up.
Some assume that the Nation will simply divert trillions of
dollars away from the rest of the Federal government without
specifying from where or take enormous amounts of new Federal
debt to pay the high price of individual accounts. It is
unrealistic to believe that we can raid the rest of the
government by borrowing trillions of dollars to pay for a risky
privatization plan.
Social Security benefits do not change with ups and downs
in the economy or the stock market. The value of individual
accounts invested in private investment markets can vary
substantially from year-to-year and the value of a worker's
account benefits at retirement can be far different from what
the worker expected. Recent experiences have borne this out, as
sharp declines in the stock market have forced workers to delay
retirement and force some retirees to return to work.
Please don't be fooled. Replacing Social Security's
guaranteed benefits with privatized investment accounts will
have far reaching effects. Individual accounts undermine Social
Security's ability to protect lifetime low-wage earners by
cutting back on Social Security's progressive benefit formula.
Individual accounts hurt disabled workers and young children of
deceased workers. Privatization threatens Social Security's
ability to provide lifetime, inflation-adjusted benefits to
retirees.
The Social Security system has continued to work for the
American people. It has fulfilled its promise to provide a
foundation of financial support for the retired, disabled, and
survivors of deceased workers. It has kept new benefits up to
date with improvements in the standard of living, to protect
current benefits against erosion by inflation. It has delivered
benefit checks on time, to the right person, to the right
address, month after month without fail. It does not need
radical changes.
In conclusion, I find it is amazing that Congress would
even consider such changes after 3 years of corporate and
mutual fund scandals that would have undermined the retirement
of millions of seniors if privatization had been in effect.
Thank you again for inviting me here.
[The prepared statement of Mr. Winawer follows:]

Statement of Larry Winawer, State Organizer for Florida, Alliance for
Retired Americans, Wellington, Florida

Chairman Shaw and Members of the Social Security Subcommittee,
thank you for holding this field hearing today on the future of Social
Security. I am glad you called this hearing, because young workers,
like all Americans, have a big stake in Social Security. My name is
Larry Winawer and I live in West Palm Beach, Florida. I am thirty-five
years old.
I am here today representing the Alliance for Retired Americans.
The Alliance is a national organization of over three million members
that works to create an America that protects the health and economic
security of seniors, rewards work, strengthens families and builds
thriving communities. It was launched in January 2001 by a national
coalition of labor unions and community-based organizations dedicated
to improving the quality of life for retirees and older Americans.
Working for the Alliance, I see older Americans every day who are
able to have comfortable retirements because of Social Security and the
guarantees that it brings. My mother works for the State of New York
and will soon be one of those people.
Social Security is the most important source of income to four out
of five retirees. This fact is not expected to change in the future.
Pensions and individual retirement savings accounts simply do not cover
enough people or deliver large enough benefits to be able to replace
Social Security.

Just under half (49 percent) of the private workforce has
any kind of retirement plan on the job. (U.S. B.L.S.)
Only one-in-five (20 percent) private sector workers is
covered by a traditional pension plan delivering guaranteed benefits.
(U.S. B.L.S.)
Only slighty more than half (52.2 percent) of American
families have any kind of retirement account, whether they be 401(k)s,
403(b)s or IRAs from past or current jobs or a family's own savings.
(Federal Reserve)
Among those that do have any accounts, the typical
family's total account balances total only $29,000. Even among those
approaching or just entering retirement (families with a family head
ages 55 to 64), the median account is only $55,000. (Federal Reserve)
That $55,000 translates to monthly income of just $230 per month for
someone trying to be conservative or $360 per month if you planned on
depleting your savings in 20 years.

Social Security is the defined benefit retirement income available
to all American workers. Defined benefit plans are declining, while
defined contribution plans, with no guarantees and which place the
entire responsibility for saving and investing on individual workers,
are increasing. For instance, if a retirement plan is a 401(k), then
benefits depend on workers' voluntary contributions to an account and
cumulative investment gains and losses. Low-wage workers are less
likely to make contributions, even if the employer makes matching
contributions, and therefore are less likely to reach retirement with
adequate savings. Social Security forms the bedrock of our retirement
security system.
But Social Security is not just for retirees. Young people also
need the disability and survivor protection that Social Security
provides. No one knows which members of the population will become
disabled or suffer a premature death. Today, a 20-year-old worker faces
a 3-in-10 chance of becoming severely disabled, either physically or
mentally, and unable to work for some period before retirement. That
worker also faces a roughly 1-in-5 chance of dying before reaching
retirement.
Social Security provides inter-generational protections crucial to
the basic financial security of the American family, and my generation
needs this guaranteed safety net as badly as the generations before
ours. Just ask the more than 17,830 disabled workers here in Palm Beach
County and the nearly 339,448 around the state of Florida who depend on
Social Security's disability benefits to support their families. Or ask
the more than 13,355 Palm Beach County children of workers who have
become disabled, died or retired or the nearly 225,783 children
throughout Florida. (SSA)
Social Security is strong today but needs to be strengthened for
the future. In 2001, President Bush's Social Security Commission
attacked the financial soundness of Social Security, charging
inaccurately that Social Security would ``go broke'' by 2016. The
Federal government's own actuaries contradicted that charge, and the
Social Security Board of Trustees' official estimates now show adequate
resources through at least 2042. After 2042, the system will have
enough resources to cover approximately 70 percent of promised
benefits.
While some have tried to portray Social Security as a program in
crisis, which must be dismantled in order to save it, these kinds of
characterizations quickly collapse when exposed to the light of day.
Consider that the long-term costs of the tax cuts enacted and proposed
by President Bush are more than three times the size of Social
Security's actuarial deficit.
Advocates of Social Security privatization are selling private
accounts as a way to strengthen Social Security in the face of
projected shortfalls. They assert that redirecting money away from
Social Security into private investment accounts is a ``third way''--a
way to address concerns about Social Security but avoid benefit cuts or
tax increases.
Just as there is no reason to start believing in free lunches or
perpetual motion machines, don't believe that there's such a thing as
pain-free privatization. The costs of shifting to a system of private
accounts--even partially and with relatively small accounts--are large
and unavoidable. It is a matter of simple arithmetic: current benefits
are now paid for by current revenues--payroll taxes paid by people now
working. If some current workers take some of their money out of Social
Security and put it into their own individual accounts, there is less
money to pay the benefits going to people now retired or disabled, or
the surviving spouses and orphans of deceased workers.
So, redirecting just two percentage points of the Social Security
payroll tax to carved-out private accounts more than doubles the size
of Social Security's long-term shortfall. The big hole created by
private accounts must be paid for by big benefit cuts, tax increases,
massive new federal borrowing or huge federal subsidies that will
starve the rest of the government.
The benefit cuts required by private account plans can be painful
and unfair. Some proposals--such as one endorsed by President Bush's
Social Security commission--effectively raise the retirement age,
forcing workers to delay retirement to 69, 70 or even later if they
want to collect full benefits. This kind of benefit cut would cause the
most pain among people who at 10 a.m. on a weekday morning are well
into their work day building the houses we live in or lifting patients
in and out of wheelchairs at a nursing home; or perhaps some are just
heading to bed after having worked the night shift building cars on a
factory floor or stocking shelves at the local grocery store. Other
proposals--also including two endorsed by President Bush's Social
Security commission--rely in part on steep cuts in benefits for future
disabled workers and the young surviving children of workers who have
died to pay for privatization and make the numbers add up.
Other individual account proposals do not explicitly rely on
benefit cuts or tax increases but ultimately raise the same kinds of
concerns as pure carve-out plans because they do not identify reliable
alternative ways to fund benefits. Some proposals assume that the
nation will simply divert trillions of dollars away from the rest of
the federal government without specifying from where or take on
enormous amounts of new federal debt to pay the high price of
individual accounts. It is unrealistic to believe that we can raid the
rest of the government by borrowing trillions of dollars to pay for a
risky privatization plan.
Beyond the very serious questions about how we pay for private
accounts and whose benefits Congress is going to be cut to pay for
them, are fundamental concerns about transforming our bedrock of family
financial security by replacing Social Security's guaranteed benefits
with risky stock-based private accounts. Social Security provides
workers and their spouses with guaranteed retirement benefits for life
that protect against inflation. Benefits do not change with ups and
downs in the economy or the stock market. The value of individual
accounts invested in private investment markets can vary substantially
from year to year and the value of a worker's account benefits at
retirement can be far different from what a worker expected. Recent
experiences have borne this out, as sharp declines in the stock market
forced workers to delay retirement and some retirees to return to work.
Furthermore, the tremendous erosion of traditional pension plans in the
work place in favor of do-it-yourself individual accounts make
replacing any of Social Security's guaranteed benefits with private
accounts even riskier.
Make no mistake, replacing Social Security's guaranteed benefits
with privatized investment accounts will have far reaching effects.
Individual accounts undermine Social Security's ability to protect
lifetime low-wage earners by cutting back on Social Security's
progressive benefit formula. Individual accounts hurt disabled workers
and young children of deceased workers. Privatization threatens Social
Security's ability to provide lifetime, inflation-adjusted benefits to
retirees.
The Social Security system has continued to work for the American
people. It has promised to provide a foundation of financial support
for the retired, disabled, and survivors of deceased workers. It has
kept new benefits up to date with improvements in standards of living,
to protect current benefits against erosion by inflation. It has
delivered benefit checks on time, to the right person, at the right
address, month after month without fail. It does not need radical
changes.
It is amazing that Congress would even consider such changes after
three years of corporate and mutual fund scandals that would have
undermined the retirement of millions of seniors if privatization had
been in effect.
Thank you for inviting me here.

Chairman SHAW. Mr. Weekes.

STATEMENT OF LEON M. WEEKES, PAST CHAIRMAN, BOARD OF DIRECTORS,
MAE VOLEN SENIOR CENTER INC., BOCA RATON, FLORIDA

Mr. WEEKES. Thank you very much, Mr. Chairman for asking me
to be here today. I have brought with me Elizabeth Lugo from
the Mae Volen Senior Center, which by the way, is located in
Boca Raton, about 1 mile south of where we sit here today.
Ms. Lugo is much more qualified than I am to discuss what
she sees are the concerns of our seniors and the needs and the
shortfalls that may exist in the system as it effects our
elderly and more particularly, our frail elderly. I will turn
it over to Ms. Lugo, and hopefully, she'll leave me a couple of
minutes at the end where I can make a couple of other remarks.
Thank you. Ms. Lugo?
Ms. LUGO. Thank you, Chairman. As Mr. Weekes said, I'm
currently serving as the chief executive officer of the Mae
Volen Senior Center here in Boca, and I have been with the
center for over 10 years. The center, for those of you who do
not know, serves as a vocal point for seniors and is considered
the lead agency for services to seniors in Southern Palm Beach
County. The center is a place for socialization and education,
and also provides transportation, adult day health care, home
delivered and congruent meals, and in-home services such as
bathing and cleaning assistance to the elderly.
During my tenure at Mae Volen, I have worked directly with
seniors as a case manager. As recently as last week, I have
been fielding calls for help from families, friends, adult
children, and the seniors themselves. The main reoccurring
theme I am hearing about Social Security is that it is not
enough. It is described to me by almost every caller as just
Social Security and often they go on to explain that Social
Security alone means you are barely making it month-to-month
with not one penny to spend on anything above keeping the
electricity on and basic food supplies in the pantry.
This is a great concern to me, because if the recipients of
Social Security are not able to live independently in their own
homes and afford the much needed in-home assistance to help
them take a bath or prepare a meal, or do a load of laundry,
then the beneficiaries of tomorrow will have even more
difficulty doing so.
The people who are calling me for help are not the poorest
of the poor, but middle income seniors who are not wealthy
enough to afford the assistance they need, and pay their rent
or mortgage, and buy food and medicine. They are what I often
refer to as the gap population. Those seniors not poor enough
to be eligible for Medicaid and other public assistance
programs, but not wealthy enough to afford the basic in-home
care that they need.
From what I understand, until recent years, Social Security
recipients received far more than the value of the Social
Security taxes they paid. If these are the people who are
calling me today, I can expect to be inundated with more calls
from people just like them in the very near future.
Currently we have hundreds of people on waiting lists for
services. There is not enough Federal or State funding to serve
all who call Mae Volen Senior Center. With benefits being
diminished and the age for eligibility increasing, more and
more people will be unable to afford the in-home care as they
age. This could effect the cost of other entitlement programs
such as Medicare and Medicaid that would also place a large
strain on the Federal Treasury. I would like to turn it back to
Mr. Weekes so he can have a couple of moments.
Mr. WEEKES. Thank you very much, Elizabeth. Presently the
benefit for surviving children under the Social Security Act
(P.L. 74-271) stops when they reach 18 years of age. In my view
this should be extended to 21, or so long as the person is a
full-time student at an accredited institution. It makes sense
because under the present system many potential college or
trade school students must drop out for lack of ability to pay
tuition or other related expenses. If the benefit were
extended, many of them would be able to continue their
education. This would enable them to secure better, higher
paying jobs, which in turn would result in more taxes paid to
the government. Over the long term, the monies returned in
taxes would probably exceed the additional cost of extending
the benefits.
I must tell you from personal experience, I have a lady in
my office who lost her husband. She has two children, recently
graduated from high school and now going to college. They
graduated at age 18, their benefits stopped. Now she is faced
with the problem of trying to fund their college education.
Both of them are bright kids, they are going to college, and it
is extremely difficult. I do not know why this is an
automatically cut off at age 18. I think that that should be
reconsidered.
One other point I would make is that in 2018 when the case
flow starts to turn negative and we have to start drawing down
the funds that we have in reserve, those funds are not there,
as you have already said and others have already said, the
government is going to have to go out and find some means to
repay the money that they have borrowed, if you will, from the
trust fund. That means that they are going to have to find that
money and additional revenue somewhere, but it should not be on
the backs of the Social Security beneficiaries. That money was
paid in good faith, borrowed by the government, and it should
be repaid by the government from other sources. Thank you very
much, Mr. Chairman.
[The prepared statement of Mr. Weekes follows:]

Statement of Leon M. Weekes, Immediate Past Chairman, Board of
Directors, Mae Volen Senior Center, Inc., Delray Beach, Florida;
accompanied by Elizabeth Lugo, President and Chief Executive Officer,
Mae Volen Senior Center, Inc., Delray Beach, Florida

My name is Leon Weekes and I am speaking to you this morning as a
beneficiary of the Social Security System, a businessman, and as past
chairman of the Board of Directors of the Mae Volen Senior Center in
Boca Raton, Florida. The Center is the primary provider of senior
services in SouthPalm Beach County.

What we are seeing at MaeVolenSeniorCenter:
Seniors are concerned that their benefits will be revised and
benefits diminished. They are worried that Social Security will not be
there for their children and grandchildren. The average age of a senior
at MVSC is 79 and, therefore, they have been receiving Social Security
benefits for some time now. The main complaint is that it is not enough
money to live on and they are on very tight budgets, often having to
choose between food and medication, and are not able to live the way
they would like to.
At MVSC we get a lot of calls from seniors needing assistance in
their homes who are living only on Social Security and who have no
other source of income. Most of these individuals have incomes that are
too high to qualify for Medicaid or other public assistance benefits,
yet don't have enough income to pay for much-needed assistance in their
homes to avoid nursing home placement. This ``gap'' population is
continuing to grow with programs for this ``gap'' population remaining
the same and not experiencing any increases to account for the growing
senior population. At the same time, programs for those who are
eligible for Medicaid and similar public assistance programs are
expanding.
I think that MVSC will see more issues arise in the future when new
beneficiaries become eligible and if changes are made in the
administration of Social Security, seniors will need help in
interpreting the changes and how it affects them. If revisions are
made, places like MVSC could house information, staff and volunteers
specifically trained to assist seniors in navigating the system. It is
also important that workers in the workforce who are not seniors and
not yet eligible for retired worker benefits, be educated on changes
made so that they are prepared and can make necessary adjustments in
their lifestyle and make sound financial decisions if given the
opportunity to have some control over a personal retirement account.
My personal views:

1. Allow workers to contribute five percentage points of the 12.4
percent Social Security payroll tax to personal investment accounts.
The government will guarantee all retirees no less retirement income
than what Social Security currently promises them. Because private-
market returns are so much higher than what non-invested, purely
redistributive Social Security can offer, the accounts would finance
substantially higher benefits after a lifetime of investment than what
Social Security promises. Most workers would realize an increase in
retirement income. This would not endanger the Social Security trust
funds or imperil the Federal government's fiscal situation.
2. Identify and implement another source of funding for the
system. Payroll taxes have reached the maximum acceptable limits for
both employer and employee.
3. Presently, the benefit for surviving children stops when they
reach eighteen years of age. This should be extended to twenty-one
years so long as the person is a fulltime student at an accredited
institution. This makes sense because under the present system many
potential college or trade school students must drop out for lack of
ability to pay tuition or other related expenses. If the benefit was
extended, many of them would be able to continue their education. This
would enable them to secure better, higher paying jobs, which in turn
would result in more taxes paid to the government. Over the long term
the monies returned in taxes would probably exceed the additional cost
of extending the benefits.

Chairman SHAW. Thank you very much, Mr. Weekes.
Dr. Harper.

STATEMENT OF JOEL T. HARPER, PROFESSOR, COLLEGE OF BUSINESS,
FLORIDA ATLANTIC UNIVERSITY, BOCA RATON, FLORIDA

Dr. HARPER. Thank you, Congressman Shaw. Before I begin my
remarks, I would like to state that my opinions do not
necessarily reflect views of FAU, of which I am an employee and
an Assistant Professor of Finance. They furthermore, do not
necessarily represent the opinions of the Association for
Investment Management and Research and the Financial Analysts
Society of south Florida, of which I am past-president.
In my opinion, the current structure of Social Security
must be reformed. Currently, I see several problems with the
Social Security system that need to be addressed quickly. I
will limit my brief comments to four areas, and at the end I
would like to comment on the plans to reform Social Security
that are presently before this Subcommittee.
One of the first problems I see with Social Security is the
funding status of Social Security. Corporations, by contrast,
are currently held to a much higher standard of funding and
financial responsibility with respect to their pension plans
and obligations than the Federal government is to Social
Security obligations.
Currently, the Social Security system is based on little
more than an under-funded pay-as-you-go system. There are not
enough funds set aside to meet projected obligations,
especially past 2018. In contrast, corporations must project
the obligations they have with respect to under funded defined
benefit pension plans, set aside funds to meet those
obligations, and then insure the plan in case the funds are not
sufficient or if the firm goes bankrupt.
For defined contribution plans, the corporation must
immediately fund the pension plan once benefits are earned, not
when they are due. One of the stories to emerge from the Enron
scandal are the numerous employees who lost their retirement
due to the bankruptcy of Enron. This was not due to funding,
but to the investments made by these plans. The funding of the
Social Security system is much more precarious than Enron's
ever was.
The second problem I see is the lack of economic capital.
One of the side benefits provided by corporate pension plans,
defined benefit plans, defined contribution plans, and, by the
way, Individual Retirement Accounts, is that the plans must be
funded, and the money used to fund these plans is invested in
the economy. Pension plans invest in stocks, bonds, real
estate, and other investments. This capital is put to
productive use and provides sources of funding for expansion of
businesses, long-term investment by companies, and, by the way,
individuals and small businesses. This source of funding
provides a benefit both to businesses that need capital, as
well as to the pension plans that invest and earn a fair rate
of return.
The Social Security fund does not provide these economic
benefits. For the most part, the taxes that are collected from
the employer and the employee are not set aside for that
particular employee, and are rarely used in the capital
markets, but rather used to pay current obligations due to
beneficiaries. This loss of productive capital hurts the
overall economy and makes investments more expensive for
businesses.
The third problem I see with the current Social Security
system is a lack of appropriate investment options. As it is
now, the actual return of payments into the Social Security
system to many, especially of my generation, participants is
less than the Treasury bill rate. As Mr. Lockhart pointed out,
the actual return could be a negative return for my generation
and my children's generation. Participants have no way to
change the potential return they earn and are limited to this
one option. This one-size-fits-all approach can cause severe
harm to many participants. For example, an employee who works
for a municipal or State government and has a defined benefit
pension plan will have a fairly safe, constant retirement
payout if the employee vests in the plan and continues to work
to retirement age. The retirement benefit is fairly low risk.
This particular employee could benefit by investing more
aggressively in a Social Security framework that allows for
equity or other investments. By taking a little additional
risk, the retirement benefits would potentially be very large.
On the other hand, a small businessowner whose wealth and
potential retirement savings are tied up in the business would
prefer a risk option that has lower risk and provides more
constant return.
Currently, these two individuals are limited in what Social
Security offers and cannot benefit from opportunities to match
their investment preferences. The last problem I see with
Social Security is the deviation of the original purpose of
Social Security.
When Social Security was first enacted in the thirties, the
purpose was to provide benefits for those who were beyond the
normal life expectancy. It wasn't long before additional
benefits and entitlements grew as a source of political
capital. The net effect of this expansion is that many
participants have received, or will receive, additional
benefits that they themselves did not pay into the system
through payroll taxes. These additional benefits are being
provided by a future and relatively shrinking work force. As it
stands, the current Social Security Trust Fund will not be able
to provide benefits within approximately 30 years. The
continuation of Social Security without either reducing
benefits, delaying benefits, or additional contributions
through tax revenue is not a feasible alternative for the next
generation of workers. Finally, I have a few comments on the
proposed reforms.
Recently, this Committee has begun the process of major
reform of the Social Security system, with the support of the
President. Many of the reform plans advocate a partial
``privatization'' of the Social Security program, mainly
through the use of investments in individual accounts. I
believe that most Members of this Subcommittee, as we have
heard today, would agree that those in the late stages of their
careers and close to retirement should be able to rely upon the
present Social Security system, and that any reform measures
should be targeted to those who, like myself, are in a
relatively early part of their career.
I do not support the expansion of benefits proposed under
many plans, including the lowering of retirement age to receive
full benefits that I have seen proposed. I do support a Social
Security system that allows for savings and investment into
private accounts. It addresses many of the problems I see with
the current system that I've mentioned above. However, I do
question the wisdom of setting up a new system of accounts. To
me, it makes more sense to utilize the pre-existing Individual
Retirement Account and allow or require contributions be made
as a percentage of income. This percentage could be the current
employee tax rate for Social Security and even allow additional
contributions at higher percentages to encourage savings.
Employees who have contributed into the existing system
should be allowed the option to withdraw from the system what
they have paid into it, with a reasonable rate of return, for
deposits into these accounts. Those who have yet to begin their
careers should be required to participate in the new system of
individual accounts.
The one main drawback from the system of individual
accounts is it does not address the initial problem of Social
Security: how do we protect those with low incomes? My opinion
is that this should be a separate program under the general
revenue and obligation of the government. The program should be
limited in scope and size so that it does not become a burden
on taxpayers as the current Social Security system is. Thank
you for this opportunity to address the Subcommittee. We all
have an interest in the decisions this Subcommittee will make
as it concerns this issue and I am grateful to have my opinions
heard.
[The prepared statement of Dr. Harper follows:]

Statement of Joel T. Harper, Ph.D., Professor, College of Business,
Florida Atlantic University, Boca Raton, Florida

Before I begin my remarks, I would like to formally state that the
opinions and views expressed here are my own and do not necessarily
represent the views and opinions of my employer, Florida Atlantic
University, or the Association for Investment Management and Research
(AIMR) and the Financial Analysts Society of South Florida (FASSF) of
which I am a member and past-president of the FASSF.
In my opinion, the current structure of Social Security must be
reformed. Currently, I see several problems with the Social Security
system that need to be addressed quickly. I will limit my brief
comments to four areas: Funding status of Social Security, the loss or
lack of economic capital in the current system, the lack of appropriate
investment and risk options for individuals, and the deviation of
Social Security from the original mandate to an ever-growing
entitlement program. As time permits, I would like to comment on plans
to reform Social Security that are presently before this subcommittee.

Funding Status of Social Security
Corporations are currently held to a much higher standard of
funding and financial responsibility with respect to their pension
plans and obligations than the Federal government is to Social Security
obligations. Currently, the Social Security system is based on little
more than an underfunded pay-as-you-go system. There are not enough
funds set aside to meet projected obligations. In contrast,
corporations must project the obligations they have under defined
benefit pension plans, set aside funds to meet those obligations, and
then insure the plan in case the funds are not sufficient or if the
firm goes bankrupt. For defined contribution plans, the corporation
must immediately fund the pension plan once benefits are earned, not
when they are due. One of the stories to emerge from the Enron scandal
are the numerous employees who lost their retirement due to the
bankruptcy of Enron. This was not due to funding, but to the
investments made by these plans. The funding of the Social Security
system is much more precarious than Enron's ever was.

Lack of Economic Capital
One of the side benefits provided by corporate pension plans,
whether they are defined benefit or defined contribution, is that the
plans must be funded, and the money used to fund these plans is
invested in the economy. Pension plans invest in stocks, bonds, real
estate, and various other investments. This capital is put to
productive use and provides sources of funding for expansion of
business and long-term investment by companies. This source of funding
provides a benefit both to businesses that need capital as well as to
the pension plans that invest and earn a fair rate of return. The
Social Security fund does not provide these economic benefits. For the
most part, the taxes that are collected from the employer and the
employee are not set aside for that particular employee and are rarely
used in the capital markets, but rather used to pay current obligations
due to beneficiaries. This loss of productive capital hurts the overall
economy and makes investment more expensive for businesses.

Lack of Appropriate Investment Options
As it is now, the actual return of payments made into the Social
Security system to many, if not most, participants is less than the
Treasury Bill rate. Participants have no way to change the potential
return they earn and are limited to this one option. This one-size-
fits-all approach can cause severe harm to many participants. For
example, an employee who works for a municipal or state government and
has a defined benefit pension plan will have a fairly safe, constant
retirement payout if the employee vests in the plan and continues to
work to retirement age. The retirement benefit is fairly low risk. This
particular employee could benefit by investing more aggressively in a
Social Security framework that allows equity or other investments. By
taking a little additional risk, the retirement benefits would
potentially be very large. On the other hand, a small business owner
whose wealth and potential retirement savings are tied up in the
business would prefer a lower risk option for Social Security
investment. Currently, these two individuals are limited in what Social
Security offers and cannot benefit from opportunities to match their
investment preferences.

Deviation from the Original Purpose of Social Security
When Social Security was first enacted in the 1930's, the purpose
was to provide benefits for those who were beyond the normal life
expectancy. It wasn't long before additional benefits and entitlements
grew as a source of political capital. The net effect of this expansion
is that many participants have received or will receive additional
benefits that they did not pay into the system through payroll taxes.
These additional benefits are being provided by a future and relatively
shrinking workforce. As it stands, the current Social Security trust
fund will not be able to provide benefits within 30 years. The
continuation of Social Security without either reducing benefits,
delaying benefits, or additional contributions through tax revenue is
not a feasible alternative for the next generation of workers.

Comments on Proposed Reforms
Recently, this committee has begun the process of major reform of
the Social Security system, with the support of the President. Many of
the reform plans advocate a partial ``privatization'' of the Social
Security program, mainly through the use of investments in individual
accounts. I believe that most members of this subcommittee would agree
that those in the late stages of their careers and close to retirement
should be able to rely upon the present Social Security system and that
any reform measures should be targeted to those who, like myself, are
in a relatively early part of their career.
I do not support the expansion of benefits proposed under many
plans, including the lowering of retirement age to receive full
benefits that I have seen proposed. I do support a Social Security
system that allows for savings and investment into private accounts. It
addresses many of the problems I see with the current system. However,
I do question the wisdom of setting up a new system of accounts. To me,
it would make sense to utilize the preexisting Individual Retirement
Accounts (IRA) and allow (or require) contributions be made as a
percentage of income. This percentage could be the current employee tax
rate for Social Security and even allow additional contributions at
higher percentages to encourage savings. Employees who have contributed
into the existing system should be allowed the option to withdraw from
the system what they have paid into it with a reasonable rate of
return, for deposits into these accounts. Those who have yet to begin
their careers should be required to participate in the new system of
individual accounts.
The main drawback from the system of individual accounts is it does
not address the initial problem Social Security was to address: How do
we protect and provide for those with low incomes. My opinion is that
this should be a separate program under the general revenue and
obligation of the government. The program should be limited in scope
and size so that it does not become a burden on taxpayers as the
current Social Security system is.
Thank you for this opportunity to address the subcommittee. We all
have an interest in the decisions this subcommittee will make as it
concerns this issue and I am grateful to have my opinions heard.

Chairman SHAW. Thank you, Dr. Harper. Mr. Winawer, I find
some things in your testimony which I, frankly, agree with,
which might surprise you. I agree with you that Social Security
itself does not need a ``radical change.'' In fact, it is my
opinion that it should be left alone and we should add
something to it.
Mr. WINAWER. Sure.
Chairman SHAW. On page 4 of your testimony, you point out
that current benefits are now paid for by current revenues,
payroll taxes paid by people now working. You are absolutely
correct, but if you go back on the top of that same page, I
think you are losing sight of a problem that we have, and that
is that those payments will not be adequate to pay Social
Security after, you say 2016. The date has been changed and it
is a moving target, it was 2016.
Mr. WINAWER. Sure.
Chairman SHAW. The previous witnesses testified that now it
is 2018. So, that is good news. You seem to be falling back on
the argument that concerns me most, and that is that people are
thinking that the system is good until 2042 when we know, and
as been testified here by an abundance of witnesses, that we
will not have adequate money coming in as a pay-as-you-go
system, and it is a pay-as-you-go-system, after 2018.
So, what I think we have to do is to reconcile this. I
think where we possibly can come together is to find a point in
time where we say, okay, I agree, Social Security should not be
dismantled. Social Security should not undergo any radical
change. We do have to look after Mr. Moore and Dr. Harper, and
be sure that we create something that is going to mean that the
system will be there for them. How do you propose that we pay
benefits after 2018?
Mr. WINAWER. Well, again, I am not an actuarial specialist.
Currently the rate is capped. We have a tax rate, but it's
capped at a certain level of income. You could look at possibly
raising that level or adjusting that level to account for new
revenues. Again, I am not proposing that I have all the
answers. What I am here to do is represent the concerns of my
Membership to you as somebody with 24 years of experience in
the House of Representatives. Also this segues with our
concerns that have recently happened with prescription drugs.
Seniors, and the retirees that I deal with, are very leery
because they feel that what was promised to them during
campaign time about prescription drugs was not delivered.
Going forward with Social Security, they share the same
concerns. They felt the effects of privatization and they are
really concerned about what will happen to their retirement
security if their funds are put into positions where they can
be jeopardized.
I am not here to propose to you that I have an alternative
solution in its entirety. I certainly would like to sit down
with you and have an ongoing debate. What I am here to do,
again, is represent the concerns of our membership. We have
people who have lived through the Depression, and who have seen
a lot of how the world works, and privatization of their
accounts. Now, again, as you say, it will not affect them, but
they do have life experience and they do have children and
grandchildren, and they just do not want them to suffer ill
effects of privatization. Certainly looking at the cap as it is
now would certainly be one alternative.
Chairman SHAW. Are you paying into a pension plan now?
Mr. WINAWER. Am I paying into a pension plan? Currently, I
am not. I have that option, but again I fall into a category of
a worker who makes in the $30,000s, and for my bills and
everyday living, every dollar that I have coming in is pretty
much accounted for as an expense. So, that is why as I look
toward my retirement, and I look toward what Social Security is
doing for my mother. My father passed away suddenly of a heart
attack 4 years ago, and she really needs Social Security. She
really needs the pension that comes from her retirement in New
York State. So, it is really a personal concern.
Chairman SHAW. So, the pension that your mother is
receiving----
Mr. WINAWER. Yes.
Chairman SHAW. Is that the teacher's pension fund?
Mr. WINAWER. No. It is New York State Department of Labor,
sir.
Chairman SHAW. New York State Department of Labor?
Mr. WINAWER. Yes.
Chairman SHAW. What are they invested in?
Mr. WINAWER. I am not really sure of the particulars of her
Civil Service Annuity, and that is where they are and what
those funds are, but I can obtain that information.
Chairman SHAW. Well, we can check that out ourselves.
Mr. WINAWER. Sure.
Chairman SHAW. My guess is if they are like other State
pension funds, they are vested in the private sector.
Mr. WINAWER. Sure.
Chairman SHAW. When we look back, and we take a look back
75 years, and then look forward 75 years, both the Clinton
Administration, as well as the Bush Administration have said
that we need, and this goes back to Depression years.
Mr. WINAWER. Sure.
Chairman SHAW. It includes the slump that we have had over
the last few years. It says that we are much better to invest
our money, that you get a better return on the money. Now, you
bring up the defined benefit plan.
Mr. WINAWER. Yes.
Chairman SHAW. I think this is important. I have studied a
number of these and down in Chile, for instance, they have been
very progressive. They had Social Security before we did. You
know, in America we think we invented everything. We did not.
They had Social Security many years before we did. They have
gone to a system, as most of the industrialized world has now,
that in some ways involves private sector investment. Their
system, however, if you live a long, long time and run out and
exhaust all the money in your individual account, that is
tough. Or if the day you retire, the actuarial value of that is
not sufficient to take care of your needs, that is tough.
What I have done under the plan that I have drawn, and it
was referred to, I think Mr. Moore referred to it as the
Archer-Shaw plan, and that was my name and Bill Archer, who was
a former Chairman of the Committee on Ways and Means. We have
it as a defined benefit plan.
Mr. WINAWER. Sure.
Chairman SHAW. However, you can do better if the
investments that you have in your individual retirement account
are better than the benefits that you get through the Social
Security under existing law, that you get the better of the
two, and that is a good deal. Mr. Moore is going to like that.
Mr. WINAWER. Sure. It certainly would be nice if there was
a cost free, just sum total cost free guarantee, where you
would be guaranteed a certain amount, and there would be a
correlating downside, where if there were an upside, you would
also be entitled to that as well. Again, when you get into the
private sector, with all due respect, Floridians really have no
further to look than what has happened with Alliance Capital
and what has happened with the State pension fund in recent
years to really, again, you are dealing with the retirees who
at this point in their life have no more income earning
potential and just really are forced to examine very carefully
about where their money is, what the Federal government does
with their money, and what the State does as well. So, I
appreciate what you are saying, but I also know that there is
no something for nothing, and the money is going to have to
come from somewhere.
Chairman SHAW. You are correct there. It comes from savings
and investment, as well as paying into the Social Security
system. That is what is important. You are going to love my
plan. You really are.
Mr. WINAWER. I cannot wait.
Chairman SHAW. I will just see that you get a good copy of
it.
Mr. WINAWER. All right.
Chairman SHAW. I will autograph for it if you like.
Mr. WINAWER. Can I send it back with revisions?
Chairman SHAW. Yes. Yes, you may.
Mr. WINAWER. Okay. I was just teasing.
Chairman SHAW. Yes, you may. No, I am not teasing.
Mr. WINAWER. Okay.
Chairman SHAW. I would appreciate it if you would, and I
have told everybody that, hey, you come in with a better plan
than mine, I will not only have a hearing on it, I will sponsor
it and try to move it forward for passage.
Mr. WINAWER. Okay. Well, wonderful.
Chairman SHAW. I think that is important. As I said a few
minutes ago, that we have got to take the politics out of
Social Security.
Mr. WINAWER. Sure.
Chairman SHAW. Republicans and Democrats both recognize the
importance of the Federal pension plan, and I think we all want
to see that we not only save it for the younger people, but if
we can improve on it, we should.
I might say, too, the labor movement in other countries has
been the movement that has actually gone into investment in the
private sector. Now there is various ways of doing it, but
labor should be out front on this. They should be screaming
that, hey, you know these younger guys are going to be in big
trouble. Mr. Moore, have you done anything on Social Security
and looked into before I asked you to be on this panel?
Mr. MOORE. Yes, sir, I did.
Chairman SHAW. You did? Before I asked you?
Mr. MOORE. Before.
Chairman SHAW. Well, you are unusual. If you turn around,
you will see more gray hair than any others in this room, and I
am very, very concerned that--your classmates should be
outraged--outraged that the Congress has not moved forward and
saved this thing for you.
I had a conversation not long ago with a young reporter,
she was with the Boston Globe. She was asking me all kinds of
questions, so I figured I could ask her a few. So, I said let
me ask you this question: how would you feel if you were being
interviewed for a job and you were being told that, by the way,
all your working life you are going to contribute to this
pension plan but it is not going to be there for you, would you
take the job? She said no. I said, well, you've already got it
because it is called Social Security, and this is what we have
to be concerned about, and that is why I am here on this
campus.
I might say that I am disappointed that every seat is not
taken with standing room only in the back for the young people.
We care. My generation cares about the young people. It is kind
of hard to get young people really whipped up on the idea of
retiring. That is the furthest thing from their minds. When
they come into job interviews, they very seldom ask about the
retirement program. It is unusual. It is unusual that you--I am
glad to hear that, that you have thought about this and
actually gone to the trouble to do some research. Now that is
really good. That is great.
Mr. MOORE. It is a shame that my generation----
Chairman SHAW. Pull the microphone over to you, would you?
Mr. MOORE. It is truly a shame that my generation is more
apathetic than any other generation I think we have seen in
past years. Truthfully, students on this campus were asked to
come. The students on this campus have been informed of it.
However, you know, and you will see a few in the back I am sure
that are part of our College Democrats or College Republicans,
and whatnot who are more in tune with politics than anything
else. Truthfully, from a small business standpoint, and coming
from a family that has had small business since I was a year
old, like I said, in the manufacturing sector, I think it hits
home to me more than anything. So, that is where my interest
came in.
Chairman SHAW. Thank you. When you look at what is going on
in Iowa and New Hampshire and all the young people that are
actually working in some of those campaigns, you see they are
not totally out of the political loop, but they just simply
have not been asking the right questions to really look after
themselves.
Leon, you brought up an interesting question with regard to
payment, extended payments of the kids that are in college. I
know that is terribly important. Listening to Frank Brogan talk
about his experience. I did not know he went through such a
troubled childhood as he outlined to us today. Those
disability, I am talking about people in college now, I wish
there were more of them in this room. When those benefits
dropped off, it was tough, and we should take a look at that.
In Washington, believe it or not, we look at the price tag of
everything. Whether that is going to be possible or not, we
have to look at the revenue and the outflow, but I appreciate
your coming in with that comment.
Ms. Lugo, I also understand the difficulty. Again, I go
back to Mr. Moore who pointed this out, that Social Security
has become the sole source of income for so many of our
seniors, even though it was not designed to be that way. We
have to recognize the complete dependence that so many of our
seniors have on that, and you see that everyday in your work.
Did you want to comment further? Leon, you look like you are
about to jump up here.
Mr. WEEKES. May I?
Chairman SHAW. Yes, sir. Please do.
Mr. WEEKES. I do not want to unsettle anybody, but as our
lifespans grow longer and longer, and if somebody comes up with
a cure for cancer in the next 10 or 15 years, you are going to
see a quantum leap in life expectancy. All of your actuarial
assumptions are going to be thrown into a top hat.
Chairman SHAW. I have got news for you; we will have a cure
for cancer in the next 15 years, and I have dedicated myself to
it as a cancer survivor. That is going to make my job harder,
but I am also going to tell you in 15 years I am not going to
be Chairman of this Committee, and I am going to let someone
else worry about it.
Mr. WEEKES. Well, it does not bother me, either. Dr.
Harper, do you have any comments that you would like to bring
up other than, yes, I know you were listening to the testimony
of these other witnesses.
Dr. HARPER. I think there are a couple of comments. Michael
Moore actually was a student of mine, so the fact that he's
attuned to these issues may be a sign of what is being taught
in the classroom here, especially when we start teaching the
finance class talking about savings for retirement and how much
does it take to save for retirement. Actually, if you start
very early if you are in your twenties or 25 putting away $100
or $200 a month into an Individual Retirement Account can lead
to $4 million in retirement at the end of your work life, at
65. Even if you become disabled before then, depending on the
age, it still can lead to a substantial sum of money set aside
in your retirement accounts that you can use.
With that said, there are many Americans who do not
currently save, such as Mr. Winawer. It is actually a choice, a
very difficult choice, but a choice nonetheless not to invest
into their future. The fact that Social Security has become the
sole source of retirement benefits and retirement savings for
many Americans in my opinion is reflective of a lack of
education about what retirement is and what it takes to retire
in preparation more than anything else
Chairman SHAW. I am going back to you, Ms. Lugo. You
mentioned in your comments that so many of the people that you
serve are concerned about their retirement benefits under
Social Security being cut. Where do they get that idea?
Ms. LUGO. I am not sure exactly where they get that idea,
but they are concerned. I am not sure exactly where they get
that notion, but they definitely are concerned that their
benefits will run out, or will be cut. I think that they see so
much discussion about Social Security and the future of it that
they're probably thinking, kind of the if you act now scenario,
that they will feel the repercussions of some reaction now. I
do not know that they have heard the statements that we heard
earlier that it will not effect the current retirees and those
near retirement. I do not think that that is as much in the
media as much as, Social Security is not going to be there,
there is going to be major reforms to it. I do not know that
they have that piece of mind or feel secure that the system is
going to at least be maintained for them.
I would also like to add that they are concerned about
their own children and their grandchildren, and that we are
hearing that theme more and more. They realize, as I had
mentioned to Mr. Weekes, that our average age is about 79, and
so these people have been receiving benefits for several years
now. Sometimes they feel secure that at least they're going to
get by, but what is going to happen to their children and their
grandchildren? So, you see both sides of it. With all the media
blitz about Social Security and major reforms and benefits
being decreased in the future, I think they may be concerned
that that will effect them.
Chairman SHAW. Would you bring back this message to them
from me? Tell them that you just had a long talk with the
Chairman of the Subcommittee on Social Security of the U.S.
Congress and he said that over his dead body were they going to
interfere with their benefits, and that we are dedicating
ourselves to looking after their kids and grandkids.
Ms. LUGO. Absolutely. I would be happy to.
Chairman SHAW. That is good. Thank you.
Ms. LUGO. Thank you.
Chairman SHAW. Thanks to all of you for being with us, and
I thank, too, the people that have taken time out of their day
to come and listen to this important hearing. I understand
there were some people that had questions. We cannot, under
congressional hearings, take questions from the audience. If
anybody does have any questions, please feel free to contact
me, write to me. I will be glad to answer any questions you
might have in writing.
Also, if anybody has any curiosity as to the Social
Security plan that I keep referring to as mine, I will not only
supply Mr. Winawer with a copy, I will supply anybody. It is
also on my website if anybody wants to bring it up. Oh, excuse
me. I have been told that the plan is on the table in the back.
So, anyone who wants to pick up a copy of it, there is no
mystery here. It is something that I think is vitally
important, and I would welcome all of your comments with regard
to the plan. Thank you very much. Hearing is adjourned.
[Whereupon, at 11:45 a.m., the hearing was adjourned.]
[Submissions for the record follow:]

Statement of Audrey Mullinix, Atlantic Auto Glass, Lake Park, Florida

As a small business owner, I face many challenges on a daily basis.
Competing with larger companies, managing employees, and keeping
customer satisfaction at a high level are but a few. However, the most
difficult challenges are usually financial. Keeping a constant eye on
the bottom line, while still offering health insurance, a retirement
plan and other employee benefits can be exhausting. It is a burden for
small companies to match social security taxes each month. It affects
how much we can pay our employees, and what other benefits we can
offer. It is necessary for our company to offer similar benefits as the
large corporations in order to find quality personnel. Raising the
social security tax would hurt many small businesses. The reality is,
whatever we have to pay in taxes is not going towards growing our
company so that we could have more employees.
I also find that the majority of our employees feel that they will
never receive any benefits from social security. Most of them feel that
they will have to save for retirement on their own. They have also
stated that it will be necessary to pay off any debts before retirement
age so that they can utilize their savings and investments for living
expenses.
I do think that the government should invest our social security
trust funds in other ways. Yes, Treasuries are certainly the most
conservative investment, but not the most lucrative. Perhaps it would
be possible to invest in balanced mutual funds? It seems to me that
most major corporations in the United States do just that with their
employee's pension and retirement plans. Why should social security be
different? It would certainly help to reduce the shortfalls that are
going to occur if we do nothing.
I know that there are no easy answers to the problems we face with
the future of social security. I do believe that we could make the
system more efficient, and more beneficial. I do not think that raising
taxes is the answer. More likely, a combination of raising the
retirement age and investing the surplus funds in higher yielding
investments will go a long way toward solving our problems. Americans
are living longer lives. We have to prepare for the future now.

Statement of Dennis L. Bogan, Mason, Ohio

For the past 30 years I have worked 2-3 jobs to provide the type of
lifestyle I thought my family deserved. With this I have no regrets,
now that my family has started families of their own it was my hope
that all of my hard work would be rewarded when I decided to retire.
For 30 years I have paid the maximum amount into the Social
Security System. I have also paid into SERS for 30 years, I am
currently 57 years old and next year will retire from the Mason Local
School System where I have driven a bus for 30 years. My monthly
retirement pension will be around $900.00 pre tax dollars. I have paid
the maximum into Social Security for over 30 years, my estimated
benefits when I reach 65 would be $2100.00 dollars and with the current
offset legislation that is in place 40% of my Social Security benefits
I will not receive.
It seems to me that if I make that sacrifice to work 2-3 jobs, with
the idea that when I retire I will reap the benefits of my labor that
your current offset program is truly not the American Way. I earned
both of the benefits of which I am entitled, as did many other people
who are involved in this same situation. The problem is that the
government has an open purse; they can go to Social Security for money
for the General Fund, for what? Not for the benefit of HARD WORKING
AMERICANS!!!
Your Support Would is Greatly Appreciated in Repealing the Offset
Tax Penalty.
Thank you.

Statement of David R. Bryant, LaGrange, Illinois

SOCIAL SECURITY DEFINITION OF DISABILITY

In October of 2003, the Social Security Advisory Board issued a
policy paper calling into question the current statutory definition of
``disability'' as inconsistent with a national goal of supporting
maximum self sufficiency as reflected in the Americans with
Disabilities Act. This followed the January 2001 Report raising the
same issue.
After a review of the legislative and administrative background of
the two disability programs operated by the Social Security
Administration, the Report highlights the contradictions and inherent
conflicts built into the program. Treating applicants as individuals v.
standards of assessment as an ``average man''; requiring vocational
rehabilitation attempts way too late in the process; lack of funds and
qualified personnel to comply with Congressional mandates; a hodgepodge
of different federal, state and private programs involved with people
alleging a disability; does a medical problem prevent any work?
The Report emphasizes Vocational Rehabilitation as a viable option
to restoring the disabled into the workforce. A helpful list of Work
Incentives (p.9) and Disincentives (p.14) is set against an analysis of
the variety of programs initiated by public and private sector efforts
to get people back to work. In almost every case, these efforts have
proven cost-benefit ineffective. Use of a personal case manager
assigned early on seems the best current approach, yet untested due to
lack of trained personnel and funding.
Under the current definition, SSA has failed to be proactive in
identifying current medical criteria (Listings) for a presumptively
disabling condition; in identifying jobs that exist in the national
economy (DOT); in identifying the interrelationship of vocational
factors such as age, education, and past work experiences. As
suggested, definitions made in the 50s may not be workable 50 years
later (p.18).
The Report tries to address the reality of the workplace and health
issues. Loss of an industrial base of well paying skilled jobs to a
global economy; an aging work force more susceptible to disabling
illnesses; identification of new disabling conditions, such as AIDS,
SARS, PTSD, RSD, etc.; downsizing and outsourcing of jobs held by the
working wounded; preconditioning of Union LTD benefits on receipt of
DIB; reduction of medical benefits in the private sector; early v.
later retirement trends; workers compensation benefits as related to
DIB and Medicare (MSP); Veterans and other public sector benefits. In
particular, the Report makes the point that motivation to work or
return to work is lacking from the current disability process (p.20).
The Advisory Board admits that additional studies about the issues
raised in a Vocational context are needed.
Should disability be an all or nothing affair? Or should the VA and
WC models of partial, temporary, permanent, total, (``reflects the
degree of impairment'' p. 21). Would those with remedial impairments of
temporary or % disabilities get priority vocational treatment compared
to those with permanent/total (and older?) (and less educated?)
disability recipients? Targeted services based on cost/benefits
analysis. Who should provide these services? SSA? DoL? States? Private
sector?
The 6 optional considerations raised for Congress include:

1. Pay based on medical criteria alone
2. Pay a sliding scale of benefits as disabled person continues a
tenth month of work. For every $2 or $3 earned, a reduction of DIB by
$1
3. Divorcing Medicaid and Medicare from the cash benefits
precondition; maybe allow certain categories of health problems to buy
into medical coverage even if employed/working.
4. Bifurcating DIB into a permanent program and a temporary
program. The temps will go through a different system oriented to
rehabilitation and the case management model.
5. Changing the all or nothing disability assessment to a
percentage of disability based on specific medical criteria. Probably
the AMA Handbook. . . .
6. Change the CDR criteria from ``medical improvement'' and
``becoming able to work'' to one of failure to seek or accept
employment (Unemployment Compensation)

The Board made a finding of widespread dissatisfaction with the
present system(p.27) without any documentation. This Report is not the
definitive word and more work, consultations, forum discussions are
intended.

COMMENT

This report skirts the issue of making a concrete proposal by
referring to European models and highlighting a poor performance record
by SSA of getting people back to work. Until Congress has the guts to
buck the Veterans lobby and create an offset between DIB and Veterans
disability benefits as it does to Federal and State Public Disability
Benefits, there is little likelihood of major reform of the Disability
process. If you wanted reform, contract out the disability decision to
a private insurance company such as UNUM or MetLife, much like Medicare
contracts out to Blue-Cross, Blue Shield.
The present system would work if the Feds took over the States DDS
and used competent doctors, including APs, to decide if a bad illness
prevented someone from working at their own job. The 3 year mandated
review should be based on ``inability to work at any job'' much like
the private disability insurance companies and unions have adopted.
During the 3 years, SSA should make the case manager vocational options
available in order to give motivated individuals a chance to go to
school, look for other work, get medical care, coaching, vocational
retraining, whatever. In other words, make the system a little
friendlier at the front end with opportunities to a claimant for rehab.
Radical suggestion: Put a SSA CR in each post office for a regular
time and date (Wednesday from 10:00 until 3:00) to handle claims,
issues, problems, outreach,
In smaller communities, combine the SSA and Post Office since the
internet, Fed-X, UPS, and other services seem to be cutting into the
Post Office business. Check with AFSME and the Federal Unions on this
one.

Humble, Texas 77345
January 23, 2004
Congressman E. Clay Shaw, Jr.
Chairman, Subcommittee on Social Security
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515-6100

Dear Chairman Shaw:

Thank you for giving me this opportunity to write to you.
Social Security should not be discussed as an isolated issue. Many
other issues have bearing on the future of Social Security, and I will
touch upon a few of them in the course of my comments to follow.
When planning for our retirement, my husband and I were not aware
that our Social Security benefits would be reduced or offset by any
pensions earned through employment. In fact only recently did we
understand that if my husband died, I would have to choose between
receiving his Social Security benefits or my own; that I could not
receive both, even though we earned those benefits. This means that
although we were responsible in working and planning to provide for
ourselves and not be a burden to others, our goals, nevertheless, will
not be achieved as expected because we now understand we will not
receive all the benefits we should be due. This should NOT be the law,
nor should it be the policy of any Administration.
How is it fair to punish any American couple, or individual, who
has worked hard to be independent and as self-sufficient as possible?
It is folly, not to mention immoral, to force people into lack or
dependency of any kind. Why push Americans away from a program they
have paid into and earned, and toward other programs designed to
support or supplement those who cannot provide for themselves? For the
government to reduce earned benefits reduces our ability to care and
provide for ourselves, and often others as well. Offsets to Social
Security benefits simply will create more citizens who need assistance
or will not be able to take care of themselves as planned. This is NOT
what America needs.
Young people should be able to put half of their Social Security
withholding in qualified retirement plans. As you well know, the return
to a recipient on the actual number of dollars contributed is
miniscule. Even passbook savings exceeds the fund management skills of
those overseeing the Social Security System. Social Security funds have
not been managed to the benefit of those who have paid into it for a
lifetime.
Social Security needs to be changed from an insurance program to a
savings and investment program, perhaps achieved in phases.
I think it should be pointed out to young people (and all elected
officials) that several decades of abortion on demand and a lack of
family-forming values have reduced the number of children who are born,
grow up, become educated, hold jobs and consequently pay taxes into
many government programs, including the various Social Security
programs, Medicare and Medicaid. It is right to promote marriage for
young men and women and encourage the formation of families. These
islands of stability are the foundation on which a strong nation rests.
It is easier for a family to assist in the care of an elderly or ailing
relative, for instance, that it is for a lone individual to assist in
the care of that same person. Individuals who find themselves alone are
more likely to require government assistance of some kind, and more of
it.
Not too many years ago I began noticing the rhetoric of those who
say that Americans who are growing older are `` the problem.'' You may
recall Governor Lamb of Colorado stating publicly and rather boldly
that ``old people have a duty to die and get out of the way.'' He
embarrassed his political party. A news media then sympathetic to
arguments against ``overpopulation'' quickly dropped the story.
Governor Lamb and his comments faded away. I was a much younger person
when this news story broke but I never forgot those words. They shocked
me, frightened me and caused me to watch carefully what would happen to
``older Americans,'' knowing that one day I would be one. Today we have
a ``death'' culture promoting assisted suicide for the depressed and
the ``right to die'' for people who just might want to live. Government
policy which acts to accelerate the decline of the elderly and infirm
is abominable. This, of course, can be done by undermining their
financial security and their ability to provide for themselves from
monies that should be theirs.
We have great pressure on us today to increase legal immigration
because of decades of abortion and the the failure of the previous
century's social experiments. We need more people to work and pay taxes
in America. Congress should promote non-destabilizing immigration at
this tense time in our history. Ideally, immigration should be open to
all peoples who love freedom and realize the choices they make within
the law may not be the choices someone else makes within the law; that
we decide our governments through discussion and voting, not through
violence or the encouragement of violence, or the hateful disparagement
of others. Legal immigration of skilled individuals will aid the Social
Security System.
Also, we need better controls over illegal immigration, especially
because ``illegals'' who bear children in the U.S often apply for
various kinds of benefits for their ``legal'' children, thus adding to
the tax payer's financial burden even as they fail to contribute in
taxes paid from legal work. Deporting the parents becomes virtually
impossible because it is ``unfair'' to the American-born children of
such ``illegals.'' We do not need these kinds of conundrums. These are
human riddles never solved to satisfaction.
I believe President Bush's recent immigration proposal will help in
this area and also should result in legal workers paying taxes that
benefit the Social Security System.
Please consider the interplay of these issues when formulating
changes to the Social Security System. Thank you for your time and
consideration.
Sincerely,
Nancy Teague Cuddeback

Statement of Peter J. H. Walker, International Leisure Retirements,
Inc., Las Vegas, Nevada

Mr. Chairman and Members of the Subcommittee:
My name is PETER J. H. WALKER, previously known (prior to having
legally changed my name) as PETER J. H. PROHASKA. I hope that you, Mr.
Chairman, remember me by that previous name, which was my legal name in
1968 through the 70's, when I lived in Fort Lauderdale. You, Mr.
Chairman, and I, have been both members of the same Young Republicans
Club, and were close acquaintances for several years. You may also
recall that I was one of your campaign workers when you ran for your
first elected office, as a candidate for one of the seats on the Fort
Lauderdale City Commission. We were both young at that time, but now we
are both older and wiser. I am 72 years old and retired. You are still
serving our Country, and I hope that you will continue to do so for
many more years to come.
I was not in the position to offer oral testimony at the field
hearing, however, should I have testified orally, I would have
testified as follows:

WRITTEN TESTIMONY:
Mr. Chairman and Distinguished Members of the Subcommittee: There
is good news and there is bad news!
The good news is that Social Security CAN be saved for generations
to come, without increasing the payroll taxes, and not only without
reducing benefits, but actually enhancing them! The Trust Fund CAN
become solvent and may even be able to produce a surplus, and there
could be no need to cash-in the Government Obligations, thus putting
added pressure on the Treasury!
The bad news is that to accomplish this ``more of the same'' will
NOT do! BOTH the System and how it is administered, must be revised!
The present, dinosaur-like, Social Security Administration must be
reorganized and streamlined. Social Security must adopt to the 21st
century.
In my testimony that follows I am offering for this Honorable
Subcommittee's consideration some very concrete steps that can, and
should, be taken as soon as possible, to accomplish this. Space is
being limited here, I will not be able to discuss all the details.
However, I am available at any time and at your pleasure, both to
answer any questions, and to help to actually implement what I am
suggesting. What is more, I am already practicing for years now of what
I preach, thus the following is a proven method, much more than just an
idea!

REFLECTING ON THE SAD PRESENT SITUATION:
It is eminently clear that Social Security is in dire financial
straits already, and he situation is getting worse. The officially
recognized reasons why this is happening are well expressed in the
Advisory of this Hearing: ``Demographics largely drive the program's
financing problem. Families are having fewer children and advances in
medicine are enabling people to live longer. As a result, there will be
fewer workers supporting each retiree in the future.'' However, the
REAL reason is that the SYSTEM of Social Security, and the Ways and
Means of how Social Security is ADMINISTERED today by the SOCIAL
SECURITY ADMINISTRATION, are BOTH OUTDATED DINOSAURS THAT SEEM TO BE
UNABLE TO ADOPT TO THE CHANGING CIRCUMSTANCES, therefore they are
heading the way of the dinosaurs: Extinction!
In this written testimony I wish to show that by reforming, and
only by reforming, BOTH the SYSTEM, AND THE SOCIAL SECURITY
ADMINISTRATION, Social Security CAN remain strong and healthy, CAN
remain alive and functional, and CAN survive for the benefit and
enjoyment of many generations to come!
The Advisory also observes that even today about TEN PERCENT of
Senior Citizens live below the poverty level. While this may represent
a statistical improvement from the 1959 levels when one-third of
Seniors lived below the poverty level, one must point out that the
STATISTICAL improvement may not necessarily represent much of an actual
NUMERICAL improvement, due to the increase of the numbers of Senior
Citizens during the same period of time: 10% of today's number of
Seniors may even be a LARGER NUMBER than 33% of the Seniors who lived
in 1959! Also, even if there is an actual numerical improvement, one
must consider the sad fact that such an improvement may not at all be
due to an improved Social Security System, but because the System is so
bad that many Senior Citizens are forced to work under cruel conditions
in menial jobs and for minimum wages, just to be able to put food on
the table!
I ask you, Mr. Chairman and all the members of this Subcommittee,
to just visit any WALMART store and look around! See who the majority
of the workers are! Especially during the middle of the night when the
shelves are restocked and the store is being cleaned! When these
WORKING SENIORS get sick, unless they get sick enough that their HMO
paid physician orders them to be hospitalized, many of them may also go
hungry! They are hired by WALMART, Mc Donald's, Burger King, and others
similar, as ``part time workers'' and as such are not provided with any
fringe benefits, let alone paid sick leave! A common cold can spell
disaster for them! Yet Social Security, which officially admits that it
provides less than 40% of the income needed by a retiree just to stay
alive (source: the website, Social Security Online) being financially
overburdened already, cannot provide any additional safeguard against
such a disasters. And disasters like that most probably are occurring
every day!
Furthermore, while the statistical trend shows movement in the
right direction, the fact that at least some Senior Citizens of the
World's richest Country (10% is still amounts to millions!) still live
below the poverty line, is not something for the World's Richest Nation
to be proud of! Especially when this situation could be helped, without
the need to further overburden the financially stressed system, by
simply adopting some new ideas! Those ideas will be presented herein
below for your kind consideration. I trust that they should serve at
least as a catalyst for further new thinking, though they are tried and
are actually practiced by many American Retirees, including myself.
Please consider these facts:
For the last three years I live in dignity and in relative comfort,
spending ONLY my Social Security income of little more than $600 per
month. Thus I am living on my Social Security income alone!
Unfortunately, the dinosaur of the present Social Security System, and
the even worst dinosaur of the present Social Security Administration,
actually PENALIZE me and my fellow Americans similarly situated, for
living in relative comfort and dignity, instead of living under a
bridge, working ``part time'' in a WALMART or Mc Donald's, while barely
being able to afford to by even cat food and dog food to eat! Yet, if I
as an INDIVIDUAL can do this DESPITE the obstacles thrown in the way by
the present Social Security System and by the present bureaucratic,
outdated, obstructionist, and often stupidly acting Social Security
Administration, just think what a reformed System and a reorganized,
fit for the 21st century, Social Security Administration COULD do, and
for how much less money per person!
In addition to the above, please consider that the burden of the
present working generation who's payroll taxes provide the funds that
pay the retirement benefits of the currently retired generation, is
already much too high. Mr. Chairman, and the older members of this
Subcommittee, I am sure that you remember the time when by early May
(or sooner) of each year your take-home pay has increased because your
yearly Social Security Tax withholding has been already satisfied. Most
of the current generation of workers did not ever experience such a
luxury! One dollar out of every eight dollars earned is already an
overwhelming burden on working Americans. Yet the money collected is
still not enough to assure that those who are paying it will ever
benefit from it! This Hearing is the absolute proof that continuing
doing business as usual will no longer do. It is time for new ideas!
Under conventional thinking any housewife knows that there are only
two possible ways to balance the household budget: Either increase the
available funds, or decrease the expenses. This conventional, straight
forward thinking holds that there is no third alternative. Yet in the
case of Social Security, neither decreasing the amount of benefits, nor
increasing the amount of taxes represents an acceptable practical
solution. So if the conventional straight forward thinking does not
provide for a third alternative, one must abandon it, and apply
``lateral thinking'' to solve the problem. We commonly refer to this
sort of thinking as ``thinking out of the box.'' It is time to think
out of the box to save Social Security!
In the following I wish to provide this Honorable Subcommittee with
an idea that is based on this kind of thinking. In fact, it is much
more than just an idea: As it will be seen, it is tried and proven
method! I myself, for more than 3 years now, personally live this way
in comfort and dignity, spending only $600.00 per month,\1\ in
conditions that should be the envy of every one of my fellow Senior
Citizens at every WALMART store, especially through out of the American
``snow belt''! And I am not alone: many thousands of Americans have
also discovered this ``secret'' and are already living in comfort on a
small income, though the present Social Security and Medicare system
actually penalizes us for doing so! If you are willing to overhaul the
system to eliminate this penalty, Social Security can start spending
less and its beneficiaries can start receiving more, almost
immediately!
---------------------------------------------------------------------------
\1\ If needed, documentary evidence is available to prove this
statement beyond a shadow of a doubt.
---------------------------------------------------------------------------
Actually, I should not need to take too much more of this Honorable
Subcommittee's time: My website on the Internet, http://
retirecheap.net, tells almost all to anyone who wants to put two and
two together. It tells ALMOST all, but there is still some more.
Therefore, in the following I am going to summarize the idea, explain
its present difficulties, and suggest some solutions to each of them.
However, before I do this, I also need to point out that while it
appears that my website is the site of a commercial establishment, the
program it covers, for all practical purposes, is a not for profit
program. So please, do not misunderstand this written testimony: It is
NOT intended to serve as a commercial for private gain. You are not
only welcome, but are actually encouraged to replace my under financed
feeble private effort with a well funded Government Program! With one
that will actually save millions of dollars for the Social Security
Trust Fund every month, while providing a way for all American
Retirees, no matter how poor, to live in comfort and dignity! Please,
put me out of business! And the sooner the better! My expert advice and
services are hereby offered to you and to the Social Security
Administration, in the hope that it may help to speed things up.
Since early November, 2000, I am retired and domiciled here in the
Philippines. Right away you PENALIZED ME for not living a pauper's life
in Las Vegas, Nevada, my last place of domicile in the United States,
by taking my Medicare coverage away. The Social Security Administration
is penalizing me by repeatedly failing to make the monthly direct
deposit of my little more than $600 per month Social Security benefit,
which is my source of income. Unfortunately, the top. rules making
level of the Social Security Administration seems to contain not only
faceless bureaucrats, but also those faceless bureaucrats appear to be
both heartless and brainless too! While these are strong words, they
represent the facts as they are!
I, like many other American Seniors, live from month to month,
relying on the Social Security Administration to do its duty as it
supposed to. But these faceless, heartless, and apparently brainless,
bureaucrats created rules, and exclusively use methods, that belong to
the 19th Century! This is the direct cause of the system failures that
time to time knock the food from my table and threaten to tear the roof
from over my head! I am not alone: there is a whole list of us,
similarly situated, just here in the Philippines! Yet how can we fight
some faceless bureaucrats who are apparently just following the rules
established by their incompetent dinosaur top leadership, which top
leadership makes and enforces regulations, and exclusively utilizes
methods, that belong to the 19th Century! The fact that these
atrocities are happening repeatedly is not the fault of the Social
Security Administration's rank and file employees, or its middle level
management, but it is the fault of their top leadership which is
unable, and unwilling, to adopt to the 21st Century! The root cause of
the problems is the top leadership of the Social Security
Administration which creates rules, forms, and unreasonable
bureaucratic ways that PENALIZE American Social Security Beneficiaries
who domicile outside of the United States!
The SSA steadfastly refuses to make available to us, beneficiaries
who domicile outside the United States, the means to use the Internet
for reporting our address changes, etc. Yet it is us who need it the
most, due to the unreliability of postal services in many foreign
countries. Unfortunately this Hearing was not aimed to deal with the
inadequacies of the Social Security Administration, so I should not
dwell further on this subject. However, it is my opinion that if Social
Security is to have a future, the archaic ways of how it is being
administered currently by the Social Security Administration must be
overhauled: The SSA must be forced to join the 21st century! In my
opinion replacing the top leaders of the SSA with dynamic young
managers would probably be a good first step toward building a brighter
future for Social Security! I realize that Congress cannot do this
alone, but I believe that Congress can, and should, demand that the
Administration do it.

THE IDEA OF HOW TO SAVE MILLIONS, AND LATER BILLIONS, OF
DOLLARS, WHILE DELIVERING BETTER AND MORE SERVICES, IS

SIMPLE:

IN THEORETICAL TERMS:
Fact: United States Dollars buy more at most any other place on
Earth than what they can buy in the United States.
Conclusion: Spend less U.S. Dollars, by spending them outside the
United States, thus to buy more with them. As it will be shown later
herein, this will NOT export jobs; on the contrary, it will CREATE JOB
OPENINGS for currently unemployed Americans!
What I am suggesting in the following is a VOLUNTARY program that
would allow American Citizen Social Security beneficiaries to retire
abroad, under a SSA sponsored and supervised program that would both
improve their lifestyles, AND save considerable amounts of money for
the Trust Fund!
The logical question is: Where is that ``outside the United
States''? The answer is: Any place where the U.S. Dollar has a high
value, where Americans are welcomed by the population at large and,
therefore are safe, and where they are not forced to learn a foreign
language because there are enough natives who speak English. In
addition, where American lifestyle, including comfort, health care,
hygiene, safety and security, etc. are all available. I (and about
167,000 of my fellow American Citizens \2\) selected the Philippines.
This Country meets all of the above criteria, and, in addition, its
climate is very similar to the climate of South Florida, the place of
dreams for most American Seniors.
---------------------------------------------------------------------------
\2\ Source: U.S. Embassy Manila, American Citizen Services section.
---------------------------------------------------------------------------
IN PRACTICAL TERMS:
Way back, in March of 1985, I suggested to then Philippine
President Marcos to create a way for Americans to retire to the
Philippines. The Philippines then, as it is now, was in dire need to
EARN hard foreign currency. So President Marcos has announced on July 4
of the same year the establishment of the ``Philippine Retirement Park
System.'' Unfortunately, he was greedy and tied the Special Retiree
Resident Visa to the requirement to deposit in a Philippine bank
(approved for this purpose by him) $50,000.00. Of course, the American
who has $50,000 cash does not need to retire to the Philippines. Also,
the American who is willing to deposit $50,000 into an uninsured
account in a Philippine Bank, may need to have his or her head
examined, unless there is some very special reason why he or she wants
to get such a limited scope resident visa. Consequently, there were,
and there are still, just a very few Americans who took ``advantage''
of this offer.
During the ensuing years, however, the Philippine Retirement Park
Authority became the Philippine Retirement Authority, and now it is
called the Philippine Leisure and Retirement Authority. Also, at the
time when British rule was about to end there, scared Hong Kong Chinese
businessmen discovered that a U.S. Dollar deposit can get them a
Special Resident Visa in the Philippines. To accommodate them the
``retirement age'' requirement was lowered to 35 years old, but the
deposit required was raised to U.S. $75,000. Later some ``businessman''
from mainland China have also discovered this special visa for $75,000,
and as the result as of today more than 60% of the about 1,600 such
visa holders are Chinese. There are only a few Americans.
It should be noted, however, that despite its name, ``Authority,''
the Philippine Leisure and Retirement Authority is NOT a government
agency, but a CORPORATION that is owned by the Philippine Government.
In reality it has no actual authority on its own, but it must rely on
the various Government Agencies if it needs some time to time. It is a
CORPORATION who's mandate is to ``. . . promote the Philippines as a
retirement haven. . . .''
Because of special interests the Philippine Leisure and Retirement
Authority is not willing to accommodate those true retirees who would
only want to enjoy the good life here that a small amount of Dollars
can provide. Therefore, the absolute grand majority of Americans who
domicile in the Philippines (such as I) are utilizing other visas. Many
of them simply keep extending their visitors visas.
Yet there are members of the Philippine Government who would be
willing to create the necessary visa for a program that would bring
American retirees to live at safe, secure, and comfortable resorts in
the Philippines. Therefore, such a Program could be easily created by
the following steps:

1. Negotiate a Government to Government Memorandum of Agreement
that allows American Retirees (even those who require assisted living)
to live at improved, South Florida like resorts, in the Philippines
year-round.
2. Contract with a private American corporation to select,
accredit and SUPERVISE the utilization of existing, and eventually even
to help to develop new, resorts in the Philippines to accommodate
American Retirees.\3\ This private contractor can also negotiate with
selected health care facilities, etc., to provide service under
Medicare and private insurance for the American Retirees. (I suggest to
start with INTERNATIONAL LEISURE RETIREMENTS, INC. [ILRI], a seasoned
and experienced Nevada Corporation, for a pilot program. I am the
President of this Corporation, but the Corporation is not doing any
business in the present, due to the lack of available visa for American
Retirees who do NOT have $50,000 to deposit.)
---------------------------------------------------------------------------
\3\ For security reason there should NOT be exclusively American
resorts. All resorts utilzied should also accommodate Filipinos. We
made a study of this and can provide the provide the expertise needed
to assure safety, security, hygiene, and satisfication for the American
Retirees at each of the selected resorts.
---------------------------------------------------------------------------
3. Create a Program under which American Citizen Seniors could
voluntarily sign up and which would provide for them a comfortable room
(with daily room attendant service), three healthy, wholesome,
nutritious, and tasty buffet style meals every day. All paid for by the
Social Security Administration at wholesale prices. In addition, the
program would also provide the participants with some amount of free
spending money each month, to spend as they like, on ``luxuries'' they
can only dream of having under their present circumstances.
4. Promote the Program amongst needy American Retirees.
5. All of the above can easily, and almost immediately done, a
PILOT PROGRAM can be started, by utilizing of what ILRI already has in
place, and is available for the asking, at no, or very little cost to
the Government.

THE ECONOMY OF THIS:
To illustrate the savings than can easily be derived, let us use an
example of a person who has a monthly Social Security benefit of only
about $850.00. This person either works at some menial job as we
discussed above,\4\ or is homeless. (In Bullhead City, Arizona, one can
visit such homeless Social Security beneficiaries, who live in the
desert or on the banks of the Colorado River. They are not drunkards or
drug addicts, just poor and homeless. Once a month, when the Social
Security Check arrives, two of them get together and rent a cheap hotel
room in one of the Laughlin, Nevada hotel/casinos, across the River.
For a night or two they sleep in a bed, and 10 to 15 others will sneak
in during the day to take a shower.)
---------------------------------------------------------------------------
\4\ Each time a senior vacates a job, he or she will need to be
replaced by a younger person, someone who is currently jobless. Under
my suggested plan the Senior is better off, the Trust Fund saves money,
and a job opening for a younger person has been created. All those
benefits just by ``thinking out of the box''!
---------------------------------------------------------------------------
So the CURRENT COST of this American Retiree to the Trust Fund is
$850 per month. If this person would sign up for the Government
sponsored plan I am proposing, the SSA would pay to the foreign Resort
only about $350 to $375 per month. In addition this person would
receive $100 to $150 per month free spending money. He would have a
comfortable, air conditioned room with TV and daily room attendant
service, his weekly laundry picked up, washed, dried, and delivered to
his room folded, and he would have access to three wholesome,
nutritious, and tasty meals every day. He could spend some of his money
to play golf, go fishing, or do some shopping. He could also afford to
see a dentist when he needs one, and Medicare ``A'' would take care of
his hospital bill if he needs that. He could join an HMO cheaply for
all his other health care needs and would still have discretionary
spending funds left to provide himself with ``luxuries'' he cannot even
dream of today!
All that, while the Trust Fund would save at least $325 on him per
month! And, on the top of it, MEDICARE would also save considerable
money, because the cost of health care is a lot less here in the
Philippines than in the United States. (There are several medical
facilities available that are on par with most American hospitals, but
even the best is a lot less costly. Again, contracts at ``wholesale
prices'' could be negotiated.) The monthly amounts saved on others who
may receive supplemental benefits due to health, etc. reasons, could be
even much higher, while their lifestyles would also be considerably
improved.
In time the Philippines could easily accommodate a million or more
American Retirees. Saving just $325 per month on each, the Trust Fund
would save at least $350,000,000 per month! What can be done in the
Philippines could also be done elsewhere too. The Trust Fund could save
billions of dollars each year, provide a better way of life to even the
poorest American Social Security beneficiary, and open up the millions
of jobs that are now occupied by poor seniors! Actually, not only that
the Trust Fund could become solvent again in time, but it is most
likely that it could, in time, start generating a surplus again! A REAL
WIN-WIN SITUATION FOR ALL CONCERNED!
But what about the safety and security situation? Yes, safety and
security are of major concern. HOWEVER the FACT IS that despite the
Advisories and Warnings put out by the State Department, the
Philippines IS generally safe for Americans: The vast majority of
Filipinos LIKE Americans! That includes the NPA (New Peoples Army) whom
our Government has declared a ``terrorist organization.'' The NPA is
Asia's longest existing armed revolutionary organization, but there is
no proof of any kind that it ever hurt any American in any way. I,
personally, have traveled at NPA controlled areas many times, have
encountered the NPA on several occasions, but never was, or felt,
threatened. On the contrary, I was always treated with the utmost
respect and my safety was always assured.
Advisories and Warnings are written by Foreign Service officials
who are obviously interested in protecting their posteriors. To do
that, they like to play it safe, and putting out a warning is the
safest way FOR THEM to go. Simply putting it: If nothing happens, it is
all O.K., nobody will ever blame a Foreign Service Officer for ``erring
on the side of caution.'' However, if something happens and the
Official FAILED to put out a warning, it can cost him his job. So the
safe way to protect his posterior is to put out a warning, needed or
not. As a matter of fact, the latest ``Warning'' put out by the State
Department concerning the Philippines, does not mention any recent
(less than 2 years old) incident involving any American, simply because
there was none. Contrast that with New York City, Chicago, Los Angeles,
or even with my home town, Las Vegas! If I would want to write a
similar ``Warning'' about Las Vegas and publish it, the Clark County
Visitors and Convention Bureau would have me skinned alive!!! The FACT
is that not all places are safe in the Philippines. But neither are all
places safe in Miami, Fort Lauderdale, Las Vegas, New York, and so on.
However the places that we will select for the Program, will be just as
safe as any good resort in the United States, or on the French Rivera!
If the Social Security Administration feels that it cannot creat
such a program quickly and efficiently, my personal expertise is
available for free to guide them! I can, and I am willing, to help to
create a pilot program that can be made operational in six months or
less! Similarly, if this Honorable Subcommittee would like to hear more
details, I am willing and able to supply them. A quick field trip to
the Philippines by the members of this Honorable Subcommittee would be
most valuable, but not necessary. I would be happy to serve as the tour
guide, so the Honorable members could see for themselves as it really
is, and talk to many of us Americans who have already followed this
route. As few as 3-4 days, excluding travel time, could do it, if I am
involved in making the arrangements, in cooperation with, of course,
the Embassy staff who have been instructed to cooperate: I believe that
I may have more, and more relevant, contacts than what the Embassy has,
though the prestige of the Embassy would be most helpful.
Respectfully submitted by e-mail and fax, on this 7th day of
February, 2004.

Statement of Valerie Lichtman, San Bernardino, California
I urge this Committee to repeal the Social Security offsets by
eliminating the Government Pension Offset and the Windfall Provisions.
My husband retired at age 70, he had paid into social security for
55 years and was an Air Force veteran. He died two years later from
cancer. He only collected his benefits for 2 years. Because I am now a
teacher in the California Public Schools, when I retire I will not be
able to collect social security from him. If social security is just
another payroll tax and welfare program, then every working person
should pay into it, and none of us should expect to receive any money
from it. Obviously the government is using this largess for whatever it
pleases and once again duping the tax payer. I am appalled at the
government's lack of action on these two provisions.

Statement of Ellen Mardis, Spring, Texas
Please HELP!
I find it hard to believe that the state of Texas is willing to
STEAL peoples hard earned money. Just because someone has worked and
paid into TRS instead of Social Security (when they were not ever given
a choice) makes the ineligible to obtain their spouses benefits and/or
a reduction in their benefits. My mother in-law worked as a school
nurse and retired, she is now not eligible to receive her husbands SS
benefits. He is in very poor health, medical bills are piling up and
she is now worried for the first time in her married life on how she
will manage on just her retirement.
Please, please, please work for Texas teachers and stop the theft!
Teachers work very hard for very little pay, I can't believe that this
is a possibility.

Statement of Stephen A. McFadden, Dallas, Texas

Social Security's Future: The Need for Reform of Problems with
Constitutional and Civil Rights to Due Process and Equal Protection of
the Laws in the Determination of Social Security Disability in Texas
1996-2003:

Introduction:
The Texas Health and Human Services (HHS) agencies are being
reorganized during 2003-4, with the Texas Rehabilitation Commission
(TRC) being integrated into the Department of Assistive and
Rehabilitative Services.
The TRC Disability Determination Services (DDS), however, is a
fully Federally funded unit operating under Federal law which is tasked
to evaluate Social Security disability claims filed in Texas at the
``initial'' level for the Social Security Administration, and thus
unlikely to significantly change in mission.
TRC-DDS has had a history of problems for most of the last decade.
The majority of the policies discussed here relate to the operation of
TRC-DDS under the watch of the TRC Deputy Director for DDS ``Public
Figure #1'' between 1996 and 2002. During this era, TRC-DDS policies:

1. Took the Social Security ``initial approval rate'' in Texas--
which directly reflects the results of claims determination by DDS--to
the lowest in the nation by 2000;
2. took the overall psychiatric disability approval rate to about
2/3 of the national average by 1999;
3. refused to do psychiatric Medical Examinations even when
ordered on remand by an Administrative Law Judge to the extent that the
judge sued TRC and the SSA for violating his judicial independence;
4. failed to properly do Vocational Evaluations and to consider
vocational factors;
5. allegedly distributed an October, 1996 ``TRC Office
Memorandum'' which appears to red-line a class of medical conditions
and several specific medical providers just as the 1990-1 Gulf War
health effects became a national issue withregional ``oil patch''
implications; and,
6. by September 9, 2001 demonstrated an ``industrial scale''
program of unequal treatment and document fraud as part of an``overtime
processing'' program involving 12,000 claims in what is known as the
``fake examiner'' scandal.

These policies violate the Constitutional and Civil Rights of U.S.
Citizens residing in Texas to due process in accordance with national
program standards of the Social Security Administration, to equal
protection of the laws as compared to residents of other states, to
contract with the District of Columbia, and to property rights worth
hundreds of millions of dollars. Tens of thousands of claimants have
been affected, and hundreds of millions of dollars in benefits have
been unlawfully denied. Justice demands remedies for these unlawful
policies.

II. Political Background: National Events Relating to Gulf War Health
Effects 1990-6:
By 2003, the 1990-1 Persian Gulf War was known to have caused
adverse health effects in approximately 200,000 Gulf War military
veterans.
In early 1991, during the U.S. invasion of Iraq, approximately 700
major oil wells were fired, which resulted in environmental damage from
human activity on a unprecedented scale. These oil well fires were
extinguished during 1991-2. Approximately 70% of the work was done by
U.S. companies, many from Houston, Texas. These included Halliburton
and its subsidiary Kellog, Brown, and Root (320), Boots & Coots (240),
Red Adair (117), and others. Many of the workers were ``blue collar''
``roughneck'' oil well firefighters from the ``oil patch'' including
Texas. The effort to extinguish these fires occurred under extremely
adverse conditions and time constraints. It served humanity by
preventing even greater environmental devastation.
By April 1994, injured Gulf War veterans had raised sufficient
concerns at the U.S. Congress that the Pentagon asked the National
Institutes of Health (NIH) to hold a conference on the subject titled
``The Persian Gulf Experience and Health.''
The January 1995 release under the Freedom of Information Act
(FOIA) of excerpts from the ``Centcom Logs'' revealed the existence of
a purportedly ``new'' so-called ``nerve gas,'' later said by one media
source to have been ``declassified by the National Research Council''
in 1997, but which had actually been cited in a NRC report in 1983, and
in the foreign literature for decades. This was followed by the test of
6 crude binary devices in the so-called ``Japanese Subway Incident''
just two months later, and the ``Oklahoma City Bombing'' the following
month.
By Mid-1996, a report on ``60 Minutes'' revealed ``The Kamasiyah
Incident,'' in which a U.S. demolition unit blew up a ``nerve gas''
bunker with tens of thousands of troops nearby, drifting them with
trace levels of nerve agents. The following month, ``60 Minutes'' did a
report on the so-called ``PB Nerve Pill,'' quoting a U.S. Senator
Committee Chairman as saying that the use of the ``nerve pill'' during
the 1990-1 Gulf War without proper informed consent was a ``violation
of the Nurenberg Principles'' and ``a breach of common decency.''
By the Fall of 1996, with estimates of disabled Gulf War veterans
nearing 20,000, the President's Commission on Gulf War Health Effects
was preparing their report, while the U.S. threatened an invasion of
Iraq on the eve of the 1996 Presidential election. Coincidently, an
allegation of ``rape'' sand-bagged the head of the Army's Aberdeen
Proving Ground, an accusation which was never proven, made by persons
which included some who later said that they were told to lie.
Incidently, APG is the host for Edgewood Area (APGEA), formerly and
more infamously known Edgewood Arsenal, which prior to 1970 was the
headquarters of the old U.S. Army Chemical Corps. The invasion of Iraq
did not occur that Fall, would not occur for more than 6 years, and
when it did circumstances were arranged so that the toxicological
hazards were different. The details of these events are not obvious,
except to the extent that they do involve purportedly ``new''
supposedly ``secret'' so-called ``nerve gases,'' alleged violations of
the Nurenberg Principles by senior U.S. officials, disabling injuries
to hundreds of thousands of personnel, and the often legitimate
information constraints of operational security and defensive policy.
While the Pentagon was trying to respond to the complaints of tens
of thousands of injured Gulf War veterans, industry may have begun to
have similar liability concerns. Television reporter John Stossel sent
2 ``fake patients'' undercover into the medical office of Dr. Grace
Ziem, founder and medical director of the organization ``MCS Referral
and Resources,'' www.MCSRR.org, which publishes information on chemical
injury. Ziem blocked the undercover story by suing Stossel under the
Maryland wiretap law. The ``Stossel Wiretap Case'' was reported by Todd
Spangler and distributed by the Associated Press on or about October
19, 1996.

III. Policymaking Changes Made Affecting the Determination of Social
Security Disability in Texas which Occurred During October
1996:
Major policy changes appear to have occurred in the determination
of Social Security disability in Texas during October, 1996. We warn
the reader, however, that extreme care should be taken to avoid making
inferences of causality between co-incident related events, because the
time line is quite sketchy, and connections undocumented. Additional,
in considering the issue of responsibility, it is notable that while
toxicological issues may be quite complex and involve incomplete
knowledge, legal rights to due process and equal protection of the laws
are very clear.
In October 1996, ``Public Figure #2'' (unnamed), the former U.S.
Secretary of Defense during the 1990-1 Gulf War, was Chief Executive
Officer (CEO) at Halliburton, then headquartered in Dallas, which owned
Kellogg, Brown, and Root of Houston, which together had some of the
greatest involvement in the 1991-2 campaign to extinguish the Kuwait
oil well fires (320), and presumably had some of the greatest potential
liability for civilian health effects from the Kuwait campaign.
Barriers to the public understanding of what may or may not have
occurred that month not only include the SSA's limitations on requests
made under the Freedom of Information Act (FOIA), but also include the
fact that the papers of the Governor of Texas in October 1996, ``Public
Figure #3'' (unnamed), have since been sealed as Presidential Papers.
In many states, however, the head of the SSA Disability Determination
Services agency is appointed by the governor of the state.
The TRC Commissioner at the time, Vernon M. ``Max'' Arrell, had
been appointed in 1981, and still held that position in 2003, 22 years
later, through both Democratic and Republican Administrations.
In October 1996, Kenneth Wayne Vogel, then TRC Deputy Director for
DDS, was promoted to Assistant Commissioner. Mr. Vogel, however, died
in a hunting accident on December 14, 1996, roughly 2 months later,
according to an obituary later published in an annual report for the
Texas Rehabilitation Commission.
``Public Figure #1'' replaced Mr. Vogel as TRC Deputy Director (DD)
for DDS in October 1996.
That same month (exact time sequence unknown), on October 19, 1996,
the AP newswire report on the ``Stossel Wiretap Case'' in Baltimore,
Maryland was published in the Austin American Statesman in Austin,
Texas.
We have been provided by an anonymous source out of Austin a memo
on ``Texas Rehabilitation Commission Office Memorandum'' letterhead of
unknown provenance. We have done our best to authenticate it, but are
limited by the Social Security Act and other law. We have not been able
to identify the author, but we have been able to identify the majority
of the distribution list. The memo, dated October 21, 1996, comments on
the Stossel/Ziem ``Wiretap'' news story published 2 days before in the
local paper, and makes statements regarding the legitimacy of a class
of medical conditions, and the credibility of several specific medical
treatment sources in Texas.
The `October 1996 TRC Internal ``MCS'' Memo', as we call it, which
refers to the story on Dr. Ziem's practice, is relevant to the
condition of blue collar workers in the oil industry in places like
Houston because Dr. Ziem's organization, MCSR&R, distributes medical
literature on chemical injury, including porphyria, which is a
condition that can be induced in susceptible individuals by exposure to
large amounts of toxic hydrocarbons--such as might occur when fighting
an oil well fire, and because many blue collar workers in the ``oil
industry'' in places like Houston were exposed to such toxics,
including many during the 1991-2 Kuwaiti oil well fires.
The October 1996 TRC Internal ``MCS'' Memo has the potential to
effect an official TRC-DDS policy in Texas--to become in effect an
unpublished state law--in violation of national program standards of
the Social Security Administration, in that its distribution list
includes ``All SAMC's,'' the State Agency Medical Consultants
evaluating disability at the central office of TRC-DDS in Austin. This
``de-facto unpublished state law'' may thus be interpreted in light of
the prohibitions against such laws in the XIV Amendment of the
Constitution of the United States and 42 USC 1981, 3, and 5(2).

IV. The Consequences of the TRC-DDS Policies Set in October 1996:
By 2000, 4 years after the appointment of ``Public Figure #1'' as
TRC Deputy Director for DDS, Texas had the lowest ``initial approval
rate'' in the nation for Social Security disability claims.
The overall approval rate (for combined ``initial,'' Administrative
Law Judge (ALJ), Appeals Council, and Federal Court decisions) for
psychiatric disabilities was roughly 2/3 of the national average in
1999, according to an editorial in the Houston Chronicle.
Processing roughly a quarter million claims per year for an average
of about $300 apiece, the purchase of Vocational Evaluations and
Medical Examinations by TRC-DDS must have necessarily been limited. One
Dallas ALJ sued TRC and SSA because DDS would not do psychiatric
Medical Examinations on claimants he remanded back to DDS for such
examinations. Former SSA Commissioner Kenneth S. Apfel stated at a
conference that Texas had not done enough to consider vocational
factors in the determination of disability.
``Public Figure #1,'' who was named on the distribution list of the
October 1996 TRC Internal ``MCS'' memo, held the position of TRC Deputy
Director for DDS through the ``fake examiner'' scandal which broke on
September 9, 2001, involving the handling 12,000 claims differently
than others and ``industrial scale'' document fraud. Why these 12,000
were specially selected for ``overtime processing'' out of the 220-
330,000 processed each year has not been revealed.

V. Constitutional and Federal Laws Violated by TRC-DDS Policies 1996-
2003:
We allege that the policies of ``Public Figure #1'' as TRC DD for
DDS during 1996-2002 and perhaps beyond denied U.S. Citizens residing
in Texas V and XIV Amendment Constitutional and 42 USC Chapter 21
Subchapter I Civil Rights:

1. To due process, in accordance with national program standards
of the Social Security Administration;
2. to equal protection of the laws, as compared to residents of
other states;
3. to contract, with the District of Columbia; and
4. to property, totaling hundreds of millions of dollars of
benefits lawfully due to tens of thousands of claimants.

These policies are reminiscent of the SSA's ``Grant Case'', where
an ALJ was shown to be generally biased against claimants: ``The core
allegation in this matter is that ALJ Rowell was biased generally
against disability claimants and his bias deprived them of their right
to a full and fair hearing in violation of the Social Security Act and
the due process clause of the Fifth Amendment to the U.S.
Constitution.'' (Cause no. 3:CV-88-0921, Grant v. COSS, U.S. District
Court for the Middle District of Pennsylvania, filed August 12, 1988.)
The Present situation, however, is FAR MORE SIGNIFICANT than the
Grant Case in that it involves a State Director of a Disability
Determination Services developing and determining ``initial'' claims
for the SSA, tens of thousands of claimants, and a systematic failure
to develop evidence of disability that could for Pro Se claimants
prejudice the consideration of such cases at the ALJ and subsequent
levels of determination.

VI. Discrimination Complaints Filed with the SSA Office of General
Counsel (OGC) on Behalf of Four Groups of Texans as a Result of
TRC-DDS Policies from 1996 to 2003, for Violations of
Constitutional and Civil Rights Impacting an Estimated 30-
50,000 Claimants with an Estimated Total of Unalwfully Denied
Benefit of More Than a Half Billion Dollars:
Discrimination Complaints have been filed with the Social Security
Administration (SSA) Office of General Counsel (OGC) on behalf of four
groups of Texans regarding improper determination of Social Security
disability at the Texas Rehabilitation Commission (TRC) Disability
Determination Service (DDS) at their central office in Austin, Texas.
These events occurred primarily during the administration of TRC
Deputy Director (DD) for DDS ``Public Figure #1'' (named) from 1996 to
2002, if not beyond, whose policies led within 4 years to Texas having
the ``lowest initial approval rate'' in the nation in 2000, before
being replaced after the revelation of the September 2001 ``fake
examiner'' scandal.
These groups are:

----------------------------------------------------------------------------------------------------------------
Date Filed: est. Number: Name of Group/Complaint:
----------------------------------------------------------------------------------------------------------------
#1: 1/28/2004 1,000-10,000 The ``Kuwait Oil Well Firefighter'' case
----------------------------------------------------------------------------------------------------------------

Occupationally injured Kuwait oil well firefighters and ``oil
industry'' workers who were allegedly ``red-lined'' by a TRC Office
Memorandum dated October 21, 1996 on the subject of chemical injury
that cites on its distribution list ``All SAMC's,'' the State Agency
Medical Consultants who advise on the determination of disability at
the central office of TRC-DDS in Austin under the direction of the DDS
Chief Medical Consultant. Notably, a 2001 statement by the SSA Federal
Region VI spokesman initially cited occupational injuries ``in the oil
industry and elsewhere'' as the reason why Texas had the ``lowest
initial approval rate in the nation'' in 2000, although that was later
retracted.

----------------------------------------------------------------------------------------------------------------
Date Filed: est. Number: Name of Group/Complaint:
----------------------------------------------------------------------------------------------------------------
#2: 1/29/2004 est. 12,000 The ``Fake Examiner'' case
----------------------------------------------------------------------------------------------------------------

The ``fake examiner'' scandal which broke September 9, 2001, in
which 24 fake names with the first initial ``W,'' one for each medical
claims unit, were used on cases selected for unexplained reasons for
``overtime'' processing at TRC-DDS by multiple personnel who therefore
did not understand the entirity of the case file and had no
accountability for case outcome. These DDS procedures included, in at
least some cases, submitting false documents to SSA. Whether the
selection criteria used in choosing these 12,000 claims out of the 220-
330,000 processed per year for this unequal treatment was itself
discriminatory is not known, but should be determinable during an audit
using detailed case flow analysis.

----------------------------------------------------------------------------------------------------------------
Date Filed: est. Number: Name of Group/Complaint:
----------------------------------------------------------------------------------------------------------------
#3: 1/30/2003 appx. 25,000 The ``Vocational Evaluation'' case
----------------------------------------------------------------------------------------------------------------

The systematic failure of TRC-DDS to do Vocational Evaluations on
disability claimants, and therefore failing to consider vocational
factors contributing to disability in accordance with national program
standards of the Social Security Administration, in trying to process
220-330,000 claims per year for a cost of between $275-300 apiece. This
policy may be significant to roughly 5% of unique claimants of those
who filed 1.5-2 million disability claims during this time period.
Notably, TRC-DDS is entirely funded by SSA, and the cost of
determination of disability at DDS constitutes only about 2% of the
total SSA disability program costs in Texas, so there is no fiscal
excuse for this failure to comply with national program standards of
the SSA.

----------------------------------------------------------------------------------------------------------------
Date Filed: est. Number: Name of Group/Complaint:
----------------------------------------------------------------------------------------------------------------
#4: 2/5/2004 appx. 50,000 The ``Psychiatric Disability'' case
----------------------------------------------------------------------------------------------------------------

Estimated roughly 36,000 claimants with psychiatric disabilities,
plus roughly 18,000 claimants ``regarded as having'' psychiatric
disabilities as a result of misdiagnosis, who may have been denied a
psychiatric Medical Examination, a Vocational Evaluation to consider
vocational factors of psychiatric disability, and/or proper development
of their claim. The consequence of these factors was an approval rate
that was trippley low: an overall psychiatric approval rate in Texas of
approximately \2/3\ of the national average in 1999, in a state which
then had the ``lowest initial approval rate'' in the nation in 2000,
despite those statistics being inflated by mis-classified non-
psychiatric claimants.

Estimated Total Number of Claimants Impacted: 30-50,000
Average Monthly Payment for Social Security Disability
Claimants in Texas: $750
Estimated Total Denied Benefits: 540-900 Million Dollars (over
a half-billion dollars)
(750/mo * 12 for ([(\1/2\ * [`97-`02])+1)] yrs * \1/2\ = est. 2
yrs ave.)) = ($9K * 2y * 40K) = $720M

Note that the total count is not additive because there is a high
probability of duplicates between these groups. For instance, there may
be an ``injured Kuwait oil well firefighter,'' who is ``regarded as
psychiatric'' by TRC-DDS, who may have been consequently evaluated by a
``fake examiner,'' who was not provided with a ``Vocational
Evaluation,'' on what may have been their third application. Thus, a
single individual could have potentially been counted in four groups.

VI. Closing:
The determination of Social Security in Texas during 1996-2003 has
demonstrated ``industrial scale'' violations of Texans' Constitutional
and Civil Rights to due process, equal protection of the laws, to
contract, and to property, affecting tens of thousands of claimants,
and resulted in hundreds of millions of dollars of unlawfully denied
claims.
Three quotes seems relevant to this problem:
From: ``Judges Vary Sharply on Disability Approval: Social Security
Rulings Concern Lawmakers,'' Alan Bernstein and Dan Feldstein,
Houston Chronicle, 7-14-02 A.1.
`` `It rings a very serious fire bell that the Social Security
justice system is not treating all of the applicants equally or
consistently' said U.S. Rep. John Culberson, R-Houston. `And that is a
recipe for disaster under our American system of law.' '' From:
``Judges Vary Sharply on Disability Approval: Social Security Rulings
Concern Lawmakers,'' Alan Bernstein and Dan Feldstein, Houston
Chronicle, 7-14-02 A.1.
However, Green said the gap in allowance rates by each judge is
troubling by itself, and casts doubt on the fairness and integrity of
the disability program. `If we are having that kind of disparity . . .
it's just wrong,' he said.'' From: ``Judges Vary Sharply on Disability
Approval: Social Security Rulings Concern Lawmakers,'' Alan Bernstein
and Dan Feldstein, Houston Chronicle, 7-14-02 A.1.
The percentage of decisions at the hearing level that were
favorable for both DI and SSI claimants stood at 58 percent in 1985,
grew to nearly 72 percent in 1995, fell to 63 percent in 1998, and grew
again to 66 percent in 2000. Hearing offices also vary greatly from
State to State in the percentage of decisions that are decided
favorably for claimants. In 2000, the range went from 35 percent in the
District of Columbia to 86 percent in Maine, with a national average of
66 percent. Unexplained descripancies of this magnitude are simply
unacceptable in what Congress intended to be a fair and uniform
national program. ``Charting the Future of Social Security's Disability
Programs: The Need for Fundamental Change,'' Social Security Advisory
Board, January 2001.
Tens of thousands of claimants have been affected, and hundreds of
millions of dollars in benefits have been unlawfully denied. Justice
demands remedies for these unlawful policies.

VII. References:

1. Stephen A. McFadden, M.S.: How the Operation of Texas
Rehabilitation Commission (TRC) Disability Determination Services (DDS)
Prejudices the Determination of Social Security Disability in Texas,
Including Decisions by the Texas SSA Office of Hearings and Appeals
(OHA). U.S. House of Representatives, Committee on Ways & Means,
Subcommittee on Social Security, ``Hearing on the Social Security
Administration's Management of the Office of Hearings and Appeals,''
October 1, 2003. (Includes citations of SSA policies and precedents
relating to chemical injury, and applicable Constitutional law and U.S.
Code.)
2. Lawrence A. Plumlee, M.D.: Lack of Due Process and Equal
Protection of the Laws in the Determination of Social Security
Disability in Texas: The Urgent Need for Reform: U.S. House of
Representatives, Committee on Ways & Means, Subcommittee on Social
Security, ``Hearing on the Social Security Administration's Management
of the Office of Hearings and Appeals,'' October 1, 2003. (Includes
references to approximately 45 news articles in the Houston Chronicle
2001-3 on problems with the determination of Social Security Disability
in Texas.)
3. Cause No. 1:96-cv-03338-MJG, Ziem v. Stossel, et al. U.S.
District Court for the District of Maryland, filed October 23, 1996.
(The ``Stossel Wiretap Case.'' Television reporter John Stossel
targeted a civilian environmental health physician dealing with
chemical injury cases for a discrediting undercover television expose'
by sending ``fake patients'' into the physician's medical office
carrying recording devices, a plan that was blocked when the physician
learned of the it from a colleague, and filed suit under the Maryland
Wiretap Law.)
4. Cause no. 03:01CV816, Williams v. Massanari, et al. U.S.
District Court, Dallas Texas, filed April 30, 2001. (Administrative Law
Judge Christopher Lee Williams, one of 17 ALJ's at the OHA's in Dallas,
sued TRC-DDS and SSA for impairing his judicial independence due to the
failure of TRC-DDS to perform psychiatric Medical Evaluations on
indigent claimants in cases he remanded back to TRC-DDS for further
development.)
5. Cause no. 3:CV-88-0921, Grant v. COSS, U.S. District Court for
the Middle District of Pennsylvania, filed August 12, 1988. (``The core
allegation in this matter is that ALJ Rowell was biased generally
against disability claimants and his bias deprived them of their right
to a full and fair hearing in violation of the Social Security Act and
the due process clause of the Fifth Amendment to the U.S.
Constitution.) http://www.pamd.uscourts.gov/opinions/muir/
88v0921.pdf

Statement of Donna Searles, Odem, Texas
I am writing to inform you that I believe the practice of excluding
Texas teachers from collecting social security is a form of
discrimination.
I have worked enough quarters outside the education setting to
collect social security and Medicare, yet am denied this because I
chose to become a teacher.
I will not be allowed to collect my husband's social security
because I chose to become a teacher, while women who have never worked
are allowed to collect on their spouse's SS.
In effect, we are being penalized because we educate future
generations of Texans.
How can you let this happen with good conscience?
It's a shameful way to treat people who perform such a valuable
service to our state.

Statement of Mil Thornton, Santa Ana, California
The Social Security Fairness Act repeals the discriminatory and
arbitrary offsets to Social Security benefits for government workers
and teachers. This important legislation affects the quality of life
for every public employee, and every user of public services, in this
country.
Hard working employees deserve a decent retirement. Nurses, social
workers, educators and other public employees who serve this country
need your help. Support the Social Security Fairness Act. (H.R. 594 and
S. 349)
Without the Social Security Fairness Act, more than 300,000 public
service employees will continue to receive hundreds of dollars less in
monthly social security benefits than their private sector
counterparts.
Respect the people who have dedicated their careers to serving the
American people and promote common-sense retirement policies that will
attract the qualified employees to health care, social work, parks and
other important public service fields.
The fifteen thousand members of the Orange County Employees
Association thank you for your support of the Social Security Fairness
Act.

Travis, Wolff & Company, L.L.P.
Dallas, Texas 75240
February 7, 2004
Congressman E. Clay Shaw, Jr.
Chairman, Subcommittee on Social Security
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515-6100

Dear Chairman Shaw:

TravisWolff respects and honors the diligence and commitment shown
by you and other members of the Subcommittee on Social Security in
furthering honest debate about proposed solutions to one of the most
important and complex policy issues ever faced by the United States. In
this regard, we are pleased to have the opportunity to offercomments on
the future of our nation's Social Security system as requested by the
Subcommittee's January 16, 2004 advisory. Our comments herein
specifically address (1) definition of Social Security issues, (2)
proposed changes offered by others, and (3) suggestions for further
study.
``TravisWolff'' refers to a group of entities (see Appendix I)
performing advisory and accounting services for small to medium-sized
businesses, exempt organizations, trusts and individuals. With
approximately 100 personnel in Dallas, Texas, we advise clients on
taxes, retirement plans, business valuation, and other financial
matters, as well as prepare tax returns and audit financial statements.
TravisWolff is part of the Moore Stephens network, with offices
worldwide.
Most of the ideas for changing Social Security fall into three
areas. Those are (1) financial soundness, (2) system design, and (3)
administration. We believe that Congress has done an admirable job
helping the Social Security Administration (SSA) to improve its
administration. Therefore, the remainder of this letter is in reference
to financial soundness and system design.
The role of ideology
In any discussion of Social Security reform, it is important to
understand differences in orientation to the potential issues. This is
essential before the real issues can be identified.
Most people know:

Of the upcoming surge in retirements of ``baby boomers;''
that the number of workers per retiree has declined and
will continue to for some time;
that Social Security is largely ``pay-as-you-go;'' and
that the Social Security Trust Funds are projected to be exhausted
before the middle of this century.

Their reactions to this situation vary according to age, income,
accumulated wealth, marital status and gender.
Younger Americans are concerned about rate of return on their
contributions. Numerous financial commentators have suggested that the
rate is extraordinarily low. That may be so, but measurement on an
individual basis is difficult, since Social Security is not solely a
worker retirement benefit. Social Security also pays worker disability
benefits, spouse retirement benefits (including divorced spouses in
certain cases), a very small lump sum death benefit, and income for
surviving dependent children (and caretaker surviving spouses) of
deceased workers.
For middle class Americans of all ages, assuredness of benefits and
adequacy of benefits are very important, although there is variation by
age. Representative attitudes might be:

Age 30--``I won't get my share before it runs out of
money.''
Age 50--``I've paid too much in over the last 30 years to
turn my back on it, and I've counted on Social Security benefits
Age 60--``Perhaps I could have saved more, but I wanted
my wife and children to have a comfortable life. I've paid into this
thing for 40 years, and soon it will be my turn.''

Wealthy Americans are not as likely to be bothered by any suggested
changes to Social Security except to the extent income or payroll taxes
are increased. As used herein, ``wealthy Americans'' would include
those whose projected Social Security retirement benefit would be 10%
or less of their total retirement income.

Additionally, there are some specific ideological
schisms:
Purpose of Social Security benefits
The nature of Social Security taxes
Principles regarding property rights and societal
benevolence

Clearly, from the time of its introduction until recently, Social
Security has been a universal base for retirement planning. It was to
be supplemented by employer sponsored retirement plans and private
savings (the ``three-legged stool''). If it had been meant as a welfare
plan, its funding would have come from general revenues, as opposed to
a special tax on earned income below a specific threshold.
Some people have begun to question whether the purpose should
change. There have been suggestions regarding means testing of the
benefits, which erodes universality. Still others believe that Social
Security benefits should be property transferable by gift or
inheritance.
Are Social Security taxes just like any other taxes, or are they
more like a purchase of insurance with investment elements? Remember
that the ``I'' in FICA stands for insurance.
Should Social Security taxes continue to exist and be earmarked for
the Social Security system? Some say ``no.'' They would abolish Social
Security taxes, establish a welfare plan for the poorest retirees, and
suggest that everybody else save for retirement on their own terms.
All the issues above and the following questions should be
discussed publicly without any political ``spin.''

What ethical principles should apply?
To what extent does society owe a larger share of Social
Security benefits to low-wage workers?
To what extent is it fair to expect the next generation
to pay higher taxes to finance retirement benefits for its predecessor?
To what extent should parents have the right and/or
obligation to pass accumulated wealth to their children?

None of these questions have single, easy answers.

The Issues Defined
When a comprehensive ``plan'' for ``overhaul'' of Social Security
is proposed, many elements become mixed, and that makes the proposal
difficult for an average person to understand. This letter uses the
following conceptual framework to simplify the issues.

1. Financial soundness
2. System design
3. Adequacy of benefits
4. Design of benefits
5. Funding scheme

Financial soundness
Financial soundness is the province of actuaries, accountants and
economists. The American public should not be misled in this area by
politically biased ``think tanks,'' or ``spin doctors.''
The words ``solvency'' and ``insolvency'' have been used in
different ways by people writing about Social Security Reform. Some
refer to the Social Security system becoming ``insolvent'' when current
payroll taxes plus interest on the Trust Funds is no longer sufficient
to pay the current year's benefits (projected by SSA to be 2018).
Others have used ``insolvency'' in reference to the time at which the
Trust Funds become exhausted (projected by SSA to be 2042).
Because yearly projections of the system by SSA have traditionally
used a 75-year horizon, many have used that in evaluating financial
soundness. However, the assumptions used by SSA involve sustaining the
trust funds for 75 years, and no longer. Thus, each year the target
moves.
Financial soundness should be measured using an infinite time
frame, in the manner promoted by the AmericanAcademy of Actuaries.
The current system has already been shown to be unsustainable,
since it is projected to be bankrupt in 2042, long before the 75-year
horizon. The American Academy of Actuaries has used an infinite time
frame to project effects of some proposed changes to the Social
Security system.--The effects of proposed changes on financial
soundness or ``sustainable solvency'' are not always intuitive for a
non-actuary.

System Design
Adequacy of benefits
Here, we speak of replacement ratios. ``Replacement ratio'' means
Social Security retirement benefits divided by pre-retirement earnings.
How much is enough? Traditionally, Social Security has provided as
much as a 55% replacement ratio for low wage workers. The replacement
ratio for higher wage workers is less. The proper target for
replacement ratios in a changed system is the subject of debate.
Another aspect of adequacy is keeping pace with inflation.
Currently, Social Security benefits are indexed to keep pace with wage
inflation. Many proposals have been advanced to switch the indexing to
keep pace with price inflation. In the past, wage indexing has been
slightly higher than price indexing. It is thought that a switch would
reduce costs by restraining growth in cash outflows. Of course, this
cost savings would become an issue of adequacy for retirees and near-
retirees.
Who should benefit? Currently, Social Security benefits more than
just disabled and retired workers. There are also benefits for spouses
(and divorced spouses) of retirement age, surviving dependent children
(as well as for surviving spouses who are caretakers of children
receiving benefits). These additional benefits are questioned for two
reasons. First, many people do not feel that it is fair to give
disparate benefits on the basis of family or marital status. This, of
course also leads back to the ``money's worth'' issue for single
workers without children. Second, such benefits do not easily fit
within a ``personal account'' Social Security system.
Finally, adequacy issues include means testing. Simply put, ``means
testing'' denies or recaptures a benefit level or feature of anyone who
does not need it. Currently, taxation of a portion of Social Security
benefits is an indirect form of means testing. The political viability
of expansion of means testing is doubtful. Many people at or near
retirement age would assert that the universality of Social Security
should not be disturbed. Also, the ``money's worth'' argument could be
made.
Presume however, that some form of expanded means testing is
acceptable to voters. Fairness in means testing could become quite
complex.
On the basis of:

Income? If so, what income? Earned income, taxable income
or all income
Assets? What would be exempt? What about transfers to
family members, trusts and private foundations?
Combination of assets and income?

Still, we believe that various forms of means testing should be
explored in practical detail as part of any proposed reform of Social
Security.

Design of Benefits
The current system provides defined benefits. That is, a worker (or
in some cases, his/her spouse or dependent children) is entitled to
prescribed benefits based upon the worker's earnings record.
Defined benefits have become less prevalent in employer sponsored
retirement plans, primarily because of portability issues. Those issues
are insignificant with Social Security, since most people will work
within the Social Security system their whole career.
The push for Social Security to drop defined benefits is more
rooted in the ``personal accounts'' and ``money's worth'' philosophies.
Many people are interested in personal accounts as part of a
reformed Social Security system. Personal accounts allow a worker to
reap some or all rewards of fortuitous investment. It would be
impossible to make that happen in a continuation of the defined benefit
system.

Funding scheme
Who should pay, and how much? Proposals have been made to expand
coverage and taxation to groups currently outside the system. Others
have suggested changes to the Social Security tax. Currently, the tax
is imposed on a limited amount of earned income. What if all earned
income were subject to tax (and benefits calculation)?
Of these suggestions, the one which creates the greatest gain in
financial soundness is also one of the least popular . . . --uncapping
the wage base.
Whose benefits should I pay for? This question reflects concerns
over both inter-generational equity and socioeconomic issues.
Should the system be converted to full pre-funding, or remain
mostly ``pay-as-you-go?'' If there is a conversion to pre-funding, the
transition deficit must be addressed. Briefly, the ``transition
deficit'' is the system shortfall created by causing current workers to
pay for their own future benefits, rather than those of the preceding
generation. Various ``trial balloons'' have been floated over the past
few years with regard to the transition deficit . . . lower benefits,
raise taxes, better returns on investment, etc. Lately, however, it has
become consensus that some form of transfers from general revenue will
be necessary.
In a recent article, economist Milton Friedman seemed very open in
his view that the transition deficit could easily be addressed. Just
give the Trust Funds government bonds equal to the unfunded benefits
obligations. Actually, in his example, the bonds were given directly to
participants, but the result is essentially the same. The ``compact
between generations'' is settled by converting it to a general
obligation of the United States.
Obviously, the obligations would be paid off with general tax
revenues at some point. However, the simple attraction of covering the
transition deficit with general revenue transfers is that as a nation,
we could stop arguing about this particularly contentious issue, and
move on with the process of building a new Social Security system that
most people believe in.
We urge further study of the tax and general economic effects of an
instantaneous ``pay-off'' of the transition deficit with general
obligations.
Finally, it seems undisputed that women are disproportionate
recipients of benefits under the current system. This of course is due
to longer life expectancy and other factors. It is a matter of some
dispute how race or ethnicity factors into the ``money's worth''
debate. A new system should be neutral as to gender, race and
ethnicity.

Ideas we propose for further study

Means testing for retirement benefits beginning before age 70
According to the American Academy of Actuaries, raising the
retirement age to 70 (gradually by 2030) could make a dramatic
difference in the finances of the current system. Although this idea
seems to have merit, we are afraid that some workers would be hurt by
wholesale application of a rise in the retirement age. We would like to
know what would happen, given the current system, under the following
scenario.

Leave current benefit levels in place
Leave early retirement as of age 62 in place.
Leave current Social Security retirement ages in place.

Impose some form of means testing for benefits beginning before age
70. For simplicity, we would suggest not allowing benefit payments
during years before attainment of age 70 to the extent that total
positive income (taxable and tax-exempt) for the preceding year was
greater than half the Social Security wage base.

Upon attainment of age 70, means testing would no longer
apply.
No actuarial adjustment for delayed benefits

``Clean slate'' plan
We would like to know the tax and general economic effects of a
complete transition as of January 1, 2005. Here are parameters we
envision.

For those in pay status, continue payments (including disability payments)
from the Trust Funds.

Benefits not yet in pay status

Retirement benefits of a worker based on his own earnings record would be
valued (``Retirement PVFB,'' as below) and transferred to an account
balance under the new system.

All other benefits based upon a worker's earnings record (e.g., disability,
spouse, divorced spouse, and dependent children, etc.) would be paid from
the Trust Funds if and when they become due.

Value benefits not yet in pay status under the current system as of January
1, 2005.

Count only past service (i.e., earnings prior to January 1, 2005)

Allow for future cost-of-living adjustments (COLAs).

Define present value of future benefits (PVFB)

Require 100 credits for full benefits. ``Credits'' would be defined as
under the current system.

ii.

Determine the credits (``C'') for the worker upon whose record benefits are
based.

iii.

Determine the present value of future benefits of the worker and all others
(then living) with a potential future claim to benefits based upon the
worker's earnings record. Call this ``tentative PVFB.'' Regardless of
potential beneficiaries, only one PVFB is calculated per worker.

iv.

PVFB equals tentative PVFB times C divided by 100.

Based upon sound actuarial principles, allocate each worker's PVFB into two
portions:

Retirement PVFB--PVFB attributable to the worker's retirement benefit

ii.

Other PVFB--PVFB minus Retirement PVFB

Establish a brand-new Social Security Retirement system with a ``clean
slate.''

Provide an individual account for each worker, tradable within a limited
range of appropriate alternatives.

Deposit a government bond (tradable) equal to the worker's Retirement PVFB
into his/her account as of January 1, 2005.

Administrative matters

Each worker would own his/her account.

ii.

A payroll tax would be continued, and contributed to each worker's account.

iii.

The ``50-50'' sharing of payroll tax cost between employer and employee
would continue.

iv.

The spouse retirement benefit, as an add-on, would cease to exist, as would
the ``divorced spouse'' benefit.

Upon divorce, accounts of each spouse could be considered and divided in
accordance with a court order.

Establish a new system (or expand SSI) to replace welfare benefits phasing
out under Social Security.

Disability

Death

Lump sum--increase to a meaningful amount (perhaps $5,000)

ii.

Benefits for dependent children (and caretaker surviving spouses) of
deceased workers

Thank you for considering TravisWolff's views on Social Security
reform. Should you need any further feedback from us regarding this or
any matter of tax, accounting or retirement planning, please do not
hesitate to contact us.
Sincerely,
Gary W. Wyatt

Statement of D. Paul Vollman, Jr., Chapel Hill, North Carolina

Overhauling Social Security: Protecting, Privatizing, and Guaranteeing
our Nation's Retirement Income

In this paper the author explores the impending problems of the Old
Age Survivors and Disability Insurance (OASDI). The system is slowly
approaching a crisis in the coming years. The Trust Fund will be
exhausted with trillions of dollars in liabilities unable to be funded
under the current law. It is a consensus that the payroll tax will have
to be raised to 18.4%, a 50% increase from current level of 12.4%, if
the system is to remain solvent (Kotlikoff and Sachs, 1997). Social
Security needs to be changed, reformed, and possibly completely
overhauled. This paper demonstrates that retirement benefits can be
increased by an average of 69% over the current Social Security
benefits by investing in the stock market. Furthermore, the downside
can be protected with a payroll tax increase of less than 1% put
towards an insurance program that would provide a minimum benefit
guarantee.
The US equity markets have consistently provided the highest
returns to investors over the past century. The author performs a
simulation--a hypothetical experiment from empirical stock market and
demographic data to compare the success of a privately invested
portfolio to historic Social Security benefits. The results are that
the private accounts would have beat OASDI 52% of the time, and during
the years when it out performed OASDI it would have given the retirees
on average a 69% increase in their benefit level. Furthermore, OASDI
income replacement rates averaged historically about 37%. Under a
private account system these rates would have increased to 57%.
One of the largest criticisms of private accounts systems which are
invested in the stock market is the volatility and dips associated with
bear markets and downturns. The simulation demonstrated that when the
stock market would have returned benefit levels below current Social
Security, it only missed the targets by an average of 18%. This problem
can be eliminated if the government will guarantee a minimum level of
benefits and raise the benefit levels of those people who retire below
the minimum. This guarantee will be funded by insurance premiums paid
by the people. The author explores two systems, one in which the
government guarantee is set to an across the board $10,000 level for
all income levels. Under a separate scenario, the simulation uses
minimum guarantees that are set to the current estimated benefits that
OASDI provides. The author determined that a premium tax rate ranging
from 0.340% to 0.938% of payroll could have funded such insurance
historically. This would effectively be an increase in payroll taxes of
less than 1% which is drastically smaller than the other increases
currently proposed.
The paper concludes that it is optimal to invest in equities
because their return will allow for greater retirement benefits for the
nation's elderly. At the same time, the retirement income is not
compromised by investing in the stock market because the insurance
premiums will protect individuals in down market years. Other key
issues central to implementation and social equity are also addressed.

Statement of Stephen Zwirn, Work Search Organization, Tamarac, Florida

BACKGROUND INFORMATION:
The Worksearch organization is a private for-profit organization,
located in Florida, currently contracted with the Social Security
Administration, under the Ticket to Work and Work Incentives Act, as an
Employment Network (EN). Worksearch has been involved with disability
and return-to-work programs within the private sector for about twenty-
five years. As Project Director, I'd like to offer the House Ways &
Means, Sub-Committee on Social Security, my written statement and
recommendations regarding the future of the Social Security Disability
program.

Introduction:
Prevailing return-to-work policy on the Social Security Disability
insurance program focuses most of its attention on supply side
concerns, or concentrates on the disabled individual. That is to say,
altering or expanding employment, vocational, and related educational
services directly to the beneficiary population. To involve beneficiary
choice in their services, adding a variety of related work incentives
to influence beneficiaries to chose to work or not work, with the State
Vocational Rehabilitation (VR) agencies centering most of its attention
on the beneficiaries medical impairment for jobs and employment
services. However, by focusing more attention on the workplace rather
than solely upon the individual disabled beneficiary, through the
integration of current and future employment practices, we will start
to see better employment outcomes under the Social Security disability
program.

Recommendations:
Change the definition of disability to focus on the ability to earn
through employment.

To establish beneficiaries residual functional capacity to demonstrate an
ability earn and work.

Early return-to-work either rehabilitation or employment services, early,
or at the time of application for disability benefits.

Allow for beneficiary choice of service providers, either public or
private.

Time limited services.

Medical Case management services.

Provide workplace support mechanisms or work incentives at the time of
disability application and during the rehabilitation or employment service
period.

Vocational Assessment based upon actual employer skills and competencies.

Wages and earnings based on actual jobs within the beneficiary's labor
market.

Allow for separate categories of disability status, such as:

Total disability-Complete inability to earn and work.

Partial disability-Beneficiary has a residual functional ability to earn
and work.

Temporary or Permanent status.

Integrated Disability Management and the Changing Labor Market.

Develop an integrated disability management project to connect with
employer recruitment and job retention for disabled Social Security
recipients.

Employer based recruitment strategies that work:

Employer based referral systems and networks. Transferable Skills
and competency based job evaluation Skills supply chains for retention,
job mobility, and increase earnings. Employer sponsored training and
development to increase earnings.
Conclusion:
By focusing on employer based recruitment and disability management
practices, some of which has had success with other disadvantaged
members of the population, it is feasible to achieve a higher degree of
jobs and earnings success with the Social Security disability
population than before.