[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
       SECOND IN A SERIES OF SUBCOMMITTEE HEARINGS ON PROTECTING
                   AND STRENGTHENING SOCIAL SECURITY

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2005

                               __________

                            Serial No. 109-9

                               __________

         Printed for the use of the Committee on Ways and Means



                    U.S. GOVERNMENT PRINTING OFFICE
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida            CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
PAUL RYAN, Wisconsin                 JOHN B. LARSON, Connecticut
ERIC CANTOR, Virginia                RAHM EMANUEL, Illinois
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                                 ______

                    SUBCOMMITTEE ON SOCIAL SECURITY

                    JIM MCCRERY, Louisiana, Chairman

 E. CLAY SHAW JR., Florida            SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   EARL POMEROY, North Dakota
 J.D. HAYWORTH, Arizona              XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  RICHARD E. NEAL, Massachusetts
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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 May 17, 2005 announcing the hearing..................     2

                               WITNESSES

Social Security Administration, Stephen C. Goss, Chief Actuary...     4

                                 ______

                       SUBMISSIONS FOR THE RECORD

Anderson, Donald L., Harpswell, ME, statement....................    52
Bessler, Janet Marie, Medina, OH, statement......................    52
California Retired Teachers Association, Sacramento, CA, George 
  Avak, statement................................................    53
Elia, Joyce R., Mission Viejo, CA, statement and attachment......    55
Jackson Jr., Kenneth Basil, Glendale, CA, statement..............    58
Jones, Roger Pond, Auburn, MA, statement.........................    59


                   SECOND IN A SERIES OF SUBCOMMITTEE
                       HEARINGS ON PROTECTING AND
                     STRENGTHENING SOCIAL SECURITY

                              ----------                              


                         TUESDAY, MAY 24, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                            Subcommittee on Social Security
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room B-318, Rayburn House Office Building, Hon. Jim McCrery 
(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
May 24, 2005
No. SS-2

                  McCrery Announces Second in a Series

                 of Subcommittee Hearings on Protecting

                    and Strengthening Social Security

    Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Social 
Security of the Committee on Ways and Means, today announced that the 
Subcommittee will hold the second in a series of hearings on protecting 
and strengthening Social Security. This hearing will examine how the 
Social Security Trustees project the financial outlook for Social 
Security under current law. The hearing will take place on Tuesday, May 
24, 2005, in room B-318 Rayburn House Office Building, beginning at 
2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Social Security Act (P.L. 74-273) requires the Board of 
Trustees of the Federal Old-Age and Survivors Insurance and Disability 
Insurance Trust Funds to report to Congress each year on the financial 
and actuarial status of the trust funds. In the 2005 Annual Report to 
Congress, the Trustees announced that in 2017 benefit payments will 
exceed revenue from payroll tax collections and the taxation of 
benefits, and that in 2041 the Social Security Trust Funds will be 
exhausted. The gap between promised benefits and revenues will continue 
to grow after 2041 and by 2079 the Trustees estimate that promised 
benefit payments will exceed revenues by almost 2 percent of gross 
domestic product.
      
    In order to make their projections the Trustees rely on a number of 
demographic and economic assumptions including the fertility rate, the 
rate of decline in mortality, the future real earnings growth, real 
interest rate, the inflation rate and the unemployment rate. Under 
these projections, there is little doubt that the Social Security 
program will become insolvent.
      
    In announcing the hearing, Chairman McCrery stated: ``As the 
Subcommittee considers options to protect and strengthen Social 
Security, this hearing provides the opportunity for Members of Congress 
and the public to learn more about what drives the financial condition 
of the program.''
      

FOCUS OF THE HEARING:

      
    The Subcommittee will examine the financial outlook of Social 
Security under current law as determined by the Social Security 
Trustees, as well as how the Trustees make their assumptions.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
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formatting requirements listed below, by close of business Tuesday, 
February 22, 2005. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
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encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
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files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies 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 
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    3. All submissions must include a list of all clients, persons, 
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    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 MCCRERY. The meeting will come to order. Good 
afternoon, everyone. We have with us today Steve Goss, the 
Chief Actuary for the Social Security Administration (SSA), and 
Steve is going to talk to us today about the annual report of 
the Board of trustees and the history of that annual report, 
how we got to where we are today, and rather than going over an 
opening statement that basically reiterates that history, I am 
going to submit it for the record, so we can get the hearing 
underway expeditiously. Thank you, Mr. Goss, for coming. Mr. 
Levin, would you like to make opening remarks?
    [The opening statement of Chairman McCrery follows:]

    Opening Statement of The Honorable Jim McCrery, Chairman, and a 
         Representative in Congress from the State of Louisiana

    Good afternoon. Today marks our second in a series of Subcommittee 
hearings on protecting and strengthening Social Security.
    Today, we will hear from Stephen Goss, the Chief Actuary of the 
Social Security Administration. Mr. Goss will discuss how the Social 
Security Trustees project the financial outlook for Social Security 
under current law.
    The Annual Report of the Board of Trustees has a history dating 
back to the early years of the Social Security program. When President 
Franklin D. Roosevelt signed the Social Security Act into law, an old-
age reserve account was created. In 1939, this account was replaced by 
the Federal Old-Age and Survivors Insurance Trust Fund. At the same 
time a Board of Trustees, made up of the Secretary of the Treasury, 
Secretary of Labor and the Chairman of the Social Security Board, were 
charged with oversight of the Trust Fund.
    In 1941, the Trustees began the practice of issuing an Annual 
Report. Since then, the Annual Report has served as an essential road 
map to guide lawmakers, policy experts and the public in understanding 
the costs of the program, the revenues dedicated to its financing and 
the meaning and operation of the trust funds. The Trustees also provide 
information on demographic, economic and other factors affecting the 
program's finances.
    In recent decades, the Trustees' Report has served as an early 
warning system to let Congress know when Social Security's finances are 
headed toward trouble. The Trustees' Reports gave several years' 
warning prior to the Congress' enactment of the Social Security 
Amendments of 1977 and 1983, two pieces of legislation that attempted 
to address Social Security's long-term under-funding.
    The Trustees Report has been sounding alarm bells once again. The 
Subcommittee welcomes the opportunity to delve into the complex and 
critical messages from the Social Security Trustees. It is our 
responsibility to be fully informed about the trends driving Social 
Security toward insolvency. Lawmakers must not wait until a crisis is 
upon us before Congress acts. Our job is to build a firm financial 
foundation for Social Security's future based upon the facts.

                                 

    Mr. LEVIN. Thank you. Very briefly, Mr. Chairman. I join 
you in welcoming Mr. Goss. Your office has been known for its 
tradition of fairness and high quality analysis and 
independence, and you surely have been characterized 
accordingly. The transparency and the integrity of your office 
is really critical, as well as the availability of neutral and 
confidential consultation. We also know that you have the 
responsibility, when asked, to do actuarial analyses of various 
plans to strengthen or replace Social Security, and that you do 
so with immense intelligence and integrity, and we much 
appreciate that. As we delve further into these issues and go 
into further, deeper waters, your analyses will be important to 
us. So, thank you. I look forward to your testimony.
    Chairman MCCRERY. Thank you, Mr. Levin. Steve, why don't 
you begin. We are not going to put you on the clock. If you go 
over by a little bit, that will be fine. We would appreciate 
your summarizing your written testimony.

          STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY,
                 SOCIAL SECURITY ADMINISTRATION

    Mr. GOSS. Thank you very much, Chairman McCrery, Ranking 
Member Levin, and Members of the Subcommittee here. Thank you 
very much for this opportunity to come and talk to you today 
about the Social Security Trustees Reports and the future 
financial status of the Social Security program.
    The Annual Reports from the Board of Trustees to the 
Congress on the financial condition of the Old-Age, Survivors, 
and Disability Insurance (OASDI) program have been prepared 
continuously since 1941. These reports are required by the law, 
and they are required to include an assessment of the actuarial 
status of the trust funds. The Office of the Actuary, which I 
am proud to be a Member of at this point, at the SSA prepared 
the projections used in these reports annually as well as 
projections of the effects of proposals, as Mr. Levin 
mentioned, and we have done so continuously since the inception 
of the program in 1935. The office has always operated on a 
non-partisan basis, providing objective estimates to the 
trustees, the Administration, and the Congress.
    The 2005 Trustees Report, which was recently submitted to 
the Congress, in that report the intermediate assumptions 
indicate that the annual excess of tax income over the cost of 
the program will begin to decline in 2009 and that in 2017 the 
cost will then exceed the tax income from that point forward. 
At that point the accumulated trust fund assets projected will 
be about $2.4 trillion in present value and will begin to be 
used to augment tax collections in order to pay full benefits 
as scheduled on a timely basis. While there is no question that 
these securities will be redeemed, as is now being the case for 
the Medicare Trust Fund, this redemption will require the 
Federal Government to increase taxes, to lower other 
expenditures, or to issue publicly held debt in amounts equal 
to the net redemptions by the trust funds at that time.
    If no changes are made, it is projected that the combined 
trust fund assets would become exhausted in 2041 under the 
Trustees' intermediate assumptions and the program would no 
longer at that point be able to fully pay benefits scheduled in 
current law on a timely basis. Instead, in 2041, we would be 
able to pay benefits equal to about 74 percent of what has been 
scheduled under current law. After 2041, program cost is 
projected to continue growing faster than tax income. By 2079, 
only about 68 percent of scheduled benefits are expected to be 
payable if no changes are made. On page two we have a graph 
showing the trust fund projections under current law, with the 
bold line being under the intermediate assumptions, and we also 
have a high-cost and low-cost alternative based on varying 
assumptions.
    Changes from the 2004 to the 2005 Trustees Report, again, 
recently issued, were relatively small. No changes in the 
principal ultimate economic or demographic assumptions were 
made. The estimates that the years of expected trust fund 
exhaustion and the year of the cost beginning first to exceed 
tax income are both projected now to be 1 year earlier, and 
this is largely the result of unexpectedly high growth in 
prices in the last couple of years that was not matched by 
similarly higher than expected increases in the average 
earnings level. This effect resulted in lower annual program 
cash flow surpluses or higher cash flow deficits through the 
year 2024 in our projections. On page three of the written 
testimony, you will see a graph that sort of illustrates this. 
The solid line is where we are in the 2005 report on these cash 
flow balances, and the dashed line is where we were in last 
year's Trustees Report. You can see that through 2024 we are a 
little bit worse off, but after that we are actually a little 
bit better off.
    For these years after 2024, other changes, principally in 
the methods we use for the projections, resulted in this 
somewhat lower annual cash flow deficit for the program. For 
the year 2078, which was the 75th year in last year's Trustees 
Report, the estimated annual cash flow deficit was reduced from 
5.91 percent of taxable payroll down to 5.66 percent of taxable 
payroll--not a large change, but a small change in a good 
direction.
    Annual balances and trust fund asset levels provide, we 
think, the most important measures of the future status of the 
Social Security program for the analysis that we do and that we 
believe will be important to policymakers as they look into the 
future. The actuarial deficit expresses the magnitude of 
expected net future shortfalls on a summarized basis over the 
upcoming 75-year projection period. Normally, this actuarial 
deficit is expected to increase from one Trustees Report to the 
next by about 0.07 percent of payroll solely due to the shift 
in the 75-year period from one report to the next. In fact, 
this actuarial deficit increased from 1.89 to only 1.92 
percent, an increase of 0.03 percent, of payroll for the 2005 
report, consistent with the small reduction in projected cash 
flow deficits for 2025 and later. The 75-year net shortfall may 
also be expressed as a percentage of the Gross Domestic Product 
(GDP) over the entire period. For the 2005 report, the net 
shortfall as a percentage of GDP is projected to be 0.6 
percent, a little less than one percent, of GDP over the entire 
75-year period. Again, this is very slightly lower than was 
projected in the 2004 report.
    Finally, the shortfall can be viewed from the view of an 
aggregate dollar amount expressed in present value discounted 
dollars back to the beginning of the given valuation period, in 
this case, January 1, 2005. In this form, the net shortfall 
over the next 75 years is estimated in the most recent report 
at $4 trillion in present value. This value tends to be 
measured as a larger amount each year simply due to the 
advancing valuation date, even when the annual shortfalls are 
not changed. Expressing the unfunded obligation as a percentage 
of taxable payroll or GDP we think better illustrates the 
magnitude of the changes that will be needed, especially when 
we are looking from one Trustees Report to the next.
    Assessing the actuarial status of the Social Security 
program involves more than just attaining solvency throughout 
the 75-year projection period. Sustainable solvency requires, 
in addition, that the projects level of trust fund assets be 
stable or rising as a percentage of the annual cost of the 
program at the end of the period. Meeting these criteria 
indicate that the program is expected to be solvent for the 
foreseeable future and that even if actual experience in future 
years varies from current assumptions, only relatively small 
modifications are likely to be needed to maintain adequate 
financing for the program. The Office of the Actuary has 
provided an assessment of the degree to which each 
comprehensive proposal that we have done estimates for achieves 
the criteria of sustainable solvency in our scoring starting in 
the middle nineties.
    Projections of the future cost and income of Social 
Security are driven by a number of principal economic and 
demographic assumptions that are addressed in each year 
Trustees Report. Changes in the ultimate assumptions are made 
incrementally, as can be seen in Table C, which we attached at 
the end of the written statement. This provides the basic 
economic and demographic assumptions utilized in Trustees 
Reports from 1976 all the way through 2005.
    Maintaining consistent and objective assumptions for the 
Trustees Report has been aided by two important requirements 
imposed by the Congress in the law, by you all. First, the law 
requires the inclusion of two Public Trustees on the board, one 
effectively representing each major political party. This is in 
addition to our four Members of the Board of Trustees who are 
from the current Administration. The second requirement is, of 
course, that the Chief Actuary is required to provide a 
statement included in the report at the back of it indicating 
whether or not the assumptions and methods used in the report 
are individually and collectively reasonable.
    Now, in the most recent report, the principal economic 
assumptions include real-wage and productivity growth, price 
growth, interest rate, and employment rate assumptions. 
However, due to the indexing and other features of Social 
Security, program cost is not greatly sensitive to variation in 
these economic assumptions, not as greatly sensitive as it is 
to the changes possible in principal demographic assumptions.
    Primary among the demographic assumptions which are really 
having an effect on our projections into the future are birth 
rates. In fact, birth rates, I would suggest, are the principal 
reason that the cost of the Social Security program as a 
percentage of taxable payroll will shift to a new higher level 
over the next 25 years. The total fertility rate or average 
number of children that a woman will have throughout the full 
lifetime was about 3.3 children per woman during the Baby Boom 
years 1946 through 1965. However, by 1972, just seven years 
later, the total fertility rate dropped to just two children 
per woman and has stayed at about that level ever since. It was 
actually lower for a while and is right back at about 2 now. 
The Trustees' ultimate assumption now is to be right at about 
two--actually, 1.95 children on average going into the future.
    On page six of the handout, we have a picture of the total 
fertility rate shown starting in 1940, where it has gone with 
the peak of the Baby Boom, down to the lower levels and where 
we have it going into the future. Now, the shift in the total 
fertility rate is directly responsible for the shift in the 
much discussed ratio of workers to beneficiaries that is 
projected to occur between 2010 and 2030. Also on page six of 
the written testimony, we show the second graph toward the 
bottom of the page, where you can see the ratio of covered 
workers to OASDI beneficiaries. This ratio has remained 
constant at about 3.3 workers per beneficiary ever since 1975 
when the Social Security program first really matured in its 
coverage of the population. Had the total fertility rate stayed 
at three or higher, the current 12.4-percent payroll tax rate 
would, in fact, be adequate to finance currently scheduled 
benefits. Because of the shift in birth rates, however, 30 
years ago and remaining at the lower level, the ratio of 
workers to beneficiaries will drop to 2.2 by 2030 from the 
current 3.3 level, and to 2.0 by 2040. It is this shift that 
makes the current law 12.4-percent payroll tax rate 
insufficient to fully finance the scheduled benefits in the 
long run.
    Now, the downward shift in projected worker-to-beneficiary 
ratio between 2010 and 2030 also causes the upward shift in the 
Social Security cost rate as show on page seven in the graph 
that we have of the cost rate. Again, we show Alternative One 
and Alternative Three to give you some sort of sense of the 
range of uncertainty around these estimates. The projected net 
shortfall in financing for Social Security over the next 75 
years could be met by an average reduction in benefits over the 
entire period of about 13 percent or by an average increase in 
revenue to the system of about 15 percent. The timing of when 
the shortfalls occur and when we would address them is very 
important.
    The annual cash flow shortfalls begin in 2017. They become 
most critical by the time of trust fund exhaustion. By the end 
of the 75-year period, 2079, the projected shortfall is 
expected under intermediate assumptions to be 5.7 percent of 
taxable payroll. To meet this annual shortfall in 2079 would 
require benefits that are nearly one-third lower than are 
currently scheduled, revenue that is nearly 50 percent higher 
than currently scheduled, or some combination of the two. 
Greatly reducing or eliminating this annual shortfall for 2079 
will be necessary if sustainable solvency, as defined in the 
Trustees Report, is to be achieved.
    Finally, I just want to conclude by suggesting that, again, 
the Trustees Reports required by law have played a fundamental 
role in informing the Congress and the Administration of the 
actuarial status of the program and the magnitude of changes 
that may be needed for the future. The Office of the Actuary 
has been, and will continue to be, available to the Congress, 
to each of you, and to the Administration for objective and 
non-partisan estimates both of the current status of the 
program and for possible changes to the Social Security 
program. Thank you very much for the opportunity to present 
this testimony, and I look very much forward to any and all 
questions. Thank you.
    [The prepared statement of Mr. Goss follows:]

     Statement of Stephen C. Goss, Chief Actuary, Social Security 
                             Administration

    Chairman McCrery, ranking member Levin, and members of the 
subcommittee, thank you very much for the opportunity to talk with you 
today about the Social Security Trustees Reports and the future 
financial status of the Social Security program.
    Annual Reports from the Board of Trustees to the Congress on the 
financial condition of the Old-Age, Survivors, and Disability Insurance 
program have been prepared continuously starting with 1941. These 
reports are required by law to include an assessment of the ``actuarial 
status'' of the trust funds. This assessment has been used by the 
Congress numerous times since 1941 as the basis for modifying the 
program to either alter the scope and nature of the program, or to 
improve the financial status of the program.
    The Office of the Actuary at the Social Security Administration 
prepares the projections used in these reports as well as projections 
of the effects of proposals to change the program, and has done so 
continuously since the inception of the program in 1935. The Office has 
always operated on a non-partisan basis providing objective estimates 
to the Trustees, the Administration, and the Congress. As you know, 
while the Office of the Actuary resides within the Social Security 
Administration, it operates on an independent basis, particularly 
regarding work for the Congress, including this Subcommittee, the full 
Ways and Means Committee, and the Senate Finance Committee. Our work 
for the Congress is always done on a confidential basis during the 
development of a proposal for changing Social Security, and remains 
confidential unless and until the requestor is prepared to go public 
with the proposal. Our current Commissioner, Jo Anne Barnhart, as well 
as former Commissioner Kenneth Apfel have strongly supported the 
independence of the Office of the Actuary, well understanding the 
importance of this independence to the credibility of our work.
    Today I would like to speak about three aspects of our analysis of 
the actuarial status of the Social Security program under current law 
for the Trustees Report. These are (1) the basic status of financing 
and solvency over the 75-year long-range period as reported in the 2005 
Trustees Report and changes from the prior report, (2) the principal 
assumptions used in the projections and how they are driving the 
projected financial status, and (3) some of the possible legislative 
changes that are available to improve the actuarial status of the 
program.

(1) Where We Are--The Basic Actuarial Status of the Social Security 
        Program
    In the 2005 Trustees Report, the intermediate projections indicate 
that the annual excess of tax income over program cost will begin to 
decline in 2009, and in 2017 cost will exceed tax income. At that point 
the accumulated trust fund assets of about $2.4 trillion in present 
value will begin to be used to augment tax income so that benefits 
scheduled in current law will continue to be paid in full. These assets 
are, by law, invested wholly in securities backed by the full faith and 
credit of the United States Government, and have always been redeemed 
when needed. While there is no question that these securities will be 
redeemed when needed, this redemption will require the Federal 
Government to increase taxes, lower other expenditures, or issue 
publicly-held debt in amounts equal to the net redemptions by the trust 
funds.
    If no changes are made, it is projected that the combined trust 
fund assets would become exhausted in 2041 and the program would no 
longer be considered to be solvent. This means that we would no longer 
be able to fully pay benefits scheduled in current law on a timely 
basis. Instead, we would be able to provide 74 percent of scheduled 
benefits with continuing tax revenues. After 2041, program cost is 
projected to continue growing faster than tax income. By 2079, 68 
percent of scheduled benefits are expected to be payable if no changes 
are made.

[GRAPHIC] [TIFF OMITTED] T3917A.001

    Changes from the 2004 to the 2005 Trustees Reports were small. No 
changes in the principal economic or demographic ultimate assumptions 
were made. The estimate that the years of expected trust fund 
exhaustion and cost exceeding tax income will be one year sooner was 
largely the result of unexpectedly high growth in prices that was not 
matched by a similar unexpected increase in average earnings levels. 
This effect resulted in lower annual program cash-flow surpluses or 
higher deficits through 2024.

[GRAPHIC] [TIFF OMITTED] T3917A.002

    However, for years after 2024, other changes, principally in the 
methods we use for the projections resulted in somewhat lower annual 
cash-flow deficits for the program. For the year 2078, the estimated 
annual cash-flow deficit was reduced from 5.91 to 5.66 percent of 
taxable payroll. Thus, on balance, the long-range actuarial status of 
the Social Security program is essentially unchanged in the 2005 
Trustees Report.
    This change may also be seen in the estimates for the actuarial 
deficit and other measures of the unfunded obligation for the program 
over the 75-year long-range valuation period. The actuarial deficit 
expresses the magnitude of expected net future shortfalls over the 
entire period as a percentage of the taxable payroll over the entire 
period. Normally this actuarial deficit is expected to increase by 0.07 
percent of payroll solely due to the shift in the 75-year period from 
one report to the next. In fact, the actuarial deficit increased from 
1.89 to only 1.92 percent of payroll for the 2005 Report, consistent 
with the small reduction in projected cash-flow deficits for 2025 and 
later. The 75-year net shortfall may also be expressed as a percentage 
of the GDP over the entire period. For the 2005 Report, the net 
shortfall as a percent of GDP is projected at 0.6 percent of GDP over 
the period, again slightly lower than projected for the 2004 Report.
    Finally, the shortfall can also be viewed in the form of an 
aggregate dollar amount in present discounted value to the beginning of 
the valuation period, or January 1, 2005. In this form, the net 
shortfall over the next 75 years is estimated at $4 trillion present 
value dollars. This amount is larger than the estimated unfunded 
obligation of $3.7 trillion present value dollars reported in the 2004 
Trustees Report largely because the valuation date, that is the date to 
which net shortfalls are discounted, is one year later in time. By 
discounting the annual shortfalls for each future year to 2005 rather 
than to 2004, the present value amount is measured as 5 to 6 percent 
greater in the new report. What is critical to note in these measures 
of unfunded obligation is that they represent the net shortfall for the 
75-year period as a whole, and thus must be met with changes that will 
be applied over the 75-year period as a whole. Expressing the unfunded 
obligation as a percent of taxable payroll or GDP better illustrates 
the magnitude of the changes that will be needed.
    It should also be noted that in assessing the actuarial status of 
the Social Security program, more than just attaining solvency 
throughout the 75-year projection period is considered. When this first 
goal is met, an additional criterion for achieving ``sustainable 
solvency'' should be considered. This additional requirement asks that 
the level of the trust fund assets be projected to be stable or rising 
as a percent of annual program cost at the end of the period. When both 
75-year solvency and this additional requirement are met, the program 
may be expected to continue to be solvent for the foreseeable future, 
under the assumptions used in the projection. Meeting these criteria 
further suggests that even if actual experience in the future varies 
from the assumptions to a degree, only small modifications are likely 
to be needed to maintain adequate financing for the program.
    The Office of the Actuary has provided an assessment of the degree 
to which each comprehensive proposal achieves the criteria for 
sustainable solvency in scoring starting in the middle 1990s. Providing 
this additional assessment has helped to lead to the development of 
numerous proposals that meet the criteria for sustainable solvency 
under the Trustees intermediate assumptions over the last 10 years. The 
Trustees Reports have also referred to the criteria for sustainable 
solvency since 1999.

(2) The Principal Assumptions for the Trustees Report
    Projections of future cost and income for Social Security are 
driven by a number of principal economic and demographic assumptions 
that are selected by the Trustees each year. The process for this 
selection each year starts with analysis and recommendations provided 
to the Trustees by the Office of the Actuary. This analysis and the 
recommendations are discussed extensively and final assumptions are 
adopted by the Trustees, generally very close to those recommended by 
the actuaries. In fact, this process has resulted in remarkably 
consistent assumptions over the years, and across Administrations. 
Changes in ultimate assumptions are made incrementally and only after 
evidence supporting change is fully discussed and analyzed. See Table 
C, attached.
    Maintaining consistent and objective assumptions for the Trustees 
Report has been aided by two important requirements imposed by the 
Congress in the law. First, the law requires the inclusion of two 
Public Trustees on the Board, one effectively representing each major 
political party. Over the years, the Public Trustees have always worked 
together and have had a major and positive influence on the Board. The 
second requirement is that the Chief Actuary is required to provide a 
statement included in the report indicating whether the assumptions and 
methods used are individually and collectively reasonable. I am happy 
to report that my statement in the 2005 Report indicated that the 
assumptions and methods are reasonable.
    The principal economic assumptions include real-wage and 
productivity growth assumptions, price growth, interest rate, and 
employment rate assumptions. Productivity growth provides the basis for 
average wage growth. The intermediate assumptions include an ultimate 
assumption of 1.6 percent average annual growth in total economy 
productivity, equal to the average growth rate over the last four 
complete economic cycles, from 1966 to 2000. The average annual real 
growth rate in the average wage was 1.15 percent over the same period, 
also very close to the ultimate real wage differential of 1.1 percent. 
The ultimate real interest assumption on long-term Treasury bonds is 
assumed to average 3 percent, or slightly below the average yield of 
3.4 percent over the last four complete economic cycles.
    However, due to the indexing and other features of Social Security, 
program cost is not greatly sensitive to variation in economic 
assumptions. The major effects on program cost relative to the base of 
taxable earnings are in the demographic changes that confront the 
program.
    The principal demographic assumptions include birth rates, death 
rates, and immigration. The ultimate rate of decline in death rates for 
individuals over age 65 is about the same as for the average of the 
last century, and considerably faster than for the last 20 years. 
Immigration is assumed to be at roughly the average level over the last 
20 years or so.
    But birth rates are the principal reason that the cost of the 
Social Security program as a percentage of the taxable payroll will 
shift to a new higher level over the next 25 years. The ``total 
fertility rate'' or the average number of children women have was about 
3.3 children per woman during the baby-boom years from 1946 through 
1965. By 1972, however, the total fertility rate dropped to 2 children 
per woman and has stayed at about that level ever since. The ultimate 
assumption is for an average total fertility rate of 1.95 for the 
future.

[GRAPHIC] [TIFF OMITTED] T3917A.003

    This shift in the total fertility rate is directly responsible for 
the shift in the ratio of workers to beneficiaries that is projected to 
occur between about 2010 and 2030.

[GRAPHIC] [TIFF OMITTED] T3917A.004

    This ratio has remained constant at about 3.3 workers per 
beneficiary since 1975, when the Social Security program matured in its 
coverage of the population. Had the total fertility rate stayed at 3 or 
higher, the current 12.4 percent payroll tax rate would be adequate to 
finance currently scheduled benefits and we would not be discussing 
future shortfalls. But due to the shift in birth rates over 30 years 
ago, we will see the ratio of workers to beneficiaries drop to 2.2 by 
2030 and 2.0 by 2040. It is this shift that makes the current law 12.4 
percent tax rate insufficient to fully finance the currently scheduled 
benefits in the long run.
    Directly reflecting the decline in the projected worker to 
beneficiary ratio between 2010 and 2030, is the increase in the Social 
Security cost rate, as a percent of taxable payroll, over the same 
period. During this period the cost rate is projected to shift from a 
level that is now well below the current tax rate of 12.4 percent to a 
level that is well above it.

[GRAPHIC] [TIFF OMITTED] T3917A.005

    Continuing but much more gradual decreases in the worker to 
beneficiary ratio and increases in the cost rate are projected after 
2030 based on expected future increases in life expectancy. But these 
are modest in comparison with the shift in the cost rate that will 
result from the decline in birth rates after 1965.

(3) Possible Legislative Changes to Improve the Actuarial Status of 
        Social Security
    The projected net shortfall in financing for Social Security over 
the next 75 years could be met by an average reduction in benefits of 
13 percent or an average increase in tax revenue of 15 percent over the 
period. But the timing of the expected shortfalls is important. Most 
proposals being considered would confirm the pay-as-you-go nature of 
the financing of Social Security by targeting changes to years after 
trust fund exhaustion in amounts roughly equal to the projected annual 
shortfalls.
    As mentioned earlier, the annual cash-flow shortfall for the year 
2079 is projected to be about 5.7 percent of taxable payroll. To meet 
this annual shortfall in 2079 would require benefits that were then 
nearly one third lower than are currently scheduled, or revenue that is 
nearly 50 percent higher than currently scheduled, or some combination 
of the two. Greatly reducing or eliminating this annual shortfall for 
2079 will be necessary if sustainable solvency is to be achieved.
    Several changes to lower scheduled benefits, by slowing the 
projected growth, have been considered. These include changes in the 
normal retirement age, and modifications of the basic benefit formula. 
Benefit formula changes include general ``price indexing'' of benefits 
across future generations, and ``progressive indexing'' which would 
provide for larger percentage reductions for higher earners, thus 
making the current benefit formula more progressive.
    Potential changes to increase revenue for Social Security in the 
future include increasing the taxable maximum amount, increasing 
taxation of benefits, and increasing payroll tax rates. Additional 
revenue could also be generated by modifying the pay-as-you go nature 
of Social Security financing to include more substantial advance 
funding.
    Many combinations of the provisions mentioned above, as well as a 
large number of other possible provisions could restore long-range 
solvency, and sustainable solvency for the Social Security program. 
Changes will be needed well before the expected date of trust fund 
exhaustion in 2041. By enacting needed changes sooner, we will have 
more options to consider, be able to phase changes in more gradually, 
and give affected individuals more advance notice.
Conclusion
    The Trustees Reports required by law have played a fundamental role 
in informing the Congress and the Administration of the actuarial 
status of the program, and the magnitude of changes that may be needed 
for the future. The Office of the Actuary has been and will continue to 
be available to the Congress and the Administration for objective and 
non-partisan estimates both of the current status of the program, but 
also for possible changes to Social Security.
    Thank you very much for the opportunity to present these remarks. I 
look forward to trying to answer any questions that you may have.

                                 

    Chairman MCCRERY. Thank you, Mr. Goss, and I certainly want 
to echo Mr. Levin's comments that we all appreciate the job 
that you do and the way in which you present the numbers that 
you come up with. President Bush has emphasized that the need 
to strengthen Social Security should be done--or we should 
achieve that strengthening of Social Security in a sustainable 
way. ``Sustainable solvency'' is the term that he has used. 
Would you describe what that means? What do we mean by 
``sustainable solvency'' as opposed to some other kind of 
solvency?
    Mr. GOSS. Thank you very much, Chairman McCrery. The 
example that I think comes to mind for all of us are really the 
amendments back in 1983, the most recent comprehensive 
amendments that we had under Social Security. Those amendments 
did step number one of sustainable solvency. They did result in 
projections and changes that resulted in projections where we 
would expect to have the trust funds be solvent and all 
scheduled benefits to be payable for the 75 years hence from 
that point. However, they were done in such a way that the 
level of the assets, the level of the reserves in the program, 
were to be built up fairly rapidly and then to be spent down 
toward the end, and just beyond the 75-year period, they would 
have been exhausted. In fact, we really have seen the reality 
of that come true now.
    So, the amendments that were enacted at that time did 
achieve step number one, solvency for 75 years in the 
projection, but they did not achieve sustainable solvency. 
Sustainable solvency, the way we really thought of this and the 
way we initially developed this working with the 1994 to 1996 
Advisory Council, was really addressing exactly this situation 
that happened with the 1983 amendments. We wanted to be sure 
that we would be in the position to provide estimates that 
would inform our policymakers as to whether or not they were 
ending up with something that would be a 1983 solution or 
whether they would have a solution that would tend to have more 
legs, a solution that would be more stable under circumstances 
in the future. We know that if we achieve solvency for 75 years 
but have our trust fund ratios at the end not dropping rapidly, 
like they were as a result of the 1983 amendments--and that was 
included in our projections at the time. The 1983 Trustees 
Report shows this. If, in fact, we have a stable, rising trust 
fund ratio, that is, a stable, rising level of assets in the 
trust fund as a percentage of the annual cost of the program, 
then we can be reasonably well assured that we will for the 
foreseeable future continue to have solvency for Social 
Security. We will have no absolute assurance because, clearly, 
assumptions today about what happens over the next 20, 30, 50, 
75 years may not turn out to be exactly true. This is why we 
sort of give a range of estimates and make stochastic 
projections also.
    Because there is a principal focus on the intermediate 
assumptions--we understand that--we feel that if we end up with 
a solution the next time we enact changes to Social Security 
that does meet the sustainable solvency criteria, stable levels 
of trust fund assets in the future, we at least will then be in 
a position where, if reality turns out to be somewhat different 
from the assumptions, we will not veer greatly away from a 
sustainable path and only relatively small changes will be 
necessary.
    Chairman MCCRERY. Now, the reason we talk about a 75-year 
solvency is that that is in the law, isn't it? The trustees are 
required to report on a 75-year window on the health of the 
system, so to speak, over a 75-year window?
    Mr. GOSS. Actually, Chairman McCrery, the 75 years is 
really sort of an interpretation of the law. The law actually 
has something like three different specific requirements the 
trustees must report on, one of which is to report on the 
actuarial status of the program. That has been interpreted in 
many ways over the years for the last something like 30 to 40--
about the last 40 years, it has been interpreted very 
consistently as projecting a 75-year window of expectation.
    The rationale for that has been, for a long time, arguments 
along the lines of the very youngest people we have involved in 
the system, the very youngest workers, that is approximately 
the remaining amount of time that they will have to live. 
Another, I think, good argument for using an open window of 
something like 75 years is that virtually any kind of proposal 
we can imagine for modifying Social Security, that would be 
sufficient time to show the full, mature, phased-in effects of 
it so that we would be able to see exactly what we are facing 
with any changes in law.
    Chairman MCCRERY. What you are saying today is that we can 
manipulate that 75-year window in a way on paper to achieve 
solvency over the 75 years, but if the lines are going the 
wrong way, the income and the outgo lines are going the wrong 
way at the end of that 75-year period, it is fairly apparent 
that solvency won't be achieved past that window, and that is 
what we did in 1983?
    Mr. GOSS. That is exactly right. I believe at the time--and 
I was there and involved to a degree with the 1983 amendments. 
I think the attitude to some extent then was 75 years of 
solvency was pretty good, especially because we were really on 
the door of becoming not able to pay full benefits on a 
scheduled basis at that time, within a couple of months. So, 
they felt 75 years was pretty good, and I think the general 
sense that we have in working with Members of Congress and 
commissions since the mid-nineties, though, is that the next 
time around there is a desire to perhaps go for more than that, 
go for more than just having a 75-year window of projected 
solvency, but also to have it have the stable financing toward 
the end of the period.
    Chairman MCCRERY. I have said in this Committee room that I 
think the best way to put Social Security on that sustainable 
solvency path is to prefund some of those out-year obligations 
so we know we have the money in the bank, so to speak, and we 
are not just counting it on paper. Clearly, President Bush has 
proposed personal accounts to achieve some of that prefunding 
that I have talked about. As we prefund those obligations, 
there is a lot of talk about, well, there is a transition cost, 
short-term transition cost. Could you explain what we mean by 
transition costs, and whether that is good or bad, or just 
how--from an economic or fiscal standpoint, what does it mean?
    Mr. GOSS. Transition costs are one of the concepts that we 
have probably struggled with more than almost any other, 
because when you talk about a transition, it is from one state 
to another state, and when people talk about transition costs, 
it is not clear we are always talking about the same 
transition. I think, Chairman McCrery, what you are talking 
about here in the kind of transition is a transition of going 
from a basically pay-as-you-go system that we have now and 
moving toward a partially or more nearly fully advanced funded 
system. There are many ways of doing that, either by having 
advanced funding occurring within the trust funds, or occurring 
within the broader context of individual accounts. Regardless 
of which way one might want to go on this, obviously to move 
from a pay-as-you-go system, a current cost system, toward 
having some advanced funding, some extra money, has to be put 
on the table at some point.
    In the work we did for the President's Commission on Social 
Security back in the 2001 era, it was clear that we addressed 
this. We even referred to the additional amounts of money that 
had to be put on the table as transition investments at that 
time. Basically, it is really just a question of the additional 
money that has to be put forth in order to create the advanced 
funding, whether it be in individual accounts or whether it be 
potentially in the trust funds. That is just a reality.
    There are, unfortunately, a lot of other ways that one 
could look at transition costs. For instance, another possible 
way of looking at transition costs is going from the transition 
from the state of Social Security financing that we have now 
toward having a fully financed system in the future. We 
sometimes talk, for instance, about the $4 trillion that we 
have for the 75-year period or the $1.92 trillion shortfall, 
and eliminating those involve a kind of transition also. I 
believe the one that you are referring to is the one 
specifically toward the development of advanced funding, 
whether it be in individual accounts or through advanced 
funding of the trust funds.
    Chairman MCCRERY. Really, even if we use personal accounts 
or if we were to do direct government investment, let's say, 
that we take all the surplus and instead of spending it on 
other things, we make a direct government investment in the 
stock market. Either way you have to come up with the cash 
today to do that. Isn't that just a way of recognizing the 
obligations that we already have, that we know we will have to 
pay at some point in the future?
    Mr. GOSS. It is, and I think that is a very fair and 
appropriate way to put it. I would suggest there is even a 
little bit more to it than that in that we think in terms of 
there being a distinction between the obligations that we have 
going forward in Social Security, say this $4 trillion unfunded 
obligation that we have, plus there are other obligations over 
and above that that are, in fact, actually funded. For 
instance, now we have the roughly $1.8 trillion of trust fund 
assets, which, of course, do require--when and if they need to 
be liquidated, the Federal Government has to come up with the 
money. Nonetheless, those two represent a liability on the 
Federal Government to the trust funds. Everybody agrees, the 
U.S. Department of the Treasury Secretary Snow agrees, that, of 
course, those obligations will be met. Those really are 
absolute commitments of money.
    Should we move toward more advanced funding, especially in 
either the trust funds or in individual accounts, we have 
investment in private securities, those would represent, we 
feel, solid securities and investments in the same sense, which 
we cannot really say about the unfunded obligations of the 
Social Security program now.
    Chairman MCCRERY. Right. Now, you mentioned pay-as-you-go, 
and I am going to ask--I just want you to repeat part of your 
testimony, and then I am going to turn it over to Mr. Levin. 
You talked about the pay-as-you-go system. That is what we have 
now, a pay-as-you-go system, which means current work force 
pays for the benefits of the current retiree population, and 
they pay for it through the payroll tax. Now, you said in 2079, 
if we make no changes in the system and it is still a pay-as-
you-go system, that we would have to cut benefits--or outgo to 
equal income, by one-third or have a 50-percent increase in 
payroll taxes. Is that what you said?
    Mr. GOSS. About a third reduction in the benefit payments 
or about a 50-percent increase in the revenue to the system, 
which could be in the form of payroll taxes or----
    Chairman MCCRERY. Yes, let's assume it is payroll taxes. We 
are at 12.4 percent today, and you increase it by 50 percent, 
you are looking at roughly a 19-percent payroll tax.
    Mr. GOSS. That is exactly right. Either one of those 
approaches would suffice. We could either lower the benefits to 
live within the 12.4 percent tax rate or raise the tax rate, or 
other sources of revenues, in order to provide the currently 
scheduled benefits. Therein really lies the choice that faces 
us.
    Chairman MCCRERY. Okay. Thank you, Mr. Goss. Mr. Levin?
    Mr. LEVIN. I would like to ask you a few questions about 
your report, and so I will just say this once. We will leave 
the debate to some other day. Now the term ``prefunding'' is 
being used, and essentially what that means under what the 
President has suggested--a combination of private accounts, of 
an offset, of the diversion of Social Security moneys--what all 
of that means is that over time for most people the guaranteed 
benefit is replaced. That is the implication. You can call it 
``strengthening'' if you want. You can call a replacement 
``strengthening.'' We think it is replacement. That is not 
exactly your domain, but I want everybody to understand what 
the idea of prefunding is when it is combined with private 
accounts and with the major offset that has been very much 
suggested. I will not get into the other aspects of it either 
in terms of the proposals for annuitizing, for limiting how the 
investments would be made. As you say, there are other ways to 
prefund that would not mean the replacement of the guaranteed 
benefit for most people. That is for another day.
    I just think everybody should understand that language is 
sometimes descriptive, and I think sometimes really obscures 
what is really being proposed. Let me just ask you, as you 
analyze proposals, in some cases you use an asterisk, do you, 
in your actuarial analysis?
    Mr. GOSS. I am sorry. Could you repeat that last----
    Mr. LEVIN. Or I can ask you another way. How do you handle 
it when a proposal has in it a major use of general funds to 
take care of any deficit within the other proposed funding 
plan? How do you handle that?
    Mr. GOSS. Thank you very much. That is a wonderful 
question. In all of our analyses, as you will see the memoranda 
that we do, we have a number of different tables, and in these 
tables we attempt to look at what is happening as a result of 
any change that is put forth from more than one perspective. 
The initial perspective that we look at most fundamentally is 
what is happening to Social Security and the trust funds. From 
that point of view, if indeed we have a provision that says--in 
the law it specifies that there will be X amount or X percent 
of payroll or X percent of GDP, or some well-specified amount 
of money coming in from the general fund to the Treasury, as 
far as Social Security financing is concerned, that will look 
like a legitimate source of income. That will be something that 
we can score as speaking to the solvency of the Social Security 
program.
    However, we also look at--and, again, there was a watershed 
event for us in the 1994 to 1996 Advisory Council. They asked 
us to do lots of things that we have maintained since. Once of 
the things that we have been doing since then also is to 
provide additional tables for proposals that indicate the 
budget effects. If, for example, we have a proposal that calls 
for General Fund transfers to the Social Security program, in 
effect what we see in the budget effects is that such transfers 
from one part of the government to the other part of the 
government really do not show up as any change, unless and 
until those monies are actually utilized by the Social Security 
Trust Funds to spend it. So, to the extent that transfers allow 
the trust funds to persist longer by way of having the money 
come in and to pay benefits for a longer period of time, that 
actually would end up resulting in more expenditures under 
Social Security.
    Mr. LEVIN. A number of the plans that you have analyzed 
call for the use of general funds to supplement the money that 
is earmarked for Social Security, isn't that true?
    Mr. GOSS. That is true. A number of plans we have where 
there is a need for especially a temporary period, there is a 
General Fund transfer provision provided.
    Mr. LEVIN. Another form of pay-as-you-go? Let me just point 
out one fact that I think is interesting here. On page seven, 
this ratio has remained constant at about 3.3 workers per 
beneficiary since 1975. So, you are saying that for 30 years 
that ratio has remained more or less the same. So, when people 
talk about 15 to one, which actually occurred before Social 
Security really went into full operation, they don't talk about 
the steadiness of the ratio since 1975. You say that is 
changing from here on in under your reports, mainly because of 
proposed or prospective changes in the fertility rate; right?
    Mr. GOSS. Exactly. Actually, really, Representative Levin, 
it is principally because of the changes that have already 
occurred in fertility. There is a lag between the time in which 
we have births and when those births then rise to the level of 
reaching the age where they enter into the labor force. So, the 
seeds really of the impact of the lower birth rates that we had 
gradually coming in between 1965 and 1972 are well sown at this 
point.
    Mr. LEVIN. In terms of 75 years, you make an assumption as 
to what the fertility rate will be; right?
    Mr. GOSS. Exactly.
    Mr. LEVIN. That we don't know.
    Mr. GOSS. That we certainly do not know.
    Mr. LEVIN. No.
    Mr. GOSS. That is true with all of our assumptions, 
although there is a sufficient lag on the effect of birth rates 
in what happens in----
    Mr. LEVIN. That is understood.
    Mr. GOSS. --that we have a fairly good sense of what is 
likely to happen unless there is a dramatic change in birth 
rates in the future.
    Mr. LEVIN. Okay. Thank you. My time is up.
    Chairman MCCRERY. Mr. Goss, just a quick question: have you 
scored any proposals that contain personal accounts that do not 
cut benefits at all, and that achieve sustainable solvency?
    Mr. GOSS. Let us see. We have provided estimates for a 
number of plans that would in effect provide a guarantee----
    Chairman MCCRERY. Right.
    Mr. GOSS. --that either benefits in the case of one--there 
are, in fact, I think as many three people on your panel who 
have plans that we have scored that would, in fact, provide a 
guarantee such that benefits would not in any case in the 
future fall below the level of present law scheduled benefits. 
All three of these plans do involve individual accounts. They 
do them through slightly different mechanisms.
    Chairman MCCRERY. Do they achieve a sustainable solvency?
    Mr. GOSS. All three of these achieve sustainable solvency.
    Mr. LEVIN. Would you yield just for a second?
    Chairman MCCRERY. Sure.
    Mr. LEVIN. Just so the record is clear. Do all of them 
involve General Fund transfers?
    Mr. GOSS. All of them involve to a varying degree fairly 
significant amounts of General Fund transfers.
    Mr. LEVIN. Thank you.
    Chairman MCCRERY. Thank you, Mr. Goss. Mr. Johnson?
    Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. I would say 
that probably General Fund transfers are going to be required 
whether we do anything or not. Based on your office's scoring a 
number of legislative proposals, which you just talked about 
that include personal accounts, would you agree that plans with 
personal accounts do achieve sustainable solvency, one. Would 
you explain how personal accounts strengthen Social Security's 
long-term financial outlook?
    Mr. GOSS. Well, on the basis of any one single provision, 
whether it be changing the retirement age, or changing the tax 
rate, or including individual accounts, we cannot say that a 
plan will necessarily achieve sustainable solvency. It really 
requires looking at the complete package of the provisions in a 
plan. We have been lucky enough to be able to work with Members 
of this Subcommittee and other Members actually in developing 
plans and generally speaking at least over the last decade the 
desire has been to move toward a plan that would not only 
achieve 75-year solvency, but also achieve sustainable 
solvency. With that goal in mind, we have a number of plans 
that actually have done that.
    The way in which individual accounts or personal accounts 
per se really affect Social Security, it depends on the nature 
of the plan. We have some plans, for instance, which may have 
personal accounts financed from General Fund money directly, 
and then the money from the individual account is actually then 
redirected to the trust funds to help sustain the trust funds 
in a direct sense. Many other plans operate on the basis where 
the individual account financing may come as a result of money 
being redirected from the trust funds to the individual 
accounts, and then there is a subsequent offset against 
benefits for those who are participating in the individual 
accounts.
    So, we have a number of mechanisms. The latter one is the 
mechanism which we have a number of plans being considered at 
the time, and generally speaking the general effect on the 
trust funds for that is that with the money being redirected 
starting relatively early from the trust funds this is where we 
do get into the question that Chairman McCrery mentioned about 
the transition investment, where you might need General Fund 
transfers to, in effect, sort of fill the gap for that money 
that is redirected. Subsequently, though, the benefit offsets 
under many of these plans then start to come up and they will, 
in many cases, reach the point where the amount of the benefit 
offsets will reach the point ultimately on a cash flow sense 
where they will meet and perhaps even exceed the amount of the 
money coming out.
    So, once you get past the point of making the transition 
investment, which can be a fairly lengthen period, and a fairly 
substantial amount of money, you can reach the point where the 
individual accounts will, in fact, provide a net positive cash 
flow in out years in the system.
    Mr. JOHNSON. Thank you. When scoring the plans that include 
person accounts, what assumptions do you make with regard to 
rates of return on stocks, bonds, and government bonds, and I 
wonder if you could explain how you arrived at those estimates 
and how do you respond to those who say your expected rates of 
return are too high or too low?
    Mr. GOSS. Well, we really first got involved in having to 
deal with returns on private securities back around the time of 
the 1994 to 1996 Advisory Council, which had three plans which 
did indeed involve equity returns. Right at the same time, we 
also had on the Senate side, I'm sorry to say, we had a plan by 
Alan Simpson and Bob Kerry that was a unique plan in that it 
included not only investment of the trust funds in equities, 
but also personal accounts within one plan. We haven't seen 
that since. For their plan and also for all three plans of the 
advisory council, we had to deal with the question of what 
would the return on stocks and on corporate bonds be.
    At the time we looked at what the experience had been. We 
looked at the Ibidsen data out of Chicago, which is sort of the 
source for what has happened historically. We looked at the 
data from Jeremy Siegel at the University of Pennsylvania, who 
has explored these issues, going back 200 years or more in the 
U.S., and we looked at international data also. We came to the 
conclusion that the equity returns, which at the time over long 
periods of time, had averaged at about 7 percent above 
inflation, 7 percent real, seems to be a realistic number going 
forward.
    Since that time, we have been in discussion with numerous 
finance and economist folks over the years, and we have become 
convinced that there are reasons to believe that this 7 percent 
equity yield should be expected to be somewhat lower than that 
in the future, and we are now using a 6.5 real assumption, 
largely on the basis of greater access by the population to 
stocks on perhaps a slightly lower sense of the riskiness of 
investment in stocks. There has been a considerable discussion 
about the nature of the trustees estimates, which suggest that 
there will be a slowdown in the rate of growth in the aggregate 
size of the economy, the aggregate gross domestic product and 
potential implications of that slowdown in the growth of the 
aggregate gross domestic product relative to what you might 
expect to happen by way of a return on stocks or bonds.
    Our sense--and again, we have done a considerable 
discussion of this, is that we do not see that there is a 
necessary connection between a slow down in the rate of growth 
in the overall economy versus the return that you might expect 
to get per dollar invested in stocks and bonds. Unless you 
desire to go into greater detail on this, I won't go into all 
of that at this point. The bottom line basically is that when 
you have a slower growing economy, because we have a slower 
growth in the labor force, and that because we have lower 
fertility rates and a slower growth in the population in 
general, this does not mean that we will have a lower rate of 
productivity growth or a slower growth in technological 
progress in the society. Those are really the ingredients that 
allow us to have a return on capital investments that allow us 
to enjoy returns on things like stocks and bonds. So, we do not 
see in the U.S. or in the world environment that those will 
necessarily be changing in the future.
    Mr. JOHNSON. Thank you, Mr. Goss. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Johnson. Mr. Goss, I 
should tell you that should you wish to elaborate on any of 
your answers to these questions, we would welcome anything 
further in writing that you would wish to provide the 
Committee.
    Mr. GOSS. Thank you.
    Chairman MCCRERY. Mr. Neal?
    Mr. NEAL. Thank you very much, Mr. Chairman. Let me thank 
you, too, Mr. Chairman. I think the witnesses that you have had 
to date have been really helpful to this discussion, and I 
think that in addition had the Administration begun this 
discussion with discussing solvency and sustainability rather 
than traveling across the country talking about a crisis, it 
would have been most helpful to the debate. Back in Boston, 
people are saying imagine Paul Revere traveling through the 
streets of Boston announcing the British are coming--in 40 
years.
    That has been part of the problem here. We really have an 
opportunity to discuss, as you suggested in your previous 
comments, an opportunity to really put some good ideas in front 
of the American people. I do want to discuss a bit with you 
this 75-year window, because if we were sitting here 25 years 
ago, we would have had trouble discussing with any accuracy the 
advent of the computer and how it has changed things in terms 
of productivity. Certainly 40 years ago, we would have had 
trouble discussing divorce rates, and we would have had trouble 
discussing longevity, and there would be the discussion of 
women in the workforce, two-income families, and all of those 
things. So, that 75-year window, I think is a bit difficult to 
predict beyond, and I think that we should be very, very 
careful as we proceed down that road. Let me get to an issue of 
specificity with you.
    Social Security benefits are designed to keep pace with the 
standard of living so that replacement rates are constant over 
time. Each generation of workers receives benefits that reflect 
the higher wages they earned over their working years. The 
President and others have characterized this as growth. In 
fact, the replacement rate, the amount of their pre-retirement 
earnings replaced by Social Security remains steady.
    Let me explore what would happen if we were to switch to a 
formula that ties initial benefits to growth in prices rather 
than wages or some combination thereof. If we did that, would 
benefits continue to replace a constant portion of workers' 
pre-retirement earnings or would that replacement rate shrink 
over time? In that case, would the standard of living 
guaranteed by Social Security decline for retirees relative to 
the general population?
    Mr. GOSS. Thanks very much, Representative Neal. As you 
indicate, the current Social Security benefit formula does 
indeed result in benefits that increase with the average wage 
from one generation to the next at retirement. We have been 
looking at a number of proposals that would modify this in 
various forms, and one of which is the Consumer Price Index 
(CPI) indexing.
    If we went to the CPI indexing, it has been suggested and 
it would be a true statement that the benefit levels, the 
purchasing power of benefits from one generation to the next 
would be maintained. However, it is also an exactly appropriate 
observation to make that over time, Americans have been lucky 
enough to enjoy productivity and an increasing standard of 
living. That means that our purchasing power has really been 
increasing from one generation to the next, and the current 
benefit formula does afford that.
    If we were to go to a purely CPI indexed formula, then the 
increase in the benefits over time would not be reflecting an 
increasing standard of living in effect in the benefits, but 
would maintain the same purchasing power. I think these are all 
valid observations. The principal observation that we wrestled 
with, of course, is that we are glad that we do not have to 
make the decisions on which way to go on this and that is your 
job, because all we can really report on is the fact that we do 
have shortfalls coming forward, and we have to make a decision 
either to lower these benefits or to increase the financing for 
them.
    The only small exception to the observation of the stable 
replacement rates in the future is that in the last major 
amendments we had in the 1983 Social Security amendments we did 
have changes that will increase the normal retirement age by 2 
years. One was just completed for people reaching retirement 
eligibility today, this year. Their normal retirement age is 
now 66. Just a few years ago, of course, we know it was 65. In 
another couple of decades, it will be raised further up to 67. 
These two changes in the normal retirement age will have the 
effect of for a person retiring at any given age, say, 65, of 
in effect of lowering their benefit replacement rate relative 
to the earnings levels they had during their working career and 
the two ages combined will lower them by about 13 percent 
relative to what the program would have provided prior to the 
1983 amendments. At least we have some changes along those 
lines already.
    Mr. NEAL. Yes. The argument is made in the Committee, and 
it has been made in other places, that there is an imminent 
danger that somehow Social Security is going to be insolvent in 
the near future, and we ought to plan for it now. The result is 
that there could be lower benefits, but the point is that if we 
were to move right now from wages to prices wouldn't that mean 
a lower benefit.
    Mr. GOSS. It would clearly mean lower benefits than those 
that are scheduled under current law, and the question really 
is how much financing we have available on the table. There is 
also an argument that can be made about the level of benefits 
that would occur as a result of, for instance, price indexing 
relative to the benefits that are payable under current law. As 
we see, the benefits payable under current law are about 32 
percent below those that are scheduled by the end of the 75-
year period. If we were to go to a pure price indexing formula, 
the benefits would be reduced somewhat more than that by the 
end of the 75-year period.
    Mr. NEAL. Okay. Again, Mr. Chairman, thanks for the 
witnesses. I think they have been very helpful.
    Chairman MCCRERY. Thank you, Mr. Neal. Just to clarify, 
though, you said in answer to Mr. Neal's last question that if 
we were to go to price indexing now, that would mean lower 
benefits, lower than promised benefits, but that would be to 
new retirees; correct? Current retirees who are already in the 
system wouldn't experience any change in their benefit, or 
future benefits, would they?
    Mr. GOSS. That is absolutely true. So far, all proposals--
all provisions we have ever seen would apply generally by way 
of modifying benefits for people who become newly eligible in 
the future years.
    Mr. NEAL. Mr. Chairman? Could I seek a point of 
clarification on this as well?
    Chairman MCCRERY. Sure.
    Mr. NEAL. What we are saying, though, then to the next 
generation perhaps, as the President has suggested, for 
somebody who is 54 years old right now, lower benefit?
    Chairman MCCRERY. Lower than promised benefit.
    Mr. NEAL. Lower than promised benefit.
    Mr. GOSS. Lower than has been scheduled in current law.
    Mr. NEAL. Okay. Thank you for that clarification.
    Chairman MCCRERY. Yes. Thank you. Mr. Lewis?
    Mr. LEWIS OF KENTUCKY. Yes. Thanks, Mr. Chairman. Mr. Goss, 
the Social Security actuaries have been involved in assessing 
the program's long-term finances for the Social Security 
Trustees Report, since the first report was issued in 1941. The 
Social Security actuaries have also provided the only scores on 
the long-term effects of major legislative changes in benefits 
and financing in every major reform effort through the last 
reform effort in 1983, and that is correct. Recently, the 
Congressional Budget Office (CBO) developed a model that 
analyzes the effect of changes in benefits and financing of the 
Social Security Program. Could you briefly describe the 
similarities and differences between the Social Security 
actuaries' model and the CBO model?
    Mr. GOSS. Thank you very much. There really are a lot of 
similarities in these models. In fact, we worked closely with 
the folks at the CBO in the development of their model. In 
fact, they actually even use our population projections in the 
model. The principal areas of difference are in the economic 
assumptions and the nature of the methodologies that are used 
for projecting benefits into the future.
    Initially, when they have developed their model, we looked, 
and there were some differences in the methodologies for 
projecting average benefits that were giving somewhat different 
results. We have gone back and we have looked, and they have 
made some changes. We have made some changes, and we think we 
are a lot closer together now. The principal area that really 
remains where there are significant differences between their 
projections and ours really are in some fundamental 
assumptions. They have a higher rate of growth in the real wage 
into the future. They have a higher real interest rate, and 
they have a lower price inflation rate that they are assuming 
going to the future. These really explain the large majority of 
any differences that we have.
    What is similar, though, about the projections is largely 
because they use the same demographics, the same population 
base as the ones that we project, is that they both project 
that there will be significant and substantial shortfalls in 
the program under the intermediate assumptions going into the 
future. I believe their year of the cash flow of the system 
turning negative is different from ours by two or 3 years. The 
year in which trust funds would be exhausted is projected by 
them to be perhaps a decade different from ours. The gist of 
really the outgrowth of these projections is in essence we 
would say fairly similarly.
    Mr. LEWIS OF KENTUCKY. Thank you.
    Chairman MCCRERY. Thank you, Mr. Lewis. Mr. Pomeroy?
    Mr. POMEROY. Thank you, Mr. Chairman. I would echo Mr. 
Neal's comments about the informative and fair handed way these 
Subcommittee hearings have unfolded. I appreciate it. Mr. Goss, 
I think you are to be recognized for your long-time service to 
Social Security, during which period you have been available to 
any of us that have wanted to ask questions in terms of various 
ideas on Social Security, and it has been my pleasure over the 
years to work with you.
    Mr. GOSS. Thank you.
    Mr. POMEROY. So I get this straight. When we talk about 
sustainable solvency, this is basically what? A levelized 
outflow of liability past the year 2080; is that correct?
    Mr. GOSS. Past the year 2079. Approximately 2080 is the end 
of our current 75-year projection period.
    Mr. POMEROY. I am fairly staggered that we are worrying 
about 2080, 2079. I have seen tax bills pass out of this Ways 
and Means Committee that, once the scoring window is gone, they 
will have a very different dramatic effect on revenue loss. 
That hasn't seemed to bother anybody. That is obviously much 
more a near-term event than 2079 or 2080. It really is a matter 
of--it gets to a little bit of the actuarial debate about the 
$10 trillion unfunded liability in perpetuity. The American 
Academy of Actuaries says it is pretty hard to calculate in 
perpetuity, didn't they?
    Mr. GOSS. They did.
    Mr. POMEROY. Do you believe that you can fairly estimate a 
perpetuity shortfall for Social Security?
    Mr. GOSS. Well, the estimate that we have calculated and 
that is included in the Trustees' report for the last two or 3 
years, we do characterize it as really an extrapolation of the 
estimates that we make for the 75-year projection period, and 
it is, I am sure clear to everybody in this room that as we 
make projections going out even as far as 75 years, that the 
level of uncertainty that is associated with those estimates 
becomes greater.
    Mr. POMEROY. It is kind of like weather, isn't it? Weather 
forecasting the next hour is pretty good. Tomorrow a bit dicey. 
Next week, fairly iffy. The longer you get, the greater the 
weight assumptions must play, and, therefore, the less tangible 
the number.
    Mr. GOSS. I think that is true. The one thing to keep in 
mind, though, with all of our projections is that when we are 
projecting out over a long period of time, we are projecting 
really what the average experience will be, and that is to good 
in terms of the longer projections because the cycles that go 
up and down over near term sort of even out. However----
    Mr. POMEROY. Although my time is going to run, Steve. I 
don't mean to cut you off.
    Mr. GOSS. I am sorry.
    Mr. POMEROY. Or in any way be in an argumentative pose with 
you. I want to move on to a different point, and that is the 
nearer term events that we need to go through to get this long-
term sustainable solvency of 2079, first of all, we have to 
borrow a lot of money. This transition cost dimension I have 
seen estimates ranging from roughly $2 trillion taking the task 
force's proposal, $2 trillion in the first 10 years; $4 
trillion additional after that. Is that roughly correct to fund 
the transition costs--create these accounts?
    Mr. GOSS. I am not sure which proposal this----
    Mr. POMEROY. Proposal B of the Social Security Task Force 
proposal.
    Mr. GOSS. Are you talking about the model two of the 
Commission?
    Mr. POMEROY. Correct.
    Mr. GOSS. The President's Commission? I believe we had a 
number when we looked at the amount of the actual general 
revenue transfers that were necessary, they amounted to 
somewhere in the vicinity of $1.5 to $2 trillion.
    Mr. POMEROY. I believe that is the first 10-year figure; is 
that correct?
    Mr. GOSS. Well, I tend to think of these in terms of the 
present value dollar amounts, which is the way we normally add 
these up over time. I think you get larger numbers if you look 
at them in terms of constant dollars amounts, and people look 
at them in different forms.
    Mr. POMEROY. So, there is trillions of dollars of 
additional money required; because we are in a national 
deficit, that means trillions of dollars of additional 
borrowing in the near term, and then the sustainable solvency 
gathered by essentially taking down the Federal guarantee under 
Social Security to the individual; in other words, changing 
substantially the defined benefit nature of the commitment 
Social Security now has to Social Security recipients and 
reducing it, reducing it in the nature of what is in the 
account it pays out. So, is that essentially how sustainable 
solvency is reached? Do you initially borrow a lot of money, 
and then over the long term you reduce substantially the 
guarantee of Social Security?
    Mr. GOSS. Well, it depends on the proposal. There are 
certainly proposals that you could probably characterize as 
operating in that fashion. The other proposals, for instance, 
by people like Peter Diamond and Peter Orszag that have put 
forth proposals that would not involve accounts, and would also 
achieve sustainable solvency. We have a wide variety.
    Mr. POMEROY. Do the private accounts--that is true. Do the 
private accounts, however, generally conform to that model--
borrowing money now and reducing the Social Security guarantee 
to the individual over the long term?
    Mr. GOSS. Well, the first portion of that is I believe 
true. On all plans that we have looked at, it would involve 
significant increases in advanced funding. Most of such plans 
have involved individual accounts now. The former President, of 
course, had a plan that would involve advance funding within 
the trust funds, and that would also have involved considerable 
additional money to be brought in. The part about reducing the 
defined benefit later is a little bit less clear. It depends. 
Representative Shaw, who was here a moment ago, in his plan 
would not, in effect, really reduce the sort of scheduled 
benefit. Representative Ryan's plan would not really do that 
either. They work by different mechanisms, but many of the 
plans do operate on a fashion where the totality of the benefit 
that would be guaranteed from Social Security and the 
individual account would be guaranteed not to be lower.
    Mr. POMEROY. I am aware of the Shaw plan that has that. I 
am not aware of the other features. My time has elapsed. Thank 
you very much.
    Mr. GOSS. Okay.
    Chairman MCCRERY. Thank you, Mr. Pomeroy. You may not have 
been here earlier when Mr. Goss answered that same question, 
and actually Mr. Ryan's plan also does that without reducing 
the guaranteed benefit.
    Mr. GOSS. If I may just add the one tiny clarification, 
Chairman McCrery. The one difference is Mr. Shaw's plan would 
work on the basis where the money from the individual accounts 
would, in effect, come back to the trust funds, and, therefore, 
the entirety of the benefit would be paid from Social Security. 
I think Mr. Ryan's plan and some other plans would operate on 
the basis where there would be a guarantee that the benefit 
could not be lower in total than what is scheduled under 
current law, but it would be a mix between disbursements from 
the individual accounts and from the Social Security Trust 
Fund.
    Mr. POMEROY. Mr. Chairman, may I ask one follow-up 
question, a brief one? Not in any way to prolong this.
    Chairman MCCRERY. We can do a second round of questioning.
    Mr. POMEROY. It is right on this precise point.
    Chairman MCCRERY. You are afraid that we would forget that? 
Okay. Go ahead.
    Mr. POMEROY. Does this essentially put the Federal 
Government into the position of guaranteeing the stock market?
    Mr. GOSS. In some plans you could argue that. It is not 
really so much a matter of guaranteeing the stock market. We 
have not seen any plans that would say in effect we will 
guarantee a specific return on your investments and personal 
accounts. However, we do have a number of plans that would 
suggest that if the personal account falls below or to whatever 
extent the personal account falls below an amount necessary to 
augment your Social Security benefit and bring it up to a given 
level, like present law scheduled benefits, then the Social 
Security Trust Funds would come forth and would make up that 
difference. So, it is an arguable point that that is 
essentially guaranteeing your return.
    Chairman MCCRERY. Thank you. Mr. Hulshof?
    Mr. HULSHOF. Thank you, Mr. Chairman. I wish to follow up 
on the line of inquiry from my good friend from Massachusetts 
inquired a little bit earlier and that is the idea that 
demographic trends are really driving the financial challenges 
in the long term. With some certainty, I tell people at a town 
meeting back in Missouri the adage that or the suggestion well, 
if you fellows in Congress had not borrowed from the Social 
Security Trust Fund in the 'seventies and the 'eighties and the 
'nineties, we wouldn't have this fix that we are in. Yet, to be 
definitive, as the 2005 Trustees Report says, the probability 
of trust fund exhaustion is about 97 and a half percent that 
the funds will be exhausted before the end of 75 years and that 
is because of the demographics. Is that a fair assessment, Mr. 
Goss?
    Mr. GOSS. We would argue that the principal basis for the 
big shift in the costs that we see in the future, with 
likelihood, is principally because of the demographics. If I 
could just sort of elaborate just on one tiny point. Our 
stochastic projections in Appendix E of the report to which you 
refer, we have worked very hard on those, and we think we have 
some very good projections. They are very similar to stochastic 
projections made by a number of other entities, like the CBO. 
However, all people doing these stochastic projections 
understand that we still have some work to do. We do not 
believe we are projecting the full range of possibilities that 
is getting out there. Nonetheless, the probability given the 
demographics that we have currently and are likely to see in 
the future, the probability that Social Security will be 
solvent throughout the next 75 years we think is very low.
    Mr. HULSHOF. These aren't the kind of trends that are 
subject to substantial fluctuation in the near term, are they?
    Mr. GOSS. Well, there is always that potential, but the big 
fluctuation and the major variable that has really affected us, 
which is fertility, the big fluctuation we saw was between 1965 
and 1972, and I think we all understand what some of the major 
factors were--availability of birth control, for example. Will 
there be substantial changes in birth rates going forward? We 
suspect not. We think that is going to be relatively stable. 
Certainly, it could potentially go either way. We see in many 
of the other industrialized countries in Europe where they have 
much lower birth rates than we have. So, there is a possibility 
that we could go that way.
    Mr. HULSHOF. I would say then again to my good friend, who 
has cited a very famous patriot from the colony of 
Massachusetts, and to paraphrase, Mr. Neal, the red ink is 
coming. The red ink is coming, as opposed to the red coats, and 
I would invite the gentleman to be a patriot as the gentleman 
from Massachusetts was when he went on his midnight ride.
    Mr. NEAL. Would you yield for a question?
    Mr. HULSHOF. Yes, I would be happy to yield.
    Mr. NEAL. Are you saying the writing coming in 42 years?
    Mr. HULSHOF. I also want to follow up on something that Mr. 
Levin said, and I do acknowledge that the use of language is so 
important, and there are terms of art now related to this 
discussion. We have heard add-ons and carve-outs, and we have 
had progressive benefits. We have talked today to find 
sustainable solvency, guaranteed benefits, or at least 
guaranteed as opposed to promised benefits. Again, all those 
are terms of art. Perhaps one that is not a term of art, at 
least I don't think there is a disagreement, that is the word 
``voluntary,'' an adjective from the root word to volunteer, 
optional, a personal choice. Surely there is not a dispute as 
to the idea of a voluntary account, that that is in essence 
what it means. Then we make assumptions. There is where I want 
to go for the remainder of my time, Mr. Goss, because in your 
analysis of plans or the actuaries' analysis of plans with 
personal accounts, you make certain assumptions. In one 
instance or in some cases a participation is estimated to two-
thirds, that is, one out of every three Americans would choose 
not to have a personal account, but where do you come up with 
this estimate, or give us some sense of the confidence that we 
can place in these assumptions regarding personal accounts, if 
you would?
    Mr. GOSS. That is a very good question. Unfortunately, we 
do not clearly have data. We do not have experience that we can 
draw upon for the precise kinds of accounts we are generally 
looking at. We do have the experience of looking at what 
happens with 401(k) experience in the United States, and we see 
that participation in 401(k)s started out at something like 
less than half. It is now more like two-thirds to three-
quarters of individuals participating. We feel that in fact 
there has been a learning curve for people in the United 
States, that there will be an expectation of people having a 
greater tendency to engage in individual accounts, all else 
equal, today than might have been the case 20 or 30 years ago.
    The principal differentiation we make on types of accounts 
though as to what we would anticipate the participation rate 
will be is basically what people will be confronted with. The 
first and most important distinction is whether or not there 
will be an out-of-pocket component required by individuals. 
Some plans would require an individual to, say, put up 1 
percent of their pay into the individual account and then they 
will get a match, much like most of our 401(k)s. We would 
expect a plan of that sort will tend to, all else equal, to 
have a lower participation rate than a plan where you simply 
sort of sign on the dotted line and say, now, two or three or 4 
percent of my pay will be directed from the trust funds to the 
individual account, and you don't have to put up any extra 
money on your own. That is the first distinction.
    The other distinction, which requires a little bit more 
foresight down the road by individuals is what do I give up in 
return for having the money go into my individual account? What 
is the nature of the benefit offset? How large will the offset 
be and what will its characteristics be? There is a wide 
variation in characteristics of that sort. Most of the plans we 
have scored so far has either had two-thirds or 100 percent 
participation, and we have really reserved 100 percent 
participation for plans where there would be a clear and 
obvious choice where individuals, if they make it, simply 
really cannot lose. They would be guaranteed to come out with 
more as a result of engaging in the individual account than if 
they did not engage in the individual account.
    Most of the other plans we have seen present people where 
there is some variability, some fluctuation, some risk, if you 
will in what the outcome might be, but generally would give a 
relatively high expectation of coming out ahead as a result of 
engaging in the account. We think two-thirds is appropriate in 
that case. There is some variation though.
    Chairman MCCRERY. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Goss, thank you 
for being here, appreciate it, for the testimony and answers so 
far.
    Mr. GOSS. Thank you.
    Mr. BECERRA. Let me ask a little bit about the financial 
situation of the Social Security system, the trust fund, 
because we have gotten into this a little bit. Today Social 
Security is running a surplus. It is collecting more from 
people who are working, from their FICA taxes, and they are 
having to send out to retirees who are currently receiving 
pension benefits, retirement benefits or disability benefits or 
survivor benefits. We have been running a surplus for several 
years now, many years, and we will continue to run surpluses 
for still many years, correct, in Social Security?
    Mr. GOSS. Absolutely.
    Mr. BECERRA. Tell me if I am wrong. This year we will 
collect from Social Security Federal Insurance Contributions 
Act (FICA) taxes about some $70 billion more from workers than 
is actually needed to send out, plus the interest that we will 
continue to accrue on those treasury bonds that are in the 
trust fund will add up to a total surplus for the year 2005 as 
something approaching $170 billion or so, correct?
    Mr. GOSS. I believe it is in that vicinity.
    Mr. BECERRA. It is $165, $170. I have heard $169. Somewhere 
around $165 to $170 billion in surplus dollars for this year. 
To date, do you know how much has been accrued, how much has 
accumulated over the last several decades in the trust fund? Do 
you know how much we have today?
    Mr. GOSS. We are currently at about $1.8----
    Mr. BECERRA. Trillion?
    Mr. GOSS. There is $1.8 trillion in the trust funds at this 
point from revenue accumulating over and above what has been 
spent.
    Mr. BECERRA. My understanding is that in that year 2017, 
2018, that everyone keeps saying that we are going to now stop 
collecting enough from workers paying in to pay out those who 
are retired or disabled or receiving survivor benefits, that 
the trust fund will have reached the point of having some $5 
trillion in it.
    Mr. GOSS. I believe in then current nominal dollars it 
would reach that level, as I mentioned in the statement, in 
present value dollars it will be about $ 2.4 trillion. It will 
be a very large amount of accrued reserves at that point in 
time.
    Mr. BECERRA. My understanding is, as much as we hear others 
say that there is a crisis, that surplus continues to grow 
until about the year 2027 to about $6.5 trillion.
    Mr. GOSS. In nominal dollars that is true because the 
amount of money that would be necessary to augment taxes to pay 
full scheduled benefits during that interim period would be 
less in that period than the amount of interest that is----
    Mr. BECERRA. So, we are still adding up a little bit more, 
but by 2027, 2028, that is when we start to see the decline 
into about 2041, 2042, or the CBO says 2050, 2052. Now, let us 
compare that to the existing Federal budget, which my 
understanding is, this year, this fiscal year will run not a 
surplus like Social Security will run this year, but will run a 
deficit of some $425 billion. So the deficit today in the 
operating budget, the budget the President presented to 
Congress was about $400 and some odd billion in the hole. To 
use the words of my friend from Missouri, not only is the red 
ink coming, the red ink is here when it comes to the operations 
of budget.
    So, while we have years to go before Social Security ever 
encounters a problem, if indeed it even will if all these 
assumptions play out, we know today that the Federal Government 
has misallocated its dollars at least--or its priorities in 
terms of its spending, because obviously it is running massive 
deficits, has been running deficits now since the President 
took office, and will continue to run deficits. The President 
does not project that when he leaves office in another 3 years, 
he will still have a surplus in the budget. So, when we hear 
that there are proposals out there, privatization proposals 
that would fund that transition cost or the gap between what is 
needed to cover benefits and to take care of the cost of 
transitioning to privatization, that those plans, those 
privatization plans rely on general revenue transfers. What we 
are in essence saying is taking money from those pots of money 
which are today also trying to figure out where they are going 
to get their money since right now that operating budget is 
running in a deficit. Are you following my line of thought 
here?
    Mr. GOSS. Yes.
    Mr. BECERRA. So, I am thinking to myself, there are 
privatization plans out there saying, don't worry, we can 
guarantee you benefits if you have a private account, because 
guess what, we are going to take the money from the general 
revenues. General revenues is another word for saying the 100 
million in our Nation who are going to school, public education 
gets about $60 billion in a fiscal year. If the transition 
costs alone are in the trillions, $60 billion a year, you could 
take every single dime out of funding for education for the 100 
million students in this country, and you would have to do that 
for at least 20 years to get to a trillion dollars. So, if 
these privatization plans are going to have to fund trillions 
of dollars in costs by taking it out of the general revenue, I 
don't expect many Members in Congress are going to want to take 
it out of national defense, so we will have to take it out of 
education or housing or senior care or veterans benefits. It 
has to come from something in general revenues, correct?
    Mr. GOSS. That is correct. There basically would be three 
choices for all of the plans that would incur some extra money 
needed from general revenues, either there would have to be 
additional taxes outside of Social Security to provide that, or 
reducing other spending as I think you are suggesting, or more 
borrowing from the public.
    Mr. BECERRA. Thank you. I see my time has expired and the 
Chairman has been very generous. So, I thank you for your time.
    Thank you, Mr. Chairman. Yield back.
    Chairman MCCRERY. Thank you, Mr. Becerra. Mr. Brady?
    Mr. BRADY. Thank you, Mr. Chairman. Is it safe to say that 
Congress will have to find trillions of dollars to preserve 
Social Security, either to keep it in its current pay-as-you-go 
form or to prefund a different approach to long-term solvency?
    Mr. GOSS. I think it really depends on really what the goal 
is in achieving. One option, for example, certainly would be to 
just lower the level of scheduled benefits in the future. We 
could in effect smooth out----
    Mr. BRADY. To preserve the current benefits we would have 
to----
    Mr. GOSS. If we want to preserve the current benefits there 
is no question we need to find----
    Mr. BRADY. So, we will spend money, absent changes in 
benefits, we will spend trillions of dollars to either keep the 
current benefits or to prefund a longer-term approach, say, 
personal accounts?
    Mr. GOSS. No question about it.
    Mr. BRADY. Thanks. I appreciate your testimony. I have done 
like a number of other Members of this panel, a number of 
townhall meetings. I wish I could drag you around to all of 
them. We have lots of questions, good questions from people. 
Let me ask you some of them as if you were at my workshops. 
Outsourcing, what is the actual actuarial impact of outsourcing 
on our Social Security system?
    Mr. GOSS. I assume, Mr. Brady, when you say outsourcing you 
mean American companies tapping into labor supplies outside of 
this country?
    Mr. BRADY. Yes.
    Mr. GOSS. In the near term at least, what this really means 
is that there would be a transference of capital by these 
companies to labor supplies. If we are talking about, for 
instance, going to China or India and actually hiring people 
and setting up plant and equipment, that means that there would 
be less labor and less work than there might otherwise be in 
this country. The real question is, when that is done, is it 
done because there is a shortage of labor, or is it----
    Mr. BRADY. Perhaps, let me be more specific. Have you 
measured the actuarial impact of outsourcing on the Social 
Security system?
    Mr. GOSS. We haven't really, per se, because when we make 
our projections of the future labor supply and the future 
number of workers in the economy, we assume that going to the 
future we will have rates of employment amongst people by age 
and sex that are following trends that are very similar to what 
we have now.
    Mr. BRADY. Have you estimated the actuarial impact of 
insourcing jobs?
    Mr. GOSS. By insourcing I assume you mean foreign companies 
coming in, employing Americans in the United States?
    Mr. BRADY. Exactly.
    Mr. GOSS. We have not specifically identified separately 
the impact of insourcing versus outsourcing.
    Mr. BRADY. What is the actuarial impact of illegal 
immigration on our Social Security system?
    Mr. GOSS. The impact on the financing of our Social 
Security system of other than illegal immigration is generally 
an unbalance positive toward the financing of the Social 
Security system, and really the principal reason for that is 
because immigrants who come into the country, whether they come 
on a legal or on an other than legal basis, once they arrive in 
this country, generally in their early or their mid twenties, 
if and when they have children on our shores, those children of 
course are U.S. citizens. The principal impact over the 75-year 
time horizon is those children who are born in the United 
States, should they continue to reside in the United States, 
represent an increase in our population, much as though we had 
an increase in the fertility in the United States, and that 
actually does accrue positively to the financial outlook of 
Social Security.
    The specific immigrants who come to the country is really a 
very mixed situation we have for individuals who come to the 
country on an other than legal basis, many of them end up 
working and contributing and perhaps getting benefits at a 
later time, but very many of them also may work and contribute 
to Social Security and never really receive benefits, so there 
tends to be a plus. Others, of course, never work in the so-
called above-ground economy and contribute at all. So, it is a 
very, very diverse possibility here.
    Mr. BRADY. What is the--this is my favorite question at 
workshops--wouldn't Social Security be solvent if just Members 
of Congress paid into Social Security?
    [Laughter.]
    I needed you yesterday. We had 350 people at a very 
informed town hall meeting, and clearly two-thirds of them were 
astounded to find we pay into Social Security and have for some 
time. The President's plan, I hear all sorts of wild estimates, 
$5 trillion costs and 90-percent reduction in benefits. Has 
your office scored or published an official proposal by 
President Bush?
    Mr. GOSS. We have an aspect. At the time of the State of 
the Union address the President put forth a specific 
specification for the individual accounts that he had in mind, 
and we got specifications for that through the year 2015. We 
produced a memorandum based on what they had laid out in 
specifics through that time period, including the effects of 
the benefit offsets which they were also specific about. The 
White House was not specific at the time as to what would 
happen after 2015 in the nature of the individual account 
contributions. So, we were really not able to make a projection 
beyond that.
    Since that time the President has, as we all know, also 
spoken to a kind of a progressive indexing benefit structure. 
We have done estimates on that particular progressive indexing 
concept for a gentleman named Bob Pozen, which whom I believe 
you are all familiar, who we worked with in developing that 
provision. As the President has outlined it, we believe that he 
has some aspects of that that are probably different from what 
Bob Pozen had in mind perhaps in the way that it affects 
disabled workers and possibly other items. We do not at this 
time have sufficient specification on that provision or of a 
complete plan really to be able to do an estimate in total.
    Mr. BRADY. The answer at this point is not yet?
    Mr. GOSS. Not at this point.
    Mr. BRADY. I will finish with this, Mr. Chairman. The 
Windfall elimination Provision is one of those formulas that 
affects workers in Social Security substitutes, those who have 
earned a pension in Social Security, those who have earned one 
in a substitute. There are a number of bills out there. One of 
the ones we have proposed creates equal treatment, and it is 
scored at affecting the solvency of Social Security by 0.01 
percent. In real terms how much is 0.01 percent?
    Mr. GOSS. Well, 0.01 percent of payroll is equivalent to 
about $400 million per year on sort of a steady basis going 
into the future on sort of a wage index basis. So, in most of 
our personal lives that would sound like an awful lot. In the 
context of the entire Federal budget and even in the context of 
the Social Security system, that is not a very large amount. 
Put a 1 percent of payroll, that can be compared also to the 
sort of long-term cost of the system of 15 percent of payroll, 
so it is very small compared to that. Also compared to the 2 
percent of payroll roughly shortfall that we have over the 
future. So, it is not an enormous amount, but significant.
    Mr. BRADY. Well, we have lowered that I think by half as 
well, so we will talk. Thanks, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Brady. Ms. Tubbs Jones?
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Good afternoon, 
Mr. Goss. I am the only Member of this Committee that happens 
to be on the Subcommittees on Select Revenue Measures and 
Social Security and it meant today both are meeting at the same 
time. So, I apologize for coming in late and not having the 
opportunity to hear your testimony. Let me follow up on 
something my colleague, Mr. Brady said. Mr. Brady said that for 
personal accounts and to keep Social Security benefits in 
place, that we will have to borrow or pay out more money, but 
it is not ``or,'' it is ``and,'' to do both of these it is 
going to cost us a lot more money than to do one or the other. 
Is that a fair statement?
    Mr. GOSS. I am sorry? To do both, to provide?
    Ms. TUBBS JONES. To provide money for personal accounts as 
well as to keep the benefits at the level that they are right 
now through 2079-2041. I am sorry.
    Mr. GOSS. It depends really on exactly how you approach 
this, but oftentimes the way we try to characterize it in the 
memoranda that we do for proposals, we try to break down as 
clearly as we can what is really happening with a given 
proposal. Fairly recently we have added a new table to our 
memoranda. It is Table D as in difference, where we actually 
try to elaborate upon what happens on a year by year basis 
within a proposal and several aspects. One of the aspects is 
the way in which the proposal actually affects the cost of the 
system and how much the level of benefits that are scheduled 
under current law are changed and----
    Ms. TUBBS JONES. Mr. Goss, I know you are very good at 
responding to questions and mine was really simple, that it is 
going to cost us more money to be able to fund personal 
accounts.
    Mr. GOSS. I apologize. You are right. If what you are 
talking about is to fund personal accounts and in addition have 
the Social Security benefits maintained----
    Ms. TUBBS JONES. Yes.
    Mr. GOSS. --at the present law scheduled level, there is no 
question but that that would be fairly expensive.
    Ms. TUBBS JONES. Thank you. Also you talked about Mr. Pozen 
as being the person who assisted the President in proposing 
private accounts, and he is the one that recently said that 
private accounts should not be the first option. Have you heard 
that that is what he said, sir?
    Mr. GOSS. I haven't heard the exact quote, but I have heard 
that he indicated something along those lines.
    Ms. TUBBS JONES. Great. Let me ask you, as an actuary, you 
factor in race, gender, in terms of length of life, fair 
statement, when you are doing computations as an actuary?
    Mr. GOSS. We do not in our projections explicitly have race 
specific numbers, but certainly they are inherent in the 
numbers we----
    Ms. TUBBS JONES. So, are you then the person who would have 
provided information to the President for him to say that 
African-Americans live shorter lives than other Americans in 
this country, and that therefore it should perhaps be factored 
in, that the reason we want to create a private account is to 
assure them that they get paid more money--more of the money 
that they pay into Social Security?
    Mr. GOSS. Well, the agency in the Federal Government that 
actually does the calculations about race-specific mortality is 
the Bureau of Census, and they actually have those data. No one 
would contest the data that they have. There is no question 
about that African-Americans do have shorter life expectancies.
    Ms. TUBBS JONES. So, do you support the President's 
position that in order to help African-Americans who have 
shorter life expectancies, that we ought to pay them more out 
of Social Security?
    Mr. GOSS. That we ought to pay African-Americans more out 
of Social Security?
    Ms. TUBBS JONES. Yes.
    Mr. GOSS. Well, we as actuaries, as you would probably 
guess, do not really support any particular position. We try to 
do the best analysis we can. It is clear that under Social 
Security or under any pension plan where annuities are provide 
that are the same for everybody who reaches an age, people who 
live a shorter length of time thereafter, whether they be 
African-American or men versus women, will tend not to get as 
much. One of the features of Social Security as we know it 
today, or course, as a positive, is that also survivor benefits 
and disability benefits are provided, and for those groups that 
tend to have shorter life expectancies and get less from the 
pension, they in general----
    Ms. TUBBS JONES. That is the argument that I would make, 
but the President makes that argument. So, let us stick with 
what he said. So my statement is, or my question is, wouldn't 
it be better for our country to cure the reason for early death 
for African-Americans than to say we are going to provide them 
a greater benefit when they die or when they age?
    Mr. GOSS. I don't think anybody would question that 
attempts to address differences in mortality across segments of 
our population would be a wonderful thing.
    Ms. TUBBS JONES. Let me also ask you, Mr. Goss, in the 
course of--strike that. Let me go to another question, Mr. 
Goss. In fact, my time is up. So if we do another round, I will 
get some more time. Thank you very much, Mr. Goss. I appreciate 
it. Thanks, Mr. McCrery.
    Chairman MCCRERY. Thank you, Ms. Tubbs Jones. Mr. Ryan?
    Mr. RYAN. I was going to go one direction, but I want to 
address a couple points that Mr. Becerra and Ms. Tubbs Jones 
raised about the, quote, unquote, ``costs of personal 
accounts.'' Is it not true, Mr. Goss, that according to the 
trustees that today we would have to put aside $4 trillion in 
today's dollars today to maintain scheduled benefits for the 
next 75 years, or in other words, to put it in human terms, for 
my mother, myself, my wife and my children?
    Mr. GOSS. I think that is a basically accurate statement. 
We would have described it a little bit differently and suggest 
that the $4 trillion represents the shortfalls in net we have 
over the next----
    Mr. RYAN. In net present value terms, which means put it 
aside today and grow it at the prevailing rate?
    Mr. GOSS. That is one option that we could pursue, but 
another way to look at it is really that is the amount that we 
need to develop in terms of additional revenues over the course 
of the next 75 years as a whole.
    Mr. RYAN. Right. If we wanted to just keep current benefits 
going for the next 75 years, we would have to come up with four 
trillion today in present value dollars to fund that?
    Mr. GOSS. Well, we need to come up with sufficient revenue 
over the course of 75 years, not today, but over the course of 
75 years that in present value would be equivalent to four----
    Mr. RYAN. Thank you. That is what I am getting at. I forgot 
the table number you used but you have a new measurement called 
total system assets, which is the sum of trust fund assets and 
the personal account assets, and it indicates the total 
resources set aside to pay Social Security benefits. Using this 
measure of total system assets, would it be fair to say that 
personal accounts either drain resources from the system or 
that they build other programs' assets?
    Mr. GOSS. We developed this sort of concept of total system 
assets at the time of the President's Commission on Social 
Security, and this was, as I think you are suggesting, in 
recognition of the fact that plans that would in fact redirect 
money from the trust funds and buildup individual accounts. To 
the extent that you look at these as a single entity, as a 
total system, you really do have to look at the assets that are 
in both of them on a combined basis. We have always made 
estimates where we have individual accounts or where we have 
trust funds invested in other than Treasury securities on the 
basis of both of the expected yield that we were talking about 
before with the 6.4 percent of real return expected on 
equities, and with a lower yield expected on equities and on 
corporate bonds that would be equivalent to the so-called risk 
adjusted basis. So, we really present both of these.
    If you look at it on the risk adjusted basis, which many 
economists and finance people believe is an appropriate way to 
look solely at this, then in fact you see that total system 
assets really are not affected by investing either in 
individual accounts or in the trust funds in anything other 
than Treasury bonds.
    Mr. RYAN. Using the trustees' numbers and historic rates of 
returns in the marketplace?
    Mr. GOSS. Well, using the trustees' numbers and 
specifically the actuary assumptions of expected yields on 
equities and on corporate bonds. On an expectation basis we see 
generally whether you invest in the trust funds or in personal 
accounts, that total system assets are in fact advantaged by 
investing in private securities in all likelihood in the 
future.
    Mr. RYAN. With the inclusion of personal accounts?
    Mr. GOSS. Absolutely, yes.
    Mr. RYAN. Since time is running fairly quickly, I wanted to 
ask you a question. There is all this confusion or talk about 
transition costs on new borrowing or new debt or new costs 
incurred to the system on top of the problems we have today 
when you go over to personal retirement accounts. Is it not the 
case that--and obviously I can't speak for every person's 
plan--but most plans that you are scoring, is it not the case 
that transition costs or any borrowing that might occur is 
another way of simply taking that long-term debt out there, 
that $11.1 trillion unfunded liability, and paying it off on a 
discounted present value basis if in fact the end result, 
according to you the actuary, is that the plan achieves 
permanent solvency. So, is it not replacing the debt that is 
out there with a smaller debt that is paid off in the present 
time at a lower number? Is that not in fact what is achieved 
when you have a personal account component to your reform that 
achieves permanent solvency?
    Mr. GOSS. Well, this really depends very much on precisely 
the nature of the plan, as you suggest. If I could take on 
example, for instance, the President's Commission Model Two, 
which was a fairly pure example of the way a plan might work. 
Under President's Commission Model Two, because of the basic 
changes in Social Security through the price indexing of 
benefits, that provision alone--and it was very clear and the 
Commission desired to have this shown clearly--that that in 
effect fixed the long-term, in fact even if you go that far, 
the infinite horizon projection. So the actual savings to 
Social Security as a result of just that change in basic 
benefit levels would satisfy the entire $4 trillion shortfall. 
That was really over and above that, the roughly $1-$1.2 
trillion transition investment occurred under the Commission 
Model Two in order to finance the advance funding.
    So, there really were two components under Commission Model 
Two. one was to in effect lower the benefits, to live within 
the 12.4 percent payroll tax basically, and that was a 
reduction of roughly $4 trillion over the 75-year period in 
benefit obligations by lowering benefits from what was 
scheduled; and then in addition, the roughly $1-$1.2 trillion 
of transition investment in order to create the advance funding 
for the personal accounts.
    Mr. RYAN. To bring the benefit up for the net--for the 
addition of the traditional benefit and the account and to wipe 
out the entire contingent liability; is that what you are 
saying?
    Mr. GOSS. The combination of those definitely did wipe out 
the liability, and there is----
    Mr. RYAN. I cannot see the light from here so I am going to 
keep asking you a question unless the Chairman shuts me down. I 
really can't see the light. Is it red? Okay. I guess we are 
going to do round two.
    Mr. LEVIN. We don't think you see the light in many ways.
    [Laughter.]
    Mr. RYAN. Thanks, Sandy. Appreciate it. I yield.
    Chairman MCCRERY. Thank you, Mr. Ryan. I am going to allow 
another round if anyone wants to stay and ask additional 
questions, if Mr. Goss can stay. Mr. Shaw?
    Mr. SHAW. Thank you, Mr. Chairman. I want to go back to a 
couple of questions that were asked on the minority side. Mr. 
Neal made the statement that for the President or anybody to 
say there is a crisis in Social Security is like Paul Revere 
running through Boston streets saying the British are coming in 
40 years. I would like to dissect that statement and look and 
see exactly what we are talking about. Isn't it true that over 
the next 12 years we are going to experience a shrinking 
surplus in Social Security?
    Mr. GOSS. That is absolutely correct. Beginning in the year 
2009 we see that the size of the cash flow positives will be 
starting to diminish.
    Mr. SHAW. That means, in just plain language, the Social 
Security was set up so that the government can use that surplus 
in order to run the government and replace it with Treasury 
bills. In what year do we run out of surplus?
    Mr. GOSS. Well, the year that we project currently under 
the intermediate assumptions that the positive cash flows will 
turn into negatives is the year 2017.
    Mr. SHAW. So beginning in 2017, the Congress not only will 
not have the surplus in order to help run the government, which 
is a shortfall in revenue to the general fund, but they will 
also then experience an obligation to start putting cash out in 
order to take care of benefits to recognize its liabilities to 
tomorrow's seniors. Now, in saying that, I think that what we 
can really begin to start talking about is that there may not 
be a Social Security crisis out there, but there is certainly 
going to be a funding crisis. The funding crisis is going to be 
both to the Federal Government in order to run the government 
as well as in order--we are going to have to find revenue with 
which to pay the seniors.
    Now, taking that and moving that forward, Mr. Ryan, being 
an economist, talks in terms of today's dollars; in terms of 
today's dollars, there is going to be a $4 trillion shortfall. 
Over the next 75 years, in terms of cash flow, what would be 
the total cash shortfall to Social Security as the outlays, not 
in terms of today's dollars but in terms of how many dollars we 
are going to have to find over the next 75 years to meet our 
obligation under Social Security?
    Mr. GOSS. The difficulty with trying to answer exactly that 
question is when we talk about the cash flow shortfalls, these 
are shortfalls that we usually are able to think of in terms of 
1 year at a time what the cash flow shortfall is. For each year 
we look at what the shortfall is for that year, and the problem 
in sort of translating across years what those dollars amounts 
mean.
    Mr. SHAW. Well, I have heard the figure $26 trillion. I 
think that came out of your shop as to the total cash shortfall 
over the next 75 years.
    Mr. GOSS. Well, we have certainly made projections of the 
annual cash flow shortfalls on a year-by-year basis, and we do 
show them, I believe, in the Trustees Report in nominal 
dollars. It is certainly easy to translate those into constant 
dollars on a year-by-year basis. The difficult part is adding 
them up across different years. We feel the most meaningful 
way, perhaps the only really meaningful way to add up the 
dollars in summation over a number of years is to do them in 
the present value, reflecting the so-called time value of 
money. If you do that, then we can add them up, and that is 
where we come up with the $4 trillion amount. I believe the $26 
trillion number might be from adding up the constant dollar 
amount, which would be equivalent----
    Mr. SHAW. Yes, that is what people understand. You have to 
remember, I am a Certified Public Accountant, he is an 
economist, and we do not agree on much of anything.
    [Laughter.]
    I deal in real figures. He deals in today's dollars, 
tomorrow's dollars, on this hand, on the other hand. So, I 
think it is very clear that we do have a problem. Then I want 
to go to Ms. Tubbs Jones' comment with regard to it is going to 
cost a lot to set up these individual accounts. Well, over the 
next 75 years, it is going to cost a lot more not to if we 
maintain existing benefit levels. Is that not correct?
    Mr. GOSS. It depends really on how we develop the 
individual accounts and how we utilize them.
    Mr. SHAW. Let's take Mr. Ryan's proposal and my proposal. I 
think you have scored them as actually over 75 years, borrowing 
a lot of money but paying it all back and producing a surplus. 
Is that not correct?
    Mr. GOSS. That is certainly true of your plan. I am not 
sure that is true of all the plans of this sort.
    Mr. SHAW. We will just leave it with mine. We won't worry 
about Mr. Ryan's.
    [Laughter.]
    So, the point that I am trying to make is a very real one, 
that actually if we set up individual accounts, no matter whose 
plan it is, that can avoid a financial crisis over a total of 
75 years. It is going to--we are going to have a shortfall. We 
are going to have to borrow money. We are going to have to put 
it into these accounts. We are going to have to let these 
accounts grow. When these accounts, as they grow and become 
available then to the SSA to take care of benefits of future 
retirees, it does and it can very well create a surplus, and we 
can maintain existing benefits. Is that not a correct 
statement?
    Mr. GOSS. I believe that is a fair statement, and we 
certainly see that demonstrated in your proposal.
    Mr. SHAW. I will stop the questions right there. I have got 
the answer that I want. Thank you, Mr. Chairman.
    Mr. RYAN. Will the gentleman yield just for a second?
    Mr. SHAW. I would be glad to yield if the Chairman will 
allow it.
    Chairman MCCRERY. The gentleman's time has expired, but the 
Chair will briefly yield.
    Mr. RYAN. Just a quick indulgence on our plan. I think the 
reason why Mr. Goss did not expand on that is if the financing 
that we have in our plan materializes, then no borrowing is 
necessary to finance the accounts in our plan. I think that is 
why he hesitated in responding.
    Mr. LEVIN. Mr. Chairman, is it my turn?
    Chairman MCCRERY. Yes, sir. Mr. Levin?
    Mr. LEVIN. I don't think we want to extend this and get you 
involved in our debate beyond where we should.
    Mr. GOSS. If we can be helpful in any way at all, we are 
happy to do that.
    Mr. LEVIN. Happy to do what?
    Mr. BECERRA. You should take the out while you have it.
    [Laughter.]
    I said inappropriately. You can talk about what is clear 
under your plan is that we borrow now. That is certain. What 
happens 75 years from now is uncertain. That is clear. Anybody 
can set up a plan that assumes over 50, 75 years that it will 
work out and that the government will guarantee any difference, 
either by tax increases or budget cuts, which is what you do. I 
think--and so when you ask them to analyze it, they are going 
to say, sure, if the government is going to make up any 
difference, it will be solvent. Right? If we say if projections 
are off and the government will make up the difference, then 
there is sustainability, right?
    Mr. GOSS. That is correct, much as there is, for instance, 
for the Medicaid Supplemental Medical Insurance plan.
    Mr. LEVIN. The gentleman can say that about anything. Your 
actuarial figures about the impact are all averages. They do 
not talk about the differences for individuals in terms of what 
they will receive through these different plans, right?
    Mr. GOSS. We do in many instances--not in all--provide, 
when requested, also some analysis of benefit levels that would 
occur for individuals at different earnings levels.
    Mr. LEVIN. Okay, but in terms of the impact on where the 
market was when somebody would retire and the differentials 
that exist according to where the stock market might be, you 
have not analyzed that?
    Mr. GOSS. We actually have. We have not publicized that 
greatly, but in order to develop estimates, as I know 
Representative Ryan well knows because we have talked about 
this considerably, to develop estimates for the cost of 
providing a guarantee which will provide something for people 
if, in fact, certain conditions go badly, but will not provide 
anything if things go very well. In order to provide that kind 
of a guarantee, we have to make an estimate of sort of the 
stochastic variation that might occur in account investments. 
We do that for the purposes of pricing guarantees in all plans 
that we have developed, and that is true for Mr. Johnson's 
plan, for Mr. Shaw's plan, and also for Mr. Ryan's plan.
    Mr. LEVIN. So, if we gave you some figures that indicated a 
retirement at a certain level of the stock market 20 years from 
now at one point and where it was 9 months later with the kind 
of drop that we saw a few years ago, you can estimate the 
differential in what would be the retirement benefit received 
by the individual, right?
    Mr. GOSS. Well, what we do is we have a need to be able to 
estimate sort of what the range of possible variations are over 
time because, as you indicate, there will be times when people 
in the 40 year course of their work history will have had a 
somewhat better than average stock market that they have been 
investing in, and there will be other generations that will 
have a somewhat worse than average stock market. We need to 
reflect those kinds of variations in a plan that will be 
showing a guarantee so that on the cases--in the probabilities 
where we will have a lower than average stock market or 
corporate bond yield, that we will know with what probability 
and to what degree will have shortfalls and the guarantee would 
have to come forth and provide the additional money.
    Mr. LEVIN. From someplace.
    Mr. GOSS. Well, from the trust funds of Social Security in 
these cases. On plans where we have this kind of a guarantee, 
what we do is we, in effect, estimate what the cost of this 
guarantee would be on almost, in effect, an insurance premium 
basis that becomes part of the cost of the plan. That is true 
with Mr. Ryan's plans, Mr. Johnson's plan, and Mr. Shaw's plan.
    Mr. LEVIN. I think it was Mr. Lewis who talked about 
optionality. One thing is clear, that while under some plans, 
not all, using private accounts would be optional, the benefit 
cuts that have been proposed by the President would apply to 
everybody, and those benefit cuts are not optional. So we need 
to be careful how we use the word ``optionality'' because the 
impact would be on everybody. Thanks.
    Chairman MCCRERY. Mr. Ryan?
    Mr. RYAN. Steve, I want to ask you to comment on something 
that I have been reading about lately. Some economists are 
projecting that future stock market returns are going to be a 
lot lower than they have in the past. I think Paul Krugman uses 
4.6 percent; Ned Gramlich from the Fed says stocks ought to 
yield us 4.5 percent. I am sure we can respond to those 
arguments, but what interests me is both Krugman and Gramlich 
are saying that if stock returns are lower, then government 
bond returns will be lower as well. I think Krugman says bonds 
will be 2.1 percent instead of 3. Gramlich said they are going 
to be 1.5 percent instead of 3. Since Social Security's 
financial status is calculated using the bond rate, wouldn't 
the lower return on those bonds exacerbate our problems, 
exhaust the trust funds sooner, and accelerate the date at 
which trust fund exhaustion occurs? That is question number 
one.
    Question number two, have you valued that? Have you 
measured the value and the acceleration of our problems if we 
had a 2-percent bond rate or a 1.5-percent bond rate, rate of 
return? So, it seems to me that those who are saying stocks are 
going to do crummy in the future are also saying so will bonds, 
which will simply exacerbate our trust fund problems. Is that 
not the case?
    Mr. GOSS. That is absolutely the case. In fact, our 
Trustees Report, annually we have a sensitivity analysis 
section in it.
    Mr. RYAN. Yes, what does your sensitivity do on bonds?
    Mr. GOSS. Our sensitivity analysis, we have three different 
levels at which we showing changing only one variable on the 
interest rate for the investments of the trust funds. Our 
central assumption is about a 3 percent real return on long-
term Treasury bonds in the future. Our low-yield assumption we 
show at 2.2 percent, which is perhaps----
    Mr. RYAN. Even higher than those two estimates.
    Mr. GOSS. Which is higher than those are, and that would 
change our 1.92 shortfall to a 2.48 shortfall, a little bit 
more than one-half of 1 percent of payroll, or a little bit 
more than a one-fourth increase in the size of the shortfall 
over the next 75 years.
    Mr. RYAN. So a 25-percent increase in the unfunded 
liability?
    Mr. GOSS. That is correct.
    Mr. RYAN. One more quick question. Just to try and 
summarize things here, is it not axiomatic that, regardless of 
a benefit guarantee, the larger the personal account is--with a 
benefit offset feature, that the larger the personal account 
is, the sooner the system comes into solvency, but also the 
larger the short-term transition costs? Am I simplifying it too 
much? I am just trying to see if we can get a few basic 
understandings.
    Mr. GOSS. It really depends on exactly how the plan is laid 
out and how the transition investment is, in effect, handled. 
To the extent that the structure of an individual account plan 
is set up so that after the transition investment is handled, 
we do have a positive cash flow. In fact, larger accounts will, 
of course, give a magnified effect in every aspect of both 
larger transition investment but also larger positive effects 
in the cash flow----
    Mr. RYAN. So, the larger the account, the sooner 
individuals outgrow the minimum benefit, wherever that may be 
set, and the sooner the system comes into positive cash flow?
    Mr. GOSS. I believe that the first statement is certainly 
true. The second statement is----
    Mr. RYAN. It depends on the benefit guarantee.
    Mr. GOSS. It really depends on the nature of the guarantee.
    Mr. RYAN. Okay. Got you. Thank you.
    Chairman MCCRERY. Mr. Becerra?
    Mr. BECERRA. Mr. Goss, let me see if I can try to limit my 
questions to these. On the whole question of solvency and what 
it takes and what happens if you privatize the system, we are 
talking about a shortfall over 75 years, as you have said, in 
present dollars of something around $4 trillion. My 
understanding is that that amounts to about the same as saying 
about 0.7 percent--or less than 1 percent of our GDP.
    Mr. GOSS. It is 0.6 percent over the 75 years as a whole, 
on average.
    Mr. BECERRA. Okay. Let's use the $4 trillion because it is 
probably a little clearer. A couple trillions of dollars is a 
lot of money, but $4 trillion. My understanding is--and I don't 
know if you would have done the actual scoring calculations of 
this because it is not within your jurisdiction as the Social 
Security actuary. My understanding is that the President's tax 
cuts that he enacted in 2001 and 2003 and so far is trying to 
now make permanent because under a nice little scheme, they 
only were to extend for about 10 years and end, and now there 
is an effort to try to make them permanent. If you were to 
extend those tax cuts of 2001 and 2003, for that same period of 
time that we are talking about for Social Security, where 
Social Security has that shortfall of about $4 trillion in 
present dollar value, that the costs of those tax cuts--because 
there is a cost. The Treasury is not collecting the money. The 
cost of those tax cuts is at least three times, if not closer 
to four times, what the cost of the shortfall is for Social 
Security.
    Mr. GOSS. I am not familiar with the magnitudes of these 
numbers in terms of the present value dollars, but I do know--I 
have heard from a number of sources, including the CBO, that 
their estimate of the effect of the tax cuts, if made 
permanent, would be on the order of 2 percent of GDP, and with 
our projected shortfall for Social Security unfunded 
obligations, about 0.6 percent of GDP. The 3:1 ratio would 
appear to be approximately correct.
    Mr. BECERRA. So, if the President had not enacted his tax 
cuts and we had used what were at the time, we were told, 
surplus dollars instead to try to get ready for the Social 
Security shortfall which is coming in 40 or 50 years, we could 
have actually still gone forward with two-thirds of the tax 
cuts and still had enough money to take care of any insolvency 
that Social Security would face for the next 75 years.
    Mr. GOSS. The possibility of using general fund financing 
with or without the tax cuts is certainly a possibility. 
Without tax cuts, presumably it would be easier if you all 
decide to pursue that.
    Mr. BECERRA. So, now let's go back to the question that 
since today we are running a Federal budget deficit and because 
the President in his budget called for using the Social 
Security surplus moneys that we are now collecting and using 
them to fund things like the cost of the tax cuts, we are today 
spending what amounts to about $400 million a day--a day, if I 
do the calculations correctly of $170 billion annual surplus 
that is collected for this year from Social Security--it 
translates to about $400 million a day that is being spent out 
of the Social Security Trust Fund to fund things that are other 
than Social Security. If we were to use that money, those 
surplus trust dollars, Social Security Trust Fund dollars, and, 
say, pay down the size of the national debt, wouldn't we be 
preparing ourselves better into the future in the 40 years from 
now to be able to deal with the fact that we would need to help 
Social Security meet that shortfall that it has because we 
would then have a smaller debt, and therefore, we would be more 
capable of paying off things like the Social Security 
shortfall?
    Mr. GOSS. First of all, there is absolutely no question 
about that for Social Security, the moneys that are in the 
trust fund, regardless of how the actual dollars are handled, 
will be there and will be made good to Social Security.
    Mr. BECERRA. Thank you for pointing that out.
    Mr. GOSS. When we do reach the point at which we do have to 
start having net redemptions of trust fund assets, it has to be 
either from raising taxes or borrowing from the public or 
lowering other spending. Clearly, if we had less publicly held 
debt at that time, that presumably would make that action 
easier.
    Mr. BECERRA. So, if folks are so concerned about the fiscal 
situation of Social Security in 40 years, you would think that 
they would also want to worry about what the fiscal situation 
is of the Federal Government this year when we are running 
these massive deficits that require us to use Social Security 
Trust Fund dollars to help offset the size of the deficit. In 
fact, even with the use of the Social Security Trust Fund 
dollars to the tune of $170 billion or so, we still have a 
massive Federal budget deficit this year of about $425 billion. 
So, I think Congressman Shaw from Florida said it best, I 
think. He said it is not a Social Security crisis. I think he 
said it is really a funding crisis and where our priorities are 
with regard to funding.
    Final question. Can you name for me a productivity out 
there in the private marketplace which offers you a pension 
benefit that is guaranteed, a disability insurance benefit that 
is guaranteed, a survivor benefit for a spouse or children of a 
deceased worker that is guaranteed, that also offers you a 
cost-of-living increase every year that is guaranteed? Can you 
find anything out in the marketplace right now, private sector 
marketplace, that offers you those four aspects guaranteed?
    Mr. GOSS. I am not aware of any private offering that 
exists of that sort, no.
    Mr. BECERRA. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman MCCRERY. Mr. Johnson?
    Mr. JOHNSON. Thank you, Mr. Chairman. First of all, Mr. 
Becerra, you know and I know that the cash increase this year 
is higher than ever, and it is because of tax relief. 
Furthermore, you keep talking about the President's proposal. I 
would like to ask you a question, Mr. Goss. There is a lot 
being said about the President's proposal. Has your office ever 
scored or published an official proposal by President Bush?
    Mr. GOSS. The only proposal--the only official scoring that 
we have done for the President's proposal is just in the 
limited aspect of the individual account that he has put forth 
through 2015 with the offsets. We have done some scoring, as I 
mentioned earlier, for Robert Pozen on a change in the benefit 
structure, which appears to be along the lines of what the 
President has proposed, but we have not yet received 
specifications particularly on the nature of that.
    Mr. JOHNSON. You do not have a President's proposal. Yes or 
no?
    Mr. GOSS. We do not have a comprehensive plan from the 
President at this point that we can actually provide a score 
for.
    Mr. JOHNSON. Thank you. Would you agree the numbers that 
have been circulated are based on significant assumptions, I 
guess, on the part of the authors as to details on what the 
President's solvency would include?
    Mr. GOSS. I am not totally familiar with some of the 
numbers that you are referring to. I am aware of some numbers 
going around. I believe in fairness that there is a 
suggestion--and I have heard this from people on the White 
House staff--that they have suggested that the individual 
account structure would eventually move toward having a full 4 
percent for everybody. The piece that we are missing is exactly 
on what basis and with what speed you would move toward having 
that. So, we simply do not have sufficient specification at 
this point to be able to say exactly what the Administration's 
plan would be.
    Mr. JOHNSON. Right, and you said that the accounts would 
start going negative in 2009. I heard 2008 in your last 
proposal. Is that true?
    Mr. GOSS. I am sorry. You mean----
    Mr. JOHNSON. When we start not having enough money to cover 
all our expenses out of the trust fund.
    Mr. GOSS. Well, it is 2009 is the first year under our 2005 
Trustees Report. That is the first year in which we will start 
to actually see the size of these annual cash flow positives 
that we have now will actually start to diminish. They will 
still be positive for a while. They will be positive through 
2016.
    Mr. JOHNSON. It diminishes.
    Mr. GOSS. They start diminishing in two----
    Mr. JOHNSON. So, the dollars, which are not real, have to 
come from somewhere to cover our budget concerns here in the 
Congress, and somebody is going to suffer. We are going to have 
find money to fund agriculture, education, those kinds of 
things. Is that true? That is where that money is going now.
    Mr. GOSS. Well, that is where basically the money from any 
investments, in effect, that the Social Security trust funds 
are making in the Treasury, much as if any of us were to buy a 
U.S. savings bond also, those dollars arguably would be used 
for similar purposes. It is a fair point to make that the money 
is not quite the same as if it were going into private 
securities. On the other hand, though, I think it is also a 
fair point that the money is not terribly different from 
investments that would be made by individuals in savings bonds.
    Mr. JOHNSON. No, but we are being squeezed--is that true? 
Starting in 2009.
    Mr. GOSS. Well, certainly the contribution that Social 
Security taxes are making over and above the cost of that 
program will be diminishing starting in 2009, and then we will 
turn over toward it being a draw, in effect, from the general 
fund of the Treasury starting in 2017.
    Mr. JOHNSON. Thank you. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Johnson. Ms. Tubbs Jones, 
did you want to ask another question or two?
    Ms. TUBBS JONES. I would love to. Thank you. Earlier in 
this process, I think it was my colleague Mr. Ryan who was 
asking you something about total system assets as the way in 
which you determine that private accounts could support--or not 
create insolvency. Was that what you were saying, sir?
    Mr. GOSS. No----
    Ms. TUBBS JONES. A term you were using, what----
    Mr. GOSS. Total system assets per se in the context of 
including assets in individual accounts do not per se speak to 
solvency of Social Security. What they really speak to is sort 
of a different issue, and that is that if you have the Social 
Security trust funds and you have some money, in effect, 
redirected from the trust funds to individual accounts, it is 
true that the trust funds then are diminished. Moreover, if the 
money leaves the trust funds and goes to individual accounts 
outside of the government, in fact, that is actually scored as 
an expenditure from a budget point of view. The reason for 
considering the concept of total system assets is to say that 
that money is, of course, not lost to the world. That money has 
gone out there and goes into the individual accounts. As long 
as the individual accounts are preserved and are maintained, 
then those assets continue to accrue in----
    Ms. TUBBS JONES. So before we started mucking around with 
trying to create a private account, ``total system assets'' was 
not a term that we talked about in Social Security.
    Mr. GOSS. That is correct.
    Ms. TUBBS JONES. A new term also, since we decided to start 
working this, is ``progressive indexing'' instead of ``wage 
indexing'' and ``price indexing,'' right? Let me ask you one 
more question--I have two more questions, actually. You were 
talking about--actually, that was still total system asset. 
Let's forget that. Let me go to this one. Okay. I understand 
you have not prepared an analysis of the President's plan 
because, quote-unquote, the Administration does not have a full 
plan, they keep throwing us little chit-chats here and there, 
private accounts, possibly raising this, that, and the other. 
In spite of you not having a President's plan, have you ever--
you not having the President's plan, are you familiar with an 
analysis that was done by Jason Furman of the Center on Budget 
and Policy Priorities?
    Mr. GOSS. I briefly saw that. I am not sure which analysis 
you are referring to, but I believe he has done an analysis in 
the last few days.
    Ms. TUBBS JONES. It is called ``The Impact of the 
President's Proposal on Social Security Solvency in the 
Budget.''
    Mr. GOSS. I am aware of that. I have not had the 
opportunity to look at it with any care. Unfortunately, we have 
been fairly busy.
    Ms. TUBBS JONES. Okay.
    Mr. GOSS. Looking at his analysis----
    Ms. TUBBS JONES. So, somebody believes the President has a 
plan. At least Mr. Furman, Dr. Furman does, because he has done 
an analysis of the President's plan.
    Mr. GOSS. Well, if he has specifics on the plan that the 
White House has shared with him but not us, we would certainly 
be very interested in knowing what those are. I think there is 
a possibility that he has perhaps inferred some things about 
it.
    Ms. TUBBS JONES. I mean, there is a real possibility, it is 
not unlikely that the President might have shown the plan to 
some other part of government and not shown it to you.
    Mr. GOSS. Oh, I think that is certainly possible.
    Ms. TUBBS JONES. It is likely, too, isn't it?
    Mr. GOSS. Pardon?
    Ms. TUBBS JONES. It is likely?
    Mr. GOSS. No, I don't think so.
    Ms. TUBBS JONES. You don't think it is likely?
    Mr. GOSS. No, I don't----
    Ms. TUBBS JONES. Well, let me ask you this----
    Mr. GOSS. --think it is likely that he shared with Jason 
Furman----
    Ms. TUBBS JONES. --has Dr. Furman consulted with your 
office to determine what assumptions you used about various 
elements of Social Security reform proposals?
    Mr. GOSS. He has certainly been in touch with us in the 
context of the last Administration and since then about 
aspects, for example, the return that we assume as our expected 
yield on equities and on government bonds. Also, he has asked 
questions about what our assumptions are regarding 
participation rates for individual accounts.
    Ms. TUBBS JONES. Since Dr. Furman is not an actuary, it is 
likely that he consulted with you so he would be able to do an 
appropriate analysis in order to give some or shed some light 
on the circumstances of private accounts?
    Mr. GOSS. Well, I wish I could, but I cannot really speak 
to Dr. Furman's analysis. I am sure that he has done his best 
effort to do a very credible analysis, but unless he has more 
specification than we do, he would not be able to do a 
definitive analysis of the President's plan.
    Ms. TUBBS JONES. So, you are not the only actuary. You are 
the actuary, but there are other people that work under you. Is 
that a fair statement?
    Mr. GOSS. That is true. We have an office of 50 people.
    Ms. TUBBS JONES. So it is possible that Dr. Furman has 
talked with some of the other actuaries in your shop to assure 
that his analysis is coming close to whatever the proposal is 
on the table.
    Mr. GOSS. Well, it would be very, very difficult for him to 
compare that to our analysis of a plan for the President 
because we have not made an estimate of a specific plan for the 
President.
    Ms. TUBBS JONES. You have done actuarial computations. You 
do actuarial computations on things that are not called the 
President's plan. Fair?
    Mr. GOSS. Oh, absolutely.
    Ms. TUBBS JONES. Okay.
    Mr. GOSS. We do estimates for many Members of Congress and 
the Administration on a number of--on a wide variety of 
possibilities.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Chairman MCCRERY. Mr. Pomeroy?
    Mr. POMEROY. Thanks, Mr. Chairman. Much of the discussion 
on the reform proposals is macroeconomics. We take a look at 
the economics of the system, the economics of the Federal 
Government, how this all works in the macro, macro view. One of 
the things I think we need to worry about as Members of 
Congress is the microeconomic. What does this mean to the 
household? What do we need to have in a system that adequately 
supports the household given changes occurring in longevity and 
such? I don't know to what extent this micro analysis involves 
the actuarial office, but I will just pose a couple of things 
for you.
    Longevity rates are increasing. People are living longer. 
Do you have any data on that?
    Mr. GOSS. We absolutely do. We monitor the data on 
declining death rates and increasing longevity on an annual 
basis. In fact, at the Social Security Administration we have 
access to what is undoubtedly the very best quality data 
available in the country for mortality rates, a combination of 
Social Security and Medicare data, and we tabulate these every 
single year based on the latest experience. The Bureau of 
Census and, in fact, the U.S. Life Tables even make use of the 
data that we are able to develop for ages 65 and over.
    Mr. POMEROY. For your actuarial assumption, is it your 
expectation longevity rates--people will continue to live 
longer than present life expectancies?
    Mr. GOSS. Absolutely, yes.
    Mr. POMEROY. I don't know to what extent your office 
accumulates data on people saving for retirement years or 
having pensions or defined contribution plans or private 
savings that give them an income stream in addition to Social 
Security for those longer years of life expectancy. Do you have 
any information on this?
    Mr. GOSS. We have not in the Office of the Actuary done a 
lot of work in the area of amassing information for additional 
sources of income. We do some of that in the area of analysis 
we do for benefits under the Supplemental Security Income plan, 
the SSI plan. There is another office at Social Security that 
does a lot of distributional analysis where they very 
specifically developed models to look at the overall aspects of 
income that individuals have.
    The principal area where we have to worry for the Social 
Security system about other assets and income that individuals 
have is when they receive benefits to determine the extent to 
which taxation of benefits will have an effect on the benefit 
levels they receive and the revenue that they pay.
    Mr. POMEROY. Do you believe----
    Mr. GOSS. We receive----
    Mr. POMEROY. Do you believe system design changes need to 
carefully evaluate what else is going on relative to sources of 
retirement income to the individual so that you have a 
complementing response? In other words, if there are growing 
problems in the private side, you don't compound those problems 
with changes made to the Social Security design.
    Mr. GOSS. I think that is an absolutely positive statement, 
Representative Pomeroy, and the way we have always operated in 
dealing with Members of Congress is we always seek to try to 
help to develop plans that would meet the objectives and the 
goals that the Member states. I think that is a very good goal.
    Mr. POMEROY. We heard testimony from Dallas Salisbury last 
week, the head of the Employee Benefits Research Institute, an 
individual known to you, I am sure.
    Mr. GOSS. Yes.
    Mr. POMEROY. He said the risk of living to--how did he say 
this? The risk of income through retirement years is 
increasingly falling on the individual, and I think he was 
speaking about the shift from pensions with their guaranteed 
annuity payment to the individual and the nest egg approach and 
trying to match that. One thing I am very concerned about as we 
are talking about these design changes, they seem to me to make 
the risk that an individual might outlive an asset stream 
greater. To me it seems like the defined benefit model of the 
existing Social Security, with its monthly paid annuity, 
inflation adjusted, a payment you cannot outlive--it will be 
there as long as you live, rather, is a design that works very 
well in terms of helping people deal with the risk of outliving 
their assets. Would you agree?
    Mr. GOSS. Absolutely, and that is why we believe that 
virtually every plan we have seen, whether it be maintaining 
for Social Security essentially the defined benefit nature or 
moving at least partially in the direction of individual 
accounts, have generally incorporated at least some aspect of 
annuitization so that there would be a lifetime guaranteed 
benefit going forward, once you determine at retirement how 
much you have to work with.
    Mr. POMEROY. I am out of time, but I think that that is--I 
mean, I am glad there is consensus on annuitization. I think we 
do not have consensus on what is an adequate annuity to sustain 
independent living, and that is really the crux of it, not just 
getting the income every month but making certain they can live 
independently on that. I thank you and yield back to the Chair.
    Chairman MCCRERY. Mr. Goss, I am just going to ask you a 
couple simple questions here that you can dispense with 
quickly, and then be on your way. We have not talked about 
people who were the subject of our last Subcommittee hearing, 
and that is, vulnerable populations--survivors, widows, 
disability recipients, and so forth. I know that some of the 
plans that you have looked at and scored treat those vulnerable 
populations in a way different from the way they treat the 
retiree population. Can you describe how some of these solvency 
proposals that have been presented to your office treat these 
populations within Social Security?
    Mr. GOSS. Absolutely. Very many of the plans--not all of 
them, but very many of the plans treat disabled workers and 
also young survivors--that is, survivors, generally speaking, 
of workers who died when they were pre-retirement--treats those 
two groups really differently from the retirees, as you 
suggest. The way in which many of the proposals would treat 
them differently is to say that even if there would be 
reductions in the basic benefit level through price indexing or 
progressive indexing or other measures, that, in fact, those 
reductions may not apply in certain proposals to the disabled 
worker beneficiaries or to the young survivor beneficiaries.
    Depending on the nature of the plan in the case of disabled 
worker beneficiaries, the reductions that do not apply while 
they are receiving disability benefits may then apply on a 
partial basis once they reach retirement, and generally the 
partial application of these reductions is designed to, in 
effect, match up with a proportion of their working years in 
which they were not disabled and, therefore, would have been 
able to save money either on their own or within a personal 
account.
    Chairman MCCRERY. You are able to score these provisions?
    Mr. GOSS. Yes. Yes, we are.
    Chairman MCCRERY. One last question. We have talked about 
how people are living longer in this country, and that is one 
of the demographic factors that is contributing to the problem 
with Social Security. There is a proposal called longevity 
indexing that some have spoken about. Would you explain how 
that would work, how longevity indexing would work? Would that 
help solve the long-term problem of Social Security?
    Mr. GOSS. Thank you for that wonderful question. First of 
all, let me just mention very quickly that I was really more 
than a little bit too much glib in suggesting that birth rates 
or fertility are the really big issue in terms of the cost of 
Social Security in the future. It is true that the shift in our 
cost rates from the relatively low level we have now below our 
12.4 percent tax rate over the period from 2010 to 2030 up to 
the higher level that is higher than our present law scheduled 
tax rates is largely because of the change in fertility that we 
had some 30 years ago. However, if you look at that cost rate, 
you see that it does tend to very gradually grow even beyond 
2030, and that is the other component from increasing longevity 
that we have going into the future.
    There are a number of ways in which to address that, and 
one of the ways that we have looked at over the years very, 
very, significantly is to have a kind of longevity indexing 
that would explicitly address in the currently financed system 
changes in either the retirement age or in the benefit formula 
that would be just sufficient to, in effect, immunize the 
Social Security system from increasing longevity. As it turns 
out based on our current intermediate projections of the 
improvement in mortality in the future, we would end up with 
changes that would be roughly equivalent to increasing the 
retirement age, the normal retirement age, by about 1 month 
every 2 years; or, in other words, if we were to do that in the 
form of a change in the benefit formula, that would be 
equivalent to reducing the level of benefits below a pure wage-
indexed basis by about 0.3of 1 percent per year into the 
future.
    These are essentially equivalent in terms of indexing the 
system so that you could maintain a given level of replacement 
rate but for the 0.3 reduction with the same 12.4 percent tax 
rate over time. By doing it, however, from the very gradual 
increase in the retirement age, you would be doing it in a way 
where the replacement rates at the normal retirement age could 
be exactly maintained with a 12.4-percent tax rate. You would 
simply be saying that as people live longer--this mechanism 
would say that as people live longer in their adult life 
expectancy, that we would keep the same ratio of retirement 
years to working years and keep that in the same relationship. 
Right now we have about two working years, on average, between 
20 and 60 for every 1 year of retirement because life 
expectancy is about 20 years out of retirement. So, if we were 
to maintain that ratio and change the normal retirement age 
fast enough to maintain that, we would, in effect, immunize the 
system from changes in longevity alone, and that would be 
equivalent to changing the benefit formula by about 0.3 of one 
percent per year in the future or the retirement age by about 
1.5 months per year.
    Now, if I may just very quickly, there are several other 
forms of longevity indexing that are available. Most of them 
would have larger effects. We had for the Model three of the 
President's Commission proposal another sort of version of 
longevity indexing, which is really sort of a different flavor. 
It is substantially different. Rather than keeping the sort of 
relationship between retirement years and working year in sync 
with each other, it would instead say that as people live 
longer and longer in their adult life expectancy, all of those 
additional years of life expectancy should go into work years, 
and, therefore, we should maintain the expected number of 
retirement years as a constant in the future. This is just a 
policy determination that would have to be made.
    Obviously, by doing that, but keeping the same amount of 
life expectancy in retirement in the future and having 
additional years of life expectancy go into working years, this 
would save more money from Social Security, and it would be 
equivalent to raising the retirement age at a faster rate. In 
terms of reduction in the benefit formula to have an equivalent 
effect, rather than 0.3 of 1 percent per year reduction in 
benefits across generations, this would be equivalent to a 
reduction of about 0.5 of 1 percent.
    Chairman MCCRERY. Thank you.
    Mr. LEVIN. Mr. Chairman, we want to finish. I just hope as 
we deal with these numbers, we realize the impact on 
individuals. I don't mean--I have had the privilege of working 
with actuaries for many, many years, and you are a splendid 
example. Let's remember when we talk about these things what 
the impact is on individuals. Also, let me say in response to 
Mr. McCrery's question about plans and survivor benefits and 
also disability benefits, for example, Mr. Pozen in his plan 
would not safeguard either survivors or disabled people from 
these benefit cuts. I think that is true of his plan.
    Mr. GOSS. That is exactly through in the formulation that 
he put forth.
    Mr. LEVIN. Okay. The same was true of the second model of 
the Commission.
    Mr. GOSS. That is also true.
    Mr. LEVIN. So, when the President said nice things about 
the Pozen plan, let's remember what was in it. Later statements 
about disabled people, persons, let's remember that if you 
safeguard them, you put a squeeze right on Social Security 
benefits for other people.
    Mr. GOSS. Well, certainly the Pozen provision will save 
less money if, in fact, we safeguard the disabled. It is our 
understanding, though, that the President has suggested that 
the way that he would apply the Pozen provision would safeguard 
the disabled beneficiaries, at least until retirement.
    Mr. LEVIN. Not the survivors.
    Mr. GOSS. The survivors, our presumption is that that would 
be the case with the young survivors also.
    Mr. LEVIN. Why do you presume that when Mr. Hubbard said 
that was not true?
    Mr. GOSS. Well, obviously we should not--if Mr. Hubbard 
said that was not true, then we should not assume that, 
obviously. This is just part of the lack of clarity on the 
precise specification of the plan.
    Mr. LEVIN. Also remember, I think--and I will finish--when 
we talk about other plans safeguarding, essentially it is in 
part because they are constructed so that if there is any 
shortfalls in the private accounts, as they impact on what 
would be a guaranteed benefit, the Treasury would pick up the 
difference. We can do that with any kind of plan. All right. 
Thanks. This has been a useful hearing. Thank you, Mr. 
Chairman.
    Chairman MCCRERY. Thank you, Mr. Levin. I would just say to 
the Ranking Member that I appreciate the President being out 
front on this issue and making the case for reform of Social 
Security, which I think he has done. When it comes to specifics 
of putting together a plan to reform Social Security and 
achieving what I hope to be sustainable solvency in the system, 
the details are up to the legislative branch of government, and 
that is us, and that is why we are having these hearings. So, 
while it is, of some use to speculate as to what the President 
might be for or might not be for, really, it is up to us. My 
view is that the vast majority of Members of this Committee 
want to do something to preserve disability benefits and 
survivor benefits in some form or fashion. So, I suggest we 
move forward and talk about how we do that and how we structure 
a plan to achieve that, and that would be most productive.
    Mr. LEVIN. I hope we will do that. When the President says 
private accounts must be in a plan and we say they must not be, 
there is a basic difference, and the President has not been 
vague about that.
    Chairman MCCRERY. It is likely we are going to have 
differences, even on this Subcommittee.
    Mr. LEVIN. That is a big difference.
    Chairman MCCRERY. At some point we have to vote, and if you 
cannot vote for the whole plan, then that is fine. I would 
welcome your participation in whatever part of the plan you 
would like to participate in, in terms of structuring a 
solution. Perhaps you cannot be terribly constructive when it 
comes to the personal account section of the bill, but maybe 
the other parts you can be. So, I would welcome that. I would 
also encourage you at some point to sit down and talk about 
personal accounts and how they might be structured to solve 
some of your objections to what you perceive to be some 
Republican plan out there for personal accounts, which we have 
not yet formulated.
    Mr. LEVIN. Okay. There is just a lot on the table.
    Chairman MCCRERY. Great. I got it. Okay. He said, ``Okay.'' 
We are going to talk.
    [Laughter.]
    Thank you. This has been a great hearing. Thank you, Mr. 
Goss.
    Mr. GOSS. Thank you very much.
    [Whereupon, at 4:22 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

           Statement of Donald L. Anderson, Harpswell, Maine

                      Stealing My Social Security

    For years I received notices from Social Security that I would 
receive a certain pension amount from SS. I used this info in my 
retirement planning.
    About three years before I retired, I learned at a state retirement 
seminar that that was not true. Not true if I were to receive a state 
pension. I was told SS would reduce my SS amount by about 60%. Of 
course, I learned nothing about this from SS!
    Because of this shortfall, I continued working past my 
65th birthday, though that was not my original plan. When I 
turned 65, I applied to start my SS pension and got the small amount of 
about $407/month.
    I am now retired. SS has reduced my monthly payment by 56% because 
I am ``double-dipping''--their word.
    My word--STEALING. I earned that money. If I had a pension from a 
private employer, SS wouldn't reduce my SS pension. As I said, I was 
depending on that money for my retirement. I find it difficult to pay 
my bills without that money.
    This is most unfair. It angers me. The government is reducing my 
pension so it has money to give to the top 5% for tax cuts. Or to fund 
that illegal Iraqi war.
    SS is a safety net for tens of millions. By subjecting me to the 
unfair GPO/WEP provisions, Congress has cut a hole in my safety net.
    I expect Congress to quickly repeal the GPO/WEP provisions.

                                 

             Statement of Janet Marie Bessler, Medina, Ohio

    I have been retired for 10 years and in that time, I have been 
cheated out of about $60,000.00 because of the Government Pension 
Offset. Can you tell me how anyone can feel that this is fair? Boy, 
what I could do with that money. Maybe I could maintain my comfortable, 
independent life style, even after I lose my husband if I should. That 
is a lot of money and how dare someone decide that those of us in Ohio 
should not be allowed to double dip! My friend in Iowa can. She gets 
her teacher's pension and full Social Security. My husband, if I pre 
decease him, will get my full pension because he did not earn it. But, 
if he goes first, I will again be subjected to the Government Pension 
Offset and I will get over $200.00 less then him. I want so much to be 
able to maintain our lifestyle, not be financially dependent on anyone 
and stay in our little house here on Heather Lane. Please help me do 
that. Please do all that you possibly can to repeal the Government 
Pension Offset. It is stealing from me and many people just like me and 
just has to be corrected. I don't care if it can't be made retroactive. 
Just start right now letting us have what is ours. That is the only 
fair thing to do. We are at your mercy and should not be. Do the humane 
thing and correct this horrible mistake made years ago and make it 
right with us. It is really getting harder and harder to name 
priorities. I went to the dentist yesterday and it cost me $164.00. I 
don't have dental coverage--don't feel that I can afford it. But, give 
me what is rightfully mine and what will I do? I will spend it to 
maintain my life and help the economy at the same time.
    Thank you so much and please do what you know in your hearts is the 
right thing to do.

                                 

  Statement of George Avak, California Retired Teachers Association, 
                         Sacramento, California

    Chairman Thomas and members of the Committee, my name is George 
Avak and I am president of the California Retired Teachers Association. 
We are a non-profit organization with 53,000 members, and we represent 
the interests of the 170,000 retirees who receive a pension from the 
California State Teachers Retirement System (CalSTRS). I want to thank 
you for convening these hearings on alternatives to strengthening 
Social Security, America's fundamental safety net for retirees.
    We believe that a basic premise of strengthening Social Security is 
to keep faith with its promise of ensuring that older Americans do not 
fall into poverty at the end of their working lives.
    The CalSTRS system is not integrated with Social Security, so many 
of our members are victims of the Windfall Elimination Provision and 
the Government Pension Offset. These two penalties remove that 
financial safety net and we find our members suffering from unexpected 
income losses late in life. Many women are plunged into poverty when 
their husbands die and they are denied any survivor's benefits from 
Social Security due to the Government Pension Offset. Other teachers 
find their summer work, when they typically paid into Social Security 
in order to support their families during the school-year break, is 
discounted in retirement when they receive thousands of dollars less 
than they would have if they had not been teachers.
    The underlying assumption seems to be that teachers have their own 
pension and that should protect them from poverty. The sad truth is 
otherwise. CalSTRS conducted analyses in 1998 and 2005 on the adequacy 
of the pension benefit they provide, and in both instances found many 
lagging behind the amount of income they need to maintain an adequate 
lifestyle in retirement. Even with long years of teaching service, 
California educators who retired before 1998 were only able to replace 
about 58 percent of their income--far below what experts consider to be 
adequate. The typical female retiree receives less than $2,000 a month 
from her teacher's pension, hardly sufficient in a high-cost state like 
California. Unlike Social Security, which provides full cost-of-living 
increases annually, teachers' pensions in California are only protected 
at 80 percent of their original purchasing power.
    In addition, many of our members only found out about the WEP and 
GPO when they filed for their benefits. By then, it was too late to 
make alternative financial plans to ensure a secure retirement. Worse, 
many others mistakenly receive benefits for years and then are forced 
to pay back all money received--in one instance more than $40,000. In 
most instances, these people relied in good faith on estimates of 
benefits provided by the Social Security Administration itself. The 
Social Security Administration itself has admitted that it overpays 
upwards of $335 million a year in mistaken benefits. If Social Security 
doesn't know who is affected by these penalties, how can we expect that 
those subject to them will understand them?
    Beyond the policy itself, you have to understand the personal 
financial suffering many people have endured because of these 
penalties. We have collected many, many such stories from our members 
and I want to share some of those with you today.
    Ruth Benjamin of San Diego had planned on Social Security payments 
of approximately $800 per month when she retired, because that is what 
the Social Security Administration told her to expect. Instead, due to 
the GPO, she receives only $216 per month plus a teacher's pension of 
about $700 per month. Her husband is a retired New York City Police 
Department officer, who receives a police pension of approximately 
$1,500 per month plus a Social Security benefit of $1,000 per month. In 
their retirement planning, they opted to take a higher police pension 
without survivor's benefits because they believed Ruth would be 
adequately provided for with her teacher's pension and Social Security. 
Now, if she becomes a widow, she will have to survive on income of less 
than $1,000 per month due to these penalties.
    Wanda Moore of Fresno was married for 38 years to her husband, a 
barber. He paid into Social Security for 40 years and died before 
collecting any benefit. She was initially told she would receive a 
survivor's benefit of $496 per month from Social Security before that 
payment was eliminated under the GPO because of her teacher's pension.
    Carol Huntsman of San Diego began her teaching career at age 36 and 
was only able to teach for 20 years before retiring in 1996 with a 
monthly pension of $700. The twenty previous years she had worked in 
Social Security-covered employment was reduced in value by 60 percent, 
or $223 per month under the WEP. Fortunately in 2000 her teachers' 
pension was increased under a law that provided minimum pensions to 
teachers with 20 years or more of service.
    Georgia Beno of Santa Ana taught for 32 years before she retired in 
1989. She receives a pension of about $2,100 a month now. But she lost 
$900 a month income from Social Security when her husband died in 1999 
and she was told she was ineligible for a survivor's benefit. Since 
then, her health insurance and rent and other expenses continue to 
increase. She hasn't taken a vacation in four years, digs into her 
savings each month to meet expenses and still has to rely on her family 
to help pay her bills.
    Claire M. Koronkiewicz of Palm Springs taught for 30 years in 
California before retiring in 1986. Today she receives a teacher's 
pension of about $1,800 per month, after taxes. Her husband, a Purple 
Heart veteran of General Patton's 3rd Army, had a modest 
income as a worker in the floral industry in Los Angeles for 30 years. 
He died at age 65 after receiving three years of Social Security 
benefits. Claire was told she was eligible for $374 per month in 
survivor's benefits--before that was eliminated under the GPO. Since 
then, she has had to sell her home because it was too expensive to 
maintain and has dipped into her savings earlier than planned to meet 
her living expenses.
    Marylyn McInnes of Visalia taught for 31 years before retiring in 
1998. Her husband owned his own carpet cleaning business for 15 years 
and, as a self-employed individual, paid both the employee and employer 
shares of the Social Security tax. He received Social Security for 2 
years before he died. When Marylyn applied for her widow's benefit, she 
was told she did not qualify because of her teacher's pension and she 
lost $400 a month in income.
    Elbert Bade of San Diego had a 20-year career in the U.S. Air 
Force. When he retired from the Air Force, he had a choice of a second 
career as a teacher or in the aerospace industry. Unaware of the GPO 
and WEP, he figured his future retirement income--assuming money from a 
teacher's pension and Social Security--and determined that he could 
afford to become a teacher. He taught for 23 years and retired in 1997. 
When he applied for Social Security, he was informed of the penalties 
and saw his retirement income reduced by $8,400 a year. ``Teaching's a 
great career and very satisfying but no one tells you they're going to 
jerk your Social Security because you were a teacher,'' he told us.
    What all of these people have in common is that they worked hard at 
public service jobs all of their lives. They raised families and took 
care of themselves. They recognized they wouldn't receive a full Social 
Security benefit, but they believed they would receive what they had 
earned and been promised.
    There is yet another unintended consequence of these penalties. 
California, like many states, faces severe teacher shortages in the 
years ahead--an estimated 100,000 new teachers will be needed in the 
next 10 years just to replace retirees; more will be needed to 
accommodate our growing population. Many of our best teachers come from 
other professions. Typically they are unaware that they are giving up 
significant Social Security benefits in retirement to make a switch to 
public service, often at a lower salary than they were receiving from 
their first career. An estimated 50,000 current teachers fit this 
profile, and will retire with 20 years of less teaching service. That 
means a substantially smaller teachers' pension and a significant loss 
of Social Security income. They willingly make the sacrifice in salary 
during their working life; they are forced to sacrifice in retirement.
    We recognize that there are financial challenges facing Social 
Security, if not a crisis. We appreciate, however, that growing numbers 
of Congressional Representatives understand that these penalties have 
not had the intended effect, that they penalize hard-working people of 
modest means. I would note that 251 Congressional Representatives have 
already signed on to HR 147, which would repeal these penalties. Any 
reform of the Social Security system must restore its foundation in 
fairness. On behalf of the California Retired Teachers Association, I 
would say that you can do no less.
    Thank you.

                                 

         Statement of Joyce R. Elia, Mission Viejo, California

    As the Committee reviews the multitude of issues associated with 
Social Security, I ask members to consider correcting a ``fix'' that 
was initiated in 1983, and, to also not make similar mistakes this time 
around (such as privatization which will line the pockets of Wall 
Street and cost billions of dollars to implement). Congress has made 
the same mistake as many corporations recently in the news--they have 
``spent'' the hard-earned pension funds of workers during the stock 
market's heyday and have now been ``caught short''. Workers in this 
country have had enough of the corporate greed and fiscal 
irresponsibility of government. We are tired of ``paying'' for 
everyone's mistakes, while the corporate CEOs continue to live the 
``good life'' with no understanding, and with a complete lack of 
conscience, of how the ``real'' people in this country live.
    The private sector continues to follow the government's lead in 
cheating employees out of their retirement benefits (United Airlines, 
possibly General Motors, to name a few), with the government's 
blessing. At the same time, like Congress, the retirements for the 
``chosen few'' are preserved. The hardworking, tax-paying individuals 
of this country deserve better and we expect you to act responsibly. 
President Bush espouses a Christian ethic. There is absolutely nothing 
``Christian'' about defrauding American workers with high taxes and 
erosion of their pensions.
    As a current government (court) employee and former private sector 
employee, I am seeking your support of HR 147, ``Social Security 
Fairness Act,'' to eliminate the Government Pension Offset (GPO) and 
Windfall Elimination Provision (WEP) to Social Security. This 
legislation was enacted in 1983, during a period when Congress was 
looking for ways to reduce the cost of Social Security. Their decision 
to place that burden on the backs of government workers and teachers 
has created a fraudulent and discriminatory solution which wrecks 
financial havoc on the lives of affected individuals.
    The GPO and WEP will greatly affect mine and millions of other 
Americans' ability to collect the full Social Security benefits that 
they have earned and to which they are entitled. This is a non-partisan 
issue that transcends politics and affects voters of all parties.
    Three years ago, a co-worker returned from her ``retirement 
planning session'' crestfallen to learn that the small pension which 
she had earned working for the Orange County Superior Court was going 
to dramatically impact the receipt of her earned (as well as her 
ability to collect her husband's earned) social security benefits. Her 
situation will become worse, should her spouse predecease her. She will 
not be eligible for any spousal benefits, which he worked a lifetime to 
earn in his effort to provide for his wife. At the time, I was totally 
unaware of these two laws and their impacts. I had worked in the 
private sector for many years before ``retiring'' to raise a family.
    When I returned to the workforce in 1994, to work as a Senior 
Administrative Assistant to the CEO of the South Orange County 
Municipal Court (unified to Superior Court in 1998), I was not informed 
by the County/Court that paying into the County retirement system would 
negatively impact my ability to collect mine and/or my husband's hard-
earned Social Security benefits. The County retirement plan is 
predominantly self-funded by employees, with only a small portion of 
the contribution coming from LOCAL (not Federal) taxes. I erroneously 
assumed that any pension I earned would supplement my earned Social 
Security benefits. These laws force me to either leave my job, friends 
and an important part of my life prior to ten years of service 
(vesting) or relinquish my own and my spousal rights to Social 
Security. It punishes me for doing what the government told me to do--
plan for the future. (I would have been better off staying at home and 
letting the government subsidize me.) The outcome is discriminatory and 
dishonest, as well as disheartening, to a loyal hard-working employee.
    The laws are arbitrary and selective--being particularly 
discriminatory to women. Women receive only half the average pension 
benefits received by men and these laws further reduce that small sum.
    Please preserve teachers' and government workers' retirement 
benefits that they have paid for and deserve by passing HR147, which 
will repeal legislation which in actuality is ``legalized fraud,'' 
(i.e., the government has taken, or in many cases, continues to take 
monies via social security taxation, which it has no intention of 
returning by way of future benefits). Numerous teachers and public 
workers (many of whom are single Moms), have part-time employment to 
make ends meet. From those private-sector checks, social security is 
being deducted--when under current laws, that money will never be 
returned. If private companies acted in such a manner, they would be 
charged with FRAUD.
    I have included a briefing paper which expands on the legislation's 
impacts.
    I urge Congress' support and passage of this important legislation. 
I also urge Congress to look into other areas for savings: reduction/
restructuring of Congressional retirement benefits; reduction in 
foreign national benefits, fairer taxation, to name but a few.
    I do not support private accounts OR melding government/teacher 
pensions into Social Security. This practice would place yet another 
undue burden on this class of individuals. Their pensions should be 
treated in the same manner as private sector retirement plans--separate 
and apart from Social Security.
    Additionally, Congress makes it increasingly difficult for 
individuals and families to save for their retirement, especially when 
the interest on SAVINGS accounts are taxed.
                                 ______
                                 

                   BRIEFING PAPER RE HR 147 and S 619

                      SOCIAL SECURITY FAIRNESS ACT

    On December 16, 1773, early settlers to this country staged a Tea 
Party in Boston to demonstrate their unwillingness to be unfairly 
taxed. It was a fairly small protest. 232 years later, a much larger 
group of American voters (public workers and teachers, active and 
retired) wishes to clearly and emphatically send a message to the 
President and Congress, that THEY are unwilling to continue to be 
unfairly taxed.
    MYTH #1: The myth is that this is unearned ``double dipping''.
    TRUTH: The Windfall Elimination Provision (WEP) and Government 
Pension Offset (GPO) laws prevent public workers and teachers from 
receiving their justly earned retirement benefits. The two laws cause 
public workers and teachers to DOUBLE PAY but receive single benefits. 
The various pension funds of public workers and teachers are primarily 
self-funded with very little in the way of outside contributions. The 
outside contributions come from LOCAL not FEDERAL monies--no relation 
to Social Security monies.
    EXAMPLE: A working person is required by law to hold two insurance 
policies. After a number of years of paying the premiums, one of the 
insurance companies notifies the worker that he will no longer be 
covered under the policy, but will be compelled by law to continue 
paying for it.
    On December 27, 2002, Fox Channel Headline News reported that the 
Social Security Administration currently has agreements with 20 
countries, which permit foreign nationals who pay into retirement 
systems in their home countries and the United States, to collect 
benefits from both sources. The story reported there is currently 
discussion to extend this practice to Mexican nationals as well.
    The Federal Government should recognize naturally born American 
citizens who work as teachers and public employees as well as foreign 
nationals.
    MYTH #2: It is a myth that over the long-term the Federal 
Government saves money by denying public employees and teachers earned 
Social Security benefits.
    TRUTH: It is true that the National Education Association reports 
that affected recipients lose an average of $3,600 a year due to the 
GPO--an amount that can place a recipient below the poverty level. When 
individuals do not have adequate dollars to meet their most basic 
needs, they stop seeking preventative medical care, are unable to fill 
needed prescription drugs, have inadequate nutrition and often are 
forced to live in less than sanitary and unsafe conditions. All of 
these workers have paid for benefits that these two laws prevent them 
from receiving. Many of these workers are single parents or women who 
need their paid-for Social Security benefits to meet basic expenses.
    RESULT: There is no monetary savings. The government will need to 
provide financial assistance to these individuals through more 
expensive government programs (welfare, food stamps, medical plans, 
long-term care and housing assistance). It is better to remove 
discriminatory prohibitions to earned benefits so that seniors can 
avoid seeking emergency care for catastrophic illness. The added 
dollars will be put back into the economy and the discriminatory effect 
of these statutes would be eliminated.
    FACT: Workers have not been informed of this legislation by 
government employers and teaching associations and are misled by Social 
Security estimate statements which do not reflect these offsets. Most 
employees are unaware that they have relinquished their entitlement to 
earned or spousal Social Security dollars until they are within a few 
years of retirement and attend a retirement planning session. At that 
time they are devastated to learn that they will not be receiving their 
anticipated Social Security funds. These are workers who have 
faithfully paid their full contributions to a system that takes their 
money and provides no benefits.
    REALITY: Americans have been told for decades by government experts 
that it is an individual's responsibility not to rely solely on Social 
Security for their retirement incomes. Often, when children leave the 
nest, the wife/mother will seek outside employment to assist her 
husband in building their retirement. When these individuals choose to 
become public employees or return to the teaching profession, they are 
not told by their employers (through non-disclosure of the impacts of 
the GPO and WEP) that the monies they contribute to separate pension 
plans will not be returned to them in addition to earned Social 
Security benefits.
    Private sector individuals may collect multiple pensions (many 
through employer-only contributions) PLUS earned Social Security 
benefits . . . why the distinction for public workers and teachers?
    RESULT: As more and more public workers and qualified teachers 
become aware of the impact of this unfair and discriminatory 
legislation, they will be less inclined to apply for jobs in those 
areas. This country already faces a critical shortage of skilled 
teachers. The condition is certain to worsen. Fewer teachers will chose 
to return to their classrooms after extended leaves to raise their 
children, while young people will be less inclined to consider a 
teaching career. States, counties and cities will find smaller and 
smaller pools of willing/skilled applicants to staff government 
offices, courts, libraries, airports, divisions of Motor Vehicles, 
transportation departments, etc.
    Non-partisan issue. Goes beyond politics. Voters of all political 
affiliations are affected. (This is a national problem--there are 
affected people in ALL states. The number of people impacted across the 
country is growing every day as more and more people reach retirement 
age.) This is the same group of voters (baby boom) that were willing to 
stage protests in the 1960's to bring their ``causes'' to the street to 
effect change by gaining national attention for unfair government 
practices. As more voters become aware of these unjust laws and their 
impacts, they will be angry and seek to blame elected officials.
    Most Americans are unaware that promised Social Security benefits 
are not legally guaranteed. They expect adequate Social Security 
benefits and assume government will pay all monies due because 
government has faithfully collected their ``contributions''. Especially 
when it is widely known that the Federal Government extends Social 
Security benefits to people who have NEVER paid into the system.
    These laws are not understood. It makes retirement ``planning'' 
inaccurate. (Many workers rely on misleading Social Security 
Administration statements that fail to take into account the GPO and 
WEP when projecting benefits.) It makes the SSA information statements 
a lie because workers are led to believe they will receive these funds 
because the government is or has taken their money. This is, in 
essence, a government ``bait and switch'' tactic.
    Severely impacts women. Women receive only one-half the average 
pension benefits received by men. When they attempt to collect 
anticipated, earned Social Security benefits and discover that their 
benefits are substantially reduced, they find themselves below the 
poverty level, after a lifetime of work.
    Working wives should have the same rights to their spouse's full 
benefits as non-working wives. (The GPO/WEP causes affected employees 
to lose up to 60% of the benefits they earned themselves).
    Widows should receive full Social Security spousal benefits. The 
deceased spouse worked his entire life to provide for his widow. His 
benefits are her benefits.
    Laws are arbitrary and selective. The burden falls squarely on 
pocketbooks/wallets of certain public employees and teachers. (9 out of 
10 public employees affected by the GPO/WEP lose their entire spousal 
benefit, even though their spouse paid Social Security taxes for many 
years while non-affected workers who have paid into multiple private 
retirement systems are not affected by these laws. The discrimination 
exists only for those who work in the public's interest.)
    These laws are discriminatory, punitive and create a climate of bad 
faith. They have caused an unjust and unfair inequity between public 
and private pension recipients. The laws diminish the value of a public 
employee's or teacher's contribution to this country in relation to the 
value placed on the contributions of workers in the private sector . . 
. for what reason?
    REQUEST: We want the law applied equally to all employees. The only 
way for this to be accomplished is for these two statutes to be 
repealed. We urge your support and the support of all of Congress and 
the President for passage of HR 147 and S 619.
    President Bush has claimed that the wants to bring fairness to the 
taxation of the American people. Support of HR 147 and S 619 is a 
perfect place for him to right a wrong and bring equity to an 
unrepresnted and growing body of unfairly taxed voters.

                                 

     Statement of Kenneth Basil Jackson, Jr., Glendale, California

    The solution to the SSA actuarial imbalance is simple The Honorable 
Charles B. Rangel has found the most economical and efficient fix for 
the problem.
    A 1.89 to 2 % increase in the FICA Tax. This amount is 13.79 @ 
1.89% per week per worker @ 35k/yr salary. Simple to start and easy to 
repeal when no longer need. Add to this an increase in the FICA salary 
cap to 140,000.00 and the problem is solved.
    There is a larger problem to face it is the loss of the baby 
boomers buying power in the years of 2015 to 2030. This decrease in 
buying power may lead to one of the largest recessions in the history 
of the United States of America, if not a depression.
    If the United States of America is forced to repay 5 Trillion in 
SSA reform transition costs with interest, plus 2 to 3 Trillion in 
General fund budget deficits, plus another 4.6 Trillion to stabilize 
SSA, China will become the last great super power. DROP THE PRESIDENTS 
SSA REFORM PLAN.
    The real priority problem is to find a way to keep the economy 
growing as the baby boomers retire. The best way to do this is to add 
incentives and benefits to the safety net of Social Security. This can 
be done by adding a private account to the SS benefit. This account 
must be in addition to all other pension plans and programs. 
Participation in this plan must not limit or interact with any other 
plans or programs now offered or begun in the future.

SOME BASIC REQUIREMENTS FOR A PRIVATE ADDITION TO THE SSA BENEFIT.
      This is in addition to the SS FICA.
      There is a higher limit on the annual contribution say 
20k dollars/year.
      The FICA salary cap shall rise to; $140,000.00 .
      The money is exempt from state and federal tax.
      The money grows; tax free.
      The money can be available from say 59 to 64 on, as a 
monthly pay out over 30 years.
      THE CONGRESS IS PRECLUDED FROM ANY FORM OF BORROWING FROM 
THIS ACCOUNT, THE EXECUTIVE BRANCH IS PRECLUDED FROM ISSUING ANY 
PROCLAMATIONS OR EXECUTIVE ORDERS ATTACHING OR USING THESE FUNDS FOR 
ANY; PERPUS OTHER THAN THE BENEFITS OF THE OWNERS . FURTHER THERE WILL 
BE NO COMMINGLING OF THESE FUNDS WITH ANY OTHER AGENCY OR BRANCH OF THE 
U.S. GOVERNMENT. NO LIEN OR ATTACHMENT OF THE ``PRIVATE PLAN'S'' 
LEGALLY OBTAINED AND DEPOSITED FUNDS BY ANY COURT, JUDICIAL ENTITY, OR 
ENTITY WILL BE PERMITTED BY THE U.S. GOVERNMENT. THESE FUNDS WILL BE 
INVESTED AND MANAGED AS A BOND FUND. THE OBJECTIVE WILL BE OPTIMUM LONG 
TERM YIELD. ALL U.S. GOVERNMENT ISSUED AND GUARANTEED OPENLY TRADED 
U.S. GOVERNMENT BONDS AND NOTES, OF ALL MATURITIES SHOULD BE USED AS 
NEEDED.
      The operation of the ``private plan'' should mimic the 
operations of a bond mutual fund.
      Interest compounding and, pay outs should be made 
quarterly.
      A $3.00 minimum per week contribution with a $20,000.00 
yearly maximum.
      Extra deposits should be accepted via inter bank money 
transfers or EFET deposits to the account, also deposits can be made at 
any bank cash or check. Subject to the prevailing money laundering laws 
on the books.
      All deposits will be tracked by SSA and reported to the 
IRS as exempt income (not taxable) but reported.
      The total of all deposits will show up on the W-2 form.
      The amount to be deposited via weekly payroll deduction 
should be easily changeable, up or down.
      The interest paid is as close to the coupon as clipped 
value as possible.
      Once the agreed upon retirement age is reached the right 
to start, stop and restart benefit pay outs should be available.
      Each baby born an American Citizen at the issuance of 
his/her SS card will have 3.00 dollars deposited into his/her private 
plan, as a one time retirement grant.

    The Idea here is to reach the first $1000.00 in the account 
A.S.A.P. For a new worker entering the work force and, living at home 
with his/her parents making extra deposits as savings would make for an 
comfortable retirement. When this worker moves up the pay scale 
increasing the weekly deposit and or making extra deposits will further 
increase the additional income provided by the ``private plan''.
    The power of large scale buying of bonds can reduce the fixed cost 
of the operation to the .5 % to .2 % level.
    This plan has the potential to transform the idea of retirement 
living. This plan can double the safety net for new workers entering 
the labor pool. In order for us older folks to take advantage of this 
system we would have to increase the amount of our initial deposits. 
The best use for us older folks would be an cash trap, say after the 
sale of a house, what should you do with 50k excess profit? shelter 
20k, and let it turn into over $159,000.00 in 15 years. That points to 
the 6 trillion dollar question, why has not the brain trust that Bush 
has assembled figured this out. Is there some other reason why some 
thing like this is not on the table and, up for debate. There is some 
thing going on and they are not talking. WILL SOME ONE IN THE 
ADMINISTRATION PLEASE TELL THE TRUTH, WHAT IS GOING ON.
    This plan will enhance the savings rate in the country. The number 
of seniors on welfare will decline. The spending power of seniors will 
start rising just as the population starts to gentrify. As the baby 
fizzle of the, late 70's early 80's, moves to the workforce center 
stage, the spending power of the retied will be on the rise. To days 
pre-tweens will be entering the work force with their greater numbers 
and, will have spending support to maintain job growth. The pre-tweens 
will have at least a chance to establish themselves as an economic 
force. The number of seniors retiring to poverty should begin to 
approach 0, because of the doubling of the safety net benefit. This 
plan has one goal to produce more customers. This country needs more 
customers with money.
GROW OR DIE
    I believe that adoption of a SS ad on private account will 
fundamentally change the idea of retirement living. If every body is 
given a chance to excel and save like the wealthiest of Americans 
retirement poverty can be eliminated.
    RUN A COST ANALYSIS OF THIS PLAN AND COMPARE.

                                 

          Statement of Roger Pond Jones, Auburn, Massachusetts

    It is my opinion that when our Government takes moneys from people 
leaving them with the impression that this is money being saved for 
retirement and not a government expense (tax) item that that money 
should be returned to them upon retirement. (With interest based upon 
the average market values over the past sixty five years.)
    If citizens have paid in they should get back at least what they 
paid in.
    Citizens have been allowed to look at Social Security money as 
THEIR MONEY. Obviously it is not THEIR MONEY if they can not get it 
back upon retirement.
    If Social Security is a social program to bail out people who have 
made poor judgments during their life times or fallen upon hard luck 
then make it clear that Social Security is a tax not a savings program 
and not owned by anyone but the government.

                                 
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