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


 
               FIRST 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 17, 2005

                               __________

                            Serial No. 109-7

                               __________

         Printed for the use of the Committee on Ways and Means

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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                   JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York         RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    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

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 10, 2005 announcing the hearing..................     2

                               WITNESSES

Social Security Administration, Hon. Jo Anne B. Barnhart, 
  Commissioner...................................................     6

                                 ______

U.S. Government Accountability Office, Barbara D. Bovbjerg, 
  Director, Education, Workforce, and Income Security; 
  accompanied by Alicia P. Cackley, Assistant Director, 
  Education, Workforce, and Income Security......................    33

                                 ______

Independent Women's Forum, Carrie L. Lukas.......................    59
Consortium for Citizens with Disabilities, Social Security Task 
  Force, Marty Ford..............................................    64
Cato Institute's Project on Social Security Choice, Michael 
  Tanner.........................................................    73
Congressional Black Caucus Foundation, Maya Rockeymoore, Ph.D....    77
National Women's Law Center, Nancy Duff Campbell.................    86

                       SUBMISSIONS FOR THE RECORD

Anderson, Donald L., Harpswell, ME, statement....................   120
Blair, William and Jane, Irvine, CA, statement...................   120
Houston Young Republicans, Houston, TX, William Hickman, 
  statement......................................................   120
Larsen, Thor Anton, Sacramento, CA, statement....................   122
National Association of Disability Examiners, Lansing, MI, Martha 
  A. Marshall, statement.........................................   123
Nelson, Alfred Lee, Olathe, KS, statement........................   126
Political Research, Inc., Dallas, TX, John Clements, statement...   126
Social Security Disability Coalition, Rochester, NY, Linda 
  Fullerton, statement...........................................   127
Thompson, Sandra E., Rocky River, OH, statement..................   136


                          FIRST IN A SERIES OF



                        SUBCOMMITTEE HEARINGS ON



                      PROTECTING AND STRENGTHENING



                            SOCIAL SECURITY

                              ----------                              


                         TUESDAY, MAY 17, 2005

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

    The Subcommittee met, pursuant to notice, at 2:57 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 17, 2005
No. SS-1

                      McCrery Announces First 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 first in a series of hearings on protecting 
and strengthening Social Security. This hearing will examine the 
evolution of the Social Security safety net and its importance to 
vulnerable populations. The hearing will take place on Tuesday, May 17, 
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. 74-271) was signed into law by 
President Franklin D. Roosevelt on August 14, 1935. Initially, Social 
Security was focused on the income needs of retired workers age 65 and 
older. Soon thereafter, protections for other vulnerable populations 
were added. The Social Security Act Amendments of 1939 (P.L. 76-379) 
expanded the scope of Social Security beyond protection of the 
individual worker to protection of the family by authorizing payments 
to the spouse and minor children of a retired worker or the survivor of 
the deceased worker. The Social Security Act Amendments of 1956 (P.L. 
84-880) created the Social Security Disability Insurance program to 
provide protection against financial insecurity resulting from a 
disabled worker's loss of earnings.
      
    Social Security continues to play a key role in preserving the 
economic security of Americans. About one-in-six Americans receives a 
Social Security benefit. For one-third of the elderly, Social Security 
is virtually their only source of income. Poverty rates among the 
elderly fell from 35.2 percent in 1959, to only 10.2 percent in 2003--a 
reduction of more than two-thirds during the last 44 years. Younger 
workers and their families receive valuable disability and survivors' 
insurance protection. In fact, about one-in-three Social Security 
beneficiaries is not a retired worker.
      
    Although Social Security provides an essential safety net for 
workers and their families, roughly 2 million retirees who paid into 
Social Security throughout their working lives are collecting benefits 
that leave them below the poverty line. Moreover, the basic program was 
designed with circa World War II families in mind--in which the family 
breadwinner was usually the husband, the wife worked in the home, and 
marriages were less likely to end in divorce. However, women's 
workforce participation has more than doubled since the program's 
inception, and there are more two-earner and single-parent households. 
Social Security needs to evolve to meet the needs of our ever-changing 
society.
      
    In announcing the hearing, Chairman McCrery stated: ``Over the 
decades, Social Security has provided a vital income safety net for 
women, children, individuals with disabilities, and those with low 
earnings. As the Subcommittee begins its examination of ways to protect 
and strengthen Social Security, I am pleased to focus first on the 
history of Social Security's essential safety net, and its importance 
to those who are most vulnerable.''
      

FOCUS OF THE HEARING:

      
    The Subcommittee will examine the evolution of Social Security and 
its importance and effectiveness in meeting the needs of vulnerable 
populations.
      

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 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Tuesday, May 
31, 2005. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. For questions, or if you encounter 
technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All 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 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman MCCRERY. The meeting will come to order. Good 
afternoon everyone. I am pleased to chair this first in a 
series of Subcommittee hearings on protecting and strengthening 
Social Security. The goal of the hearings is to examine ways to 
protect Social Security to ensure seniors and near seniors will 
receive exactly what they have been promised, while 
strengthening Social Security for younger workers. Thanks to 
the leadership of President Bush and President Clinton before 
him, Americans understand Social Security faces financial 
challenges that must be addressed. The question before this 
Subcommittee is, of course, how do we address those challenges?
    Social Security has a long history of providing benefits 
for families in distress. Only 4 years after Social Security 
retirement benefits were enacted in 1935, the Congress passed 
amendments extending benefits to surviving widows and children. 
In the decades since then, Congress further expanded Social 
Security's coverage for at-risk Americans, establishing 
benefits for divorced spouses, adopted children, and those with 
disabilities.
    Turning to our topic for today's hearing, how Social 
Security has evolved over the decades and its importance for 
the most vulnerable in our society, it is most appropriate that 
we have Jo Anne Barnhart, the Commissioner of Social Security, 
as our first witness. The Commissioner has been working on 
issues involving women, children, and the elderly, not only at 
the Social Security Administration (SSA), but throughout her 
career in public service.
    We also will hear from the U.S. Government Accountability 
Office (GAO) and other expert witnesses about how Social 
Security is especially important to low-wage earners, women, 
and those with disabilities, and how Social Security has not 
kept up with changes in society and in the American family. 
Social Security affects the lives of nearly every American, and 
the deliberation regarding its future is far too important for 
partisan politics. I will look forward to working with all my 
Subcommittee colleagues on this historic opportunity to 
thoughtfully and carefully consider all options to strengthen 
and update this essential program. I would ask the Ranking 
Member, Mr. Levin, if he has any opening remarks?
    Mr. LEVIN. I do, and thank you, Mr. Chairman. We are 
pleased that we are having this hearing, and your approach to 
witnesses means that we should be able to have a meaningful 
range of views on these issues. As you said, a major focus of 
the hearing is going to be the impact of Social Security on 
some of our most vulnerable populations, elderly, widows, 
children, disabled workers, and the poor. Let me make three 
points on these matters.
    First, Social Security has been a major resource for 
millions to move out of poverty and for millions of others to 
keep their earlier middle class standard of living, to maintain 
the independence, to keep living their lives as they had done 
in earlier years. I assume we are going to hear this from our 
distinguished Commissioner and others. The facts briefly, 4 in 
10 elderly widows rely on Social Security for 90 percent of 
their income or more; 12 million seniors would fall into 
poverty without Social Security; 6.4 million children live in 
households with Social Security income, and over a third of 
them would be poor without Social Security; and nearly 7 
million disabled workers and their families receive Social 
Security benefits, and more than half would fall into poverty 
without them.
    Those groups depend on Social Security's guaranteed 
benefits. They know they can't outlive it. They know it will 
keep up with inflation and allow them to maintain their 
standard of living. It will be there even if they retire or 
become disabled at a time when the stock market is down. It 
will protect their families too, even if they haven't had time 
to accumulate enough funds in an account to cover multiple 
people over a long period of time. So, Social Security provides 
dignity as well as income. In all cases the benefits being 
provided to vulnerable populations were earned, earned by the 
worker herself or by a spouse or parent.
    Second, because both the dignity and the independence are 
so important for vulnerable populations, we have been very 
concerned about what would be the impact of the President's 
privatization proposals on these populations. The dangers are 
clear, even though the Administration has attempted to minimize 
them with varying statements. Last week, for example, Allan 
Hubbard, one of the President's top advisers on Social 
Security, confirmed what we had intuited, the President's plan 
would apply the middle class benefit cut, which would cut 
benefits up to 40 percent for future middle class workers, to 
widows and children too. Also, survivors would be subject to 
the benefit cut if the wage earner had earned more than $20,000 
while working, even if the family was quite poor after his or 
her passing. Shortly after that, a White House spokesperson 
cast a long shadow on earlier statements by the President that 
disabled workers would not face benefit cuts, saying the 
details would need to be, and I quote, ``worked out through the 
legislative process,'' end of quote, and refusing to say 
benefits would not be cut. It is not surprising that the White 
House plans to cut benefits for everyone, not just retirees, 
since without these benefit cuts they can't offset the new 
shortfall created by their private accounts. Both the proposal 
that the President initially called, in quotes, ``a good 
blueprint,'' and the sliding scale benefit cuts he endorsed a 
few weeks ago, propose to cut disability and survivor benefits.
    The President's privatization proposals to date would 
dramatically reduce the guaranteed Social Security benefit for 
over 70 percent of all future beneficiaries, and would increase 
it little if any for those not being cut. If individuals opted 
for private accounts, they would be subject to a second cut in 
their guaranteed benefit, even if those accounts did poorly. 
When these two benefit cuts are combined, most people would be 
left with only a tiny fraction of their currently scheduled 
guaranteed Social Security benefit, and no guarantee that their 
account will beat the odds and do well. The change would 
negatively impact all Americans, but reducing guaranteed 
benefits would be particularly harmful to women, disabled 
workers, children, and those with modest earnings.
    Third and last, some will argue that Social Security does 
not always strike a perfect balance between protecting the 
vulnerable and paying people benefits based on their 
contributions. We will hear about some of these issues today, 
and we should. It would be contradictory to use the Social 
Security's failure to be perfect in every part of its design as 
an excuse to replace it with a system that would undermine or 
destroy its numerous basic strengths, and replace it with many 
provisions that could create far greater problems of equity and 
adequacy.
    It has not been an easy struggle to bring about the 
improvements already in place in Social Security. For example, 
when the creation of the Disability Insurance Program was first 
proposed, all 10 Ways and Means Republicans opposed its 
creation. Democrats look forward to working on a bipartisan 
basis to continue perfecting Social Security. We stand firmly 
that no set of benefit changes to Social Security's guaranteed 
benefits, however worthy, could offset the harm of beginning to 
phase out that guaranteed benefit, and replacing a guaranteed 
benefit with private accounts. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Levin. Indeed, this is the 
legislative process that we are engaged in now and I hope that 
we will listen to the witnesses today and get the facts, and 
then discuss those facts on both sides of the aisle and try to 
improve the Social Security program together.
    Mr. LEVIN. All for it.
    Chairman MCCRERY. Thank you for your comments. Our first 
witness today is the Commissioner of the SSA, the Honorable Jo 
Anne Barnhart. Commissioner Barnhart?

 STATEMENT OF THE HONORABLE JO ANNE B. BARNHART, COMMISSIONER, 
                 SOCIAL SECURITY ADMINISTRATION

    Commissioner BARNHART. Thank you, Mr. Chairman. Mr. 
Chairman and Members of the Subcommittee, I am very happy to be 
here today to testify about how Social Security has evolved 
since its inception in 1935. Today, Social Security pays over 
$493 billion in monthly cash benefits to over 47 million 
workers and their families to replace, in part, the loss of 
income due to retirement, disability, or death. By providing 
these benefits, Social Security helps ensure economic security 
for millions of Americans. Social Security is the major source 
of income for most of the elderly population. In fact, over 90 
percent of individuals age 65 and over receive Social Security 
benefits. About two-thirds of these beneficiaries receive most 
of their income from Social Security, and for over one-fifth of 
them, Social Security is their only source of income.
    Throughout its 70-year history, Social Security has 
undergone numerous changes. Having begun as a retirement 
program for a limited segment of the working population, today 
it affords economic protection to the entire family, and at all 
stages in life. Social Security plays a key role keeping 
millions of our most vulnerable citizens, the elderly, the 
disabled and children out of poverty. My written testimony 
includes an extensive discussion of the changes that have 
occurred since Social Security began. These changes show that 
the history of the Social Security program is one of change, 
but in the interest of time this afternoon I am only going to 
make a few general observations.
    From adding family protections, to expanding the program 
and addressing financial issues, Congress over the years has 
taken action to strengthen and to preserve Social Security. 
Today the program is facing new challenges, challenges that are 
driven by demographics. Baby Boomers are rapidly approaching 
retirement, families are having fewer children, and people are 
living longer. As a result, it will not be possible to pay 
scheduled benefits without making additional changes to our 
current pay-as-you-go Social Security program.
    While we are in sound fiscal health in the near term, I 
believe, as do my fellow trustees, that the future projected 
shortfalls should be addressed in a timely manner to allow for 
a gradual phasing in for the necessary changes. The sooner 
adjustments are made, the less abrupt they will have to be to 
achieve sustainable solvency. As you know, a sustainable reform 
of the system requires actuarial balance over the 75-year 
projection period and stable or rising trust funds at the end 
of that 75-year period.
    I again want to thank the Chairman for holding today's 
hearing. As President Bush said, ``This country has many 
challenges. We will not deny, we will not ignore, we will not 
pass along our problems to other Congresses, to other 
Presidents and other generations. We will confront them with 
focus and clarity and courage.'' With the President's 
leadership and that of this Committee, I am certain that we 
will be able to address the needs of our changing society and 
provide for a Social Security program that our citizens can 
count on. I would like to take this opportunity to make clear 
that current and near retirees can be assured that their 
scheduled benefits are secure and will be paid.
    As we look to the future, our actions must signal to 
younger generations of Americans that we are committed to 
strengthening the program that protected our parents, our 
grandparents, and our great grandparents. By doing so, we 
restore their faith and confidence in the most successful 
domestic program in our Nation's history. As a nation, we have 
a proud history of grappling with difficult issues, and we have 
done this best when we worked together. As the discussions on 
strengthening the program continue, the SSA will be available 
to provide assistance to Congress and the analysis of any 
proposed changes, and of course, we will continue to faithfully 
serve the American people to the best of our ability. At this 
time I would like to thank you again for inviting me to 
testify, and I would be happy to try to answer any questions 
that any of you may have.
    [The prepared statement of Commissioner Barnhart follows:]
 Statement of The Honorable Jo Anne B. Barnhart, Commissioner, Social 
                        Security Administration
    Thank you, Mr. Chairman and Members of the Subcommittee.
    It gives me great pleasure to be invited here today to testify 
about how Social Security has developed and evolved over time. Since 
its inception in 1935, Social Security has developed into one of the 
most successful domestic program in our Nation's history.
    Let me begin by telling you about what we do and how we do it. Last 
year, Social Security paid over $493 billion in monthly cash benefits 
to over 47 million workers and their families to replace, in part, the 
loss of income due to retirement, disability, or death. By providing 
these benefits, Social Security helps ensure economic security for 
millions of Americans. Social Security is the major source of income 
for most of the elderly population. In fact, over 90 percent of 
individuals age 65 and over receive Social Security benefits. About 
two--thirds of these beneficiaries receive most of their income from 
Social Security. For over one-fifth of them, Social Security is their 
only source of income.
    As you know, Social Security involves more than paying cash 
benefits. In this fiscal year, SSA will:

      Process almost 6 million claims for benefits;
      Take applications, secure and evaluate evidence for, and 
issue 18 million new and replacement Social Security number (SSN) 
cards;
      Process 267 million earnings items to maintain workers' 
lifelong earnings records;
      Handle approximately 52 million phone calls to our 800-
number; and
      Issue 136 million Social Security Statements.

    SSA does all this while keeping administrative expenses under 2 
percent of total outlays of Social Security and SSI benefits.
    You can see that Social Security plays a key role keeping millions 
of our most vulnerable citizens, the elderly and children, out of 
poverty. We take very seriously our commitment to giving the American 
people the service they deserve; improving program integrity through 
sound financial stewardship, ensuring the program's solvency for future 
generations, and maintaining the quality of staff the Agency needs to 
provide a high level of service and stewardship. Now I would like to 
provide some background as to how Social Security began and how it has 
continued to develop and evolve over time.
The Creation of Social Security
    The Social Security Act 1935 was a response to the economic crisis 
resulting from the Great Depression. At the height of the Great 
Depression, many older Americans were living in poverty. The Committee 
on Economic Security was appointed by President Franklin Roosevelt to 
confront the crisis. The Committee recommended that the federal 
government create a national system of unemployment and old-age 
benefits. Acting on those recommendations, and behind the driving force 
of President Roosevelt, Congress enacted the Social Security Act, which 
was signed into law on August 14, 1935.
    The Act established a federal social insurance program for the aged 
financed through payroll taxes paid by employees and their employers (2 
percent on the first $3,000 in earnings divided equally between 
employee and employer). The financing was based on the concept of 
``pay-as-you-go'' or PAYGO. Under the PAYGO system, Social Security 
contributions of current workers fund the Social Security benefits of 
current beneficiaries. Congress selected this method of financing 
because of the great number of older Americans who were living in 
poverty at the time of the Great Depression. With the severity of the 
economic situation at the time, and because most of them would not have 
been able to find employment and then contribute to the system long 
enough to be eligible for benefits, Congress decided that this 
generation of older persons should receive Social Security benefits, 
despite not having contributed to the system. Thus, most of the first 
generation of Social Security recipients contributed either very little 
or not at all to Social Security.
    The original old-age insurance system created by Title II of the 
Act provided retirement benefits to insured worker at age 65. The 
benefit was based on total wages, but a weighted formula was used to 
provide a greater return on payroll taxes paid in to low-wage earners. 
At that time, no benefits were provided for spouses and children. If a 
worker attained age 65 but was ineligible for benefits or died before 
reaching the age of 65, Social Security provided a lump sum payment to 
the worker or his/her estate. Collection of payroll taxes began in 1937 
and benefit payments were scheduled to commence in 1942. This provided 
time to buildup the Social Security Trust Fund. Any surplus funds 
collected were to be invested in U.S. government securities.
The Amendments
1930s/1940s: Family Protections Added
    In 1939, Congress amended the Social Security program to shift its 
focus from protection of the individual worker to protection of the 
family. The new legislation provided benefits to aged wives/widows, 
young children of a retired or deceased worker, young widows caring for 
a child, and dependent parents of a retired or deceased worker.
    In addition, in response to public pressure, the amendments allowed 
initial benefits to be paid beginning in 1940 instead 1942, as 
originally scheduled.
    Following the implementation of the 1939 amendments, the system 
remained essentially unchanged throughout the 1940s.
1950s: Expansion of the Program
    The 1950 amendments made substantial changes to the scope of the 
program. This legislation broadened the program to cover many jobs that 
previously had been excluded, such as farm and domestic workers and, on 
a voluntary basis, State and local government employees not under a 
pension plan. This legislation also greatly increased benefit levels. 
Wage credits were also provided to those in military service. To 
finance these improvements, the amendments created a revised schedule 
for gradually increasing tax rates for employers, employees and the 
self-employed and increased the contribution and benefit base (the 
maximum amount of earnings subject to payroll tax and used in benefit 
computations).
    Four years later, in 1954, another expansion in worker coverage 
took place. Social Security coverage was extended to farm self-employed 
workers and to professional self-employed workers (except lawyers, 
doctors, dentists and other medical groups). In addition, coverage was 
extended to State and local government employees covered under a 
pension plan (except firemen and policemen), on a voluntary basis.
    By the mid-1950s, 20 years after the enactment of Social Security, 
almost 90 percent of workers were given protection under the program. 
In addition to this expansion, the 1954 amendments increased benefit 
levels and raised the contribution and benefit base.
    In the early 1950s there was a growing recognition that the dangers 
of economic insecurity due to disability needed to be addressed. As a 
result, the 1954 amendments began the process of protecting workers 
from income loss due to disability. Congress enacted a disability 
``freeze'' provision on a disabled worker's earnings record. While no 
cash benefits were payable under the provision, workers who were 
permanently disabled and met the insured status test at the time they 
became disabled could have their Social Security eligibility preserved 
by excluding periods of disability when computing subsequent retirement 
or survivors' benefits. This provision prevented loss of retirement and 
survivors' benefits due to disability.
    Social Security disability cash benefits were authorized under the 
amendments 1956. The program established a cash program beginning in 
1957 for totally disabled workers between the ages of 50-65. The 
program established the Disability Insurance (DI) trust fund and was 
financed by an increase in the employee/employer payroll tax.
    The amendments also provided benefits to a dependent child, over 
the age of 18, of a retired or deceased worker if the child became 
disabled before the age of 18. In addition, benefits to female workers 
and wives were made available at age 62 instead of age 65, but at a 
reduced level to take into account the longer collection period. At age 
62, widows and dependent parents could receive benefits at an unreduced 
rate. In 1958, the program extended benefits to spouses and children of 
disabled workers.
1960s: Disability Program Expanded & Medicare Began
    By the mid-1960s, the OASDI program was essentially the program 
that exists today. Coverage was nearly universal so that almost all 
individuals retiring in the years following would be eligible for 
benefits. Two amendments were passed in the early 1960s. In 1960, the 
age requirement for disability, which was originally limited to those 
who were at least 50, was abandoned. In 1961, all retirees were now 
allowed to collect reduced benefits at age 62 instead of 65.
    Concerned over the cost of health care for the elderly population, 
Congress passed ``Medicare'' legislation in 1965. The legislation 
consisted of two major components. part A was hospital insurance that 
provided basic protection against hospital costs and other related 
care. This portion would be financed by an additional payroll tax on 
employers, employees and the self-employed. part B was supplementary 
medical insurance that provided coverage for physicians' services and 
other health care. Enrollment in part B was voluntary and was funded 
through general revenues and premiums paid by enrollees. Separate trust 
funds were created for each part of the program. In addition to the 
Medicare Program, the amendments included an increase in benefits and 
as well as an increase in the earnings base.
    Throughout the remainder of the decade, benefit levels continued to 
increase, as did the earnings base. In addition, in 1967, Social 
Security began providing monthly cash benefits for disabled widows and 
disabled dependent widowers; these benefits were available as early as 
age 50.
1970s/1980s: COLAs Introduced & Long-Term Financing Addressed
    Throughout the program's history, Congress has maintained the value 
of Social Security benefits by periodically enacting across-the-board 
increases in benefits. However, in 1972, Congress decided to link 
benefits directly to changes in the Consumer price Index (CPI). The 
first automatic COLA adjustment took effect in June 1975. Prior to this 
time, Congress voted for increases in benefits directly. In addition, 
the legislation increased the contribution and benefit base and 
provided for automatic adjustments in this ceiling.
    Based on economic projections in the mid-1970's, it was then 
estimated that initial benefits as a percent of pre-retirement earnings 
(replacement rates) would increase significantly for future retirees. 
Initial benefits were rising faster than either wages or prices. In 
1977, Congress raised the payroll tax rates and increased the 
contribution and benefit base. Congress also corrected the most serious 
flaw in the method for computing the initial benefit level. Congress 
modified the benefit formula in order to provide that, from generation 
to generation, comparable workers would receive comparable replacement 
rates. Unfortunately, constant replacement rates for initial benefits 
become unsustainable when the worker to beneficiary ratio deteriorates. 
Today, we know that the ratio is about 3 workers for every beneficiary 
and is expected to fall to unsustainable levels (about 2:1) around 
2030.
    In the late 1970s and early 1980's, high inflation rates caused a 
serious and immediate financing crisis for the program. President 
Ronald Reagan appointed a blue-ribbon panel known as the Greenspan 
Commission to study the financing issues and recommend legislative 
changes. As a result of the Commission's findings, Congress made 
significant changes in the program in April 1983. The major provisions 
included:

      Gradual increase in the normal retirement age from age 65 
to age 66 by 2009 and 67 by 2027.
      Expanded coverage to newly hired federal civilian 
employees and those working in non-profit organizations.
      Acceleration of scheduled tax increases for employers and 
employees.
      Permanent increases in self-employment tax rates.
      Inclusion of up to half of Social Security benefits in 
the taxable income of higher income beneficiaries (this money would 
then be transferred to the Social Security trust funds).

    The 1983 amendments were designed to achieve solvency for the 75 
year projection period by initially building large Trust Fund reserves 
which could be used to cover costs in the future. As designed, it was 
clear that near the end of the 75 year period, the trust funds would 
run cash flow deficits prior to its exhaustion. A sustainable reform of 
the system requires actuarial balance over the 75 year projection 
period and stable or rising Trust Fund balances at the end of that 
period.
1990s and Beyond
    While a number of amendments have been legislated since 1983, many 
of these, such as the Social Security Administrative Reform Act 1994 
that established the Social Security Administration as an independent 
agency, have impacted more or how Social Security operates as an 
agency. There have been few programmatic changes. The 1993 amendments 
made up to 85 percent of Social Security benefits subject to income tax 
for individuals whose income, plus one-half of their benefits, exceed 
$34,000 (single) and $44,000 (couple), with the additional revenue 
credited to the Health Insurance (HI) trust fund. And in April 2000, 
legislation was enacted to eliminate the retirement earnings test at 
the full-benefit retirement age, giving today's retirees the 
opportunity to supplement their incomes and to continue to contribute 
to society through work, if they choose, without reducing their Social 
Security benefits.
    However, while the actions taken in the 1980's resolved the 
immediate short-range financing crisis, the issue of long-range 
solvency arose again in the 1990's. These issues were addressed 
directly by the bipartisan 1994-96 Advisory Council on Social Security 
and have been the center of a continuing national debate since then. 
Throughout this debate, the importance of preserving Social Security 
for those members of our society who depend upon it--the elderly, 
women, minorities, and people with disabilities--has always been of 
primary concern to policymakers.
    As I stated earlier, Social Security quickly evolved from a program 
for retired workers to one affording economic protection to the entire 
family. Over one-third of today's Social Security beneficiaries are not 
retirees. The program has since developed into one that provides a 
large measure of economic well-being for millions of Americans. Today, 
Social Security provides not only retirement benefits but valuable 
survivorship and disability insurance for workers and their families.
    As you well know, the Social Security program is gender and race 
neutral. We treat individuals with identical earnings histories the 
same in terms of benefits. However, due to demographic trends, certain 
groups--like women--benefit from various features of the Social 
Security program.
    These features include a progressive benefit formula, automatic 
cost-of-living adjustments and guaranteed benefits for dependants and 
survivors.
    Women--who on average live longer, make less money and spend more 
time out of the workforce raising children than men--find these 
elements of the program's benefit structure particularly helpful.
    Social Security has provided a solid floor of financial protection 
that has allowed the great majority of Americans to retire with the 
dignity that comes from financial independence, without fear of poverty 
or reliance on others for nearly 70 years. In addition, it has 
developed into the most important program to prevent families from 
falling into poverty upon the sudden and often unexpected loss of 
income due to the worker's disability or death.
    As my testimony illustrates, the history of the Social Security 
program is a history of change. And Social Security will need 
modifications in the future to address the challenges the program is 
currently facing. Today, the country's demographics are working against 
us: Baby Boomers are rapidly approaching retirement, families are 
having fewer children, and people are living longer. As America ages, 
it will become more and more difficult to pay promised benefits without 
making changes.
    While we are in sound fiscal health in the near term, I believe--as 
do my fellow trustees--that the future projected shortfalls should be 
addressed in a timely manner to allow for a gradual phasing in of the 
necessary changes. The sooner adjustments are made, the smaller and 
less abrupt they will have to be.
    Payroll taxes coming into Social Security will cover all currently 
promised benefits until 2017. In that year, Social Security will need 
to use the interest earned on the bonds to help pay benefits and then 
begin redeeming the bonds themselves.
    These bonds--backed by the full faith and credit of the United 
States Government--will be gone by 2041. Unless changes are made there 
will only be enough money coming into the system to pay 74% of promised 
benefits at that time.
    Ask yourself how your personal life would be affected if all of a 
sudden you learned that your salary was being cut by 26 percent. For 
most Americans this sort of reduction would be difficult--if not 
impossible--to absorb. For the two-thirds of Americans receiving 
benefits from Social Security who depend on our checks for the majority 
of their income, it is a drastic measure that we must avoid. Our 
parents and grandparents could feel assured about the promise of a 
secure future. I believe that we have an obligation to ensure that 
Social Security's safety net is also there for our children and 
grandchildren.
    As a nation, we have a proud history of grappling with difficult 
issues, and we have done this best when we work together. Social 
Security is no exception.
    Since 1935, Congress has legislated changes as necessary to meet 
the changing needs of the American people and to ensure that the 
program was adequately funded to provide for these changes. I am 
confident that we will do so again.
    I want to again thank the Chairman for holding today's hearing. As 
President George W. Bush said, ``This country has many challenges. We 
will not deny, we will not ignore, we will not pass along our problems 
to other Congresses, to other presidents, and other generations. We 
will confront them with focus and clarity and courage.''
    With the President's leadership and that of this Committee, I am 
certain that we will address the needs of our changing society and 
provide for a Social Security program that our citizens can count on to 
be there for them. Let me take this opportunity to make clear that 
current and near-beneficiaries can be assured that their scheduled 
benefits are secure and will be paid.
    Our actions must signal to younger generations of Americans that we 
are committed to strengthening Social Security. By doing so, we restore 
their faith and confidence in the most successful domestic program in 
our Nation's history.
    As the discussions on strengthening the program continues, the 
Social Security Administration will be available to provide assistance 
to the Congress in the analysis of any proposed changes and we will 
continue to faithfully serve the American people to the best of our 
ability.
    I want to thank you again for inviting me to testify. I would be 
happy to answer any of your questions.

                                 

    Chairman MCCRERY. Thank you, Commissioner Barnhart. You 
stated in your written testimony that if Congress fails to act 
to strengthen Social Security the trust funds will become 
exhausted, and at that point there would only be sufficient 
money coming in through the payroll tax to pay about 74 percent 
of benefits. Is that according to the Social Security 
actuaries?
    Commissioner BARNHART. It is. It is according to our 
independent Social Security actuary, and as published in the 
Trustees' Report most recently issued, the one in March of this 
year.
    Chairman MCCRERY. Obviously, if a worker faced a 26-percent 
cut in his salary, that would be a pretty dramatic consequence 
for him and his family. So, that would be something that we 
would, I hope, try to avert as a cliff at some date, whether it 
is 2041 or 2042, or even 2052, as the Congressional Budget 
Office (CBO) says. We would like to avert that cliff from 
occurring. Whenever that date is--and your actuaries say 2041 
now, I believe--doesn't that reduction in benefits get worse 
following that year?
    Commissioner BARNHART. In fact, the reduction benefit moves 
from 26 percent to 32 percent over time. Yes, I think that is 
the point the Chairman is making.
    Chairman MCCRERY. Yes, ma'am.
    Commissioner BARNHART. That 26 percent is the initial 
reduction that is required in 2041, but over time, as ever 
increasing numbers of boomers are collecting benefits and 
people are coming in after them, eventually it would require a 
32-percent reduction in benefits by the end of the 75-year 
period.
    Chairman MCCRERY. So, initially, there is a 26-percent cut 
in benefits, but it does not just stay there. So, the system 
wouldn't be capable of paying 74 percent of the currently 
promised benefits forever?
    Commissioner BARNHART. No. Absent any changes, that is 
absolutely correct, Mr. Chairman.
    Chairman MCCRERY. Which brings up the question, I think, of 
how we fund a plan like this. The pay-as-you-go system, while 
it worked well when we had a lot of workers for every retiree, 
has changed dramatically because of the demographic changes 
that you have spoken about, and now we have approximately 3.3 
workers for every retiree, and that is going down. In your 
opinion, and I know you have looked at this in your capacity as 
Commissioner and in other public service, does it make sense 
for us to examine perhaps prefunding some of the out-year 
obligations, and investing that prefunding in real assets to 
get a higher rate of return and help us with those obligations 
in the out-years?
    Commissioner BARNHART. Let me say a couple of things, if I 
may. The Chairman has made a number of important points. The 
first is that it is really important that whatever we do, we 
take action sooner as opposed to later. The fact of the matter 
is, the sooner action is taken, the greater the range of 
choices, the longer time people have to adjust to the changes, 
and the changes can be gradual and phased in, not unlike what 
happened with the 1983 legislation in terms of increasing the 
retirement age.
    In terms of the point about the prefunding, I think clearly 
this whole situation is due to demographics. We have seen the 
number of workers to retirees shrink over time, and it is going 
to go down even further. We are at 3.3 workers per retiree 
today; eventually, it will go down to two, and then below two. 
That is the problem as we look ahead at the promised level of 
benefits. There is no question that if you engage in some sort 
of prefunding, one of the things you do is reduce the potential 
burden on future taxpayers. There is no question about that. As 
you look out over time, many private pension plans rely on 
prefunding to some degree, not necessarily in total, but most 
plans do have prefunding to some degree.
    Chairman MCCRERY. In fact, the government requires it, 
don't we?
    Commissioner BARNHART. Yes, in fact, we do.
    Chairman MCCRERY. Yes. So, it would seem that if it made 
sense for private pension plans, it might make sense for our 
pension plan for the Social Security system. As far as I know, 
there are only two ways to do that, direct government 
investment into real assets of the Social Security Trust Fund, 
or personal accounts. Can you think of another way that we 
could prefund the system?
    Commissioner BARNHART. Right at this very moment I am at a 
loss to come up with another way. There may be people who work 
in the field of insurance and investment that could come up 
with something, but, no, I can't come up with others at this 
point.
    Chairman MCCRERY. Lastly, let us talk about this issue of 
disability benefits because a lot has been said about--well, 
the President's plan would not only reduce retirement benefits 
but would reduce disability benefits. To your knowledge, has 
the Administration proposed any plan that would cut disability 
benefits?
    Commissioner BARNHART. It is my understanding that it is 
the President's intent that disability and survivors' benefits 
remain intact, and that the issue really is--whatever the 
ultimate plan ends up being-looking at the transition from 
disability into retirement.
    Chairman MCCRERY. So, you don't know of any Administration 
plan that would specifically cut disability benefits?
    Commissioner BARNHART. I don't know of any plan like that, 
no.
    Chairman MCCRERY. As the Commissioner of the SSA, don't you 
think you would know if there were such a plan?
    Commissioner BARNHART. I think the President has made clear 
in the statements that he has made publicly that his intent 
from the very beginning was that the disability and survivor 
programs must be preserved--that was one of his original six 
principles. Since then, there have been a number of 
opportunities and public appearances to address that issue, and 
it is my understanding that the intent is that the disability 
and survivors programs be protected.
    Chairman MCCRERY. Thank you very much. Mr. Levin?
    Mr. LEVIN. You said disability and survivors?
    Commissioner BARNHART. Yes.
    Mr. LEVIN. Do you know what was in Plan Two of the Social 
Security Commission appointed by the President?
    Commissioner BARNHART. I am generally familiar with it. I 
couldn't speak to every single detail, but yes, I am generally 
familiar.
    Mr. LEVIN. Do you know that under that plan both survivors 
and disability benefits would be cut?
    Commissioner BARNHART. I am aware of that, but as I also 
recall, if I may say, Mr. Levin, is that the Commission stated 
in their report that that should not be considered a 
recommendation on their part to take that action as far as 
disability.
    Mr. LEVIN. It was in the Commission Two Plan, was it not?
    Commissioner BARNHART. It was in the plan, but they did 
make that point.
    Mr. LEVIN. That plan was called a good blueprint by the 
President. I know you are an appointee of the President, but I 
do think it is important that the record be straight. He called 
that a good blueprint. Tell me where the Administration has 
officially said that there would be no cut in survivors' 
benefits? For example, what the President suggested, the middle 
class benefit cuts, would that not apply to disability 
benefits?
    Commissioner BARNHART. I think that my--again, I can only 
say what my understanding is, Mr. Levin, and my understanding 
is that the disability----
    Mr. LEVIN. I am talking about survivors.
    Commissioner BARNHART. My understanding was that it was the 
intent to protect those programs and those benefits.
    Mr. LEVIN. I think you are wrong. I think the survivor 
portion, when the President proposed it, was not taken out from 
those cuts. Isn't it true if you would exempt both disability 
and survivor benefit cuts, you would have to have even more 
cuts for retirees in order to address solvency?
    Commissioner BARNHART. I think, obviously, it would depend 
on how one chose to approach----
    Mr. LEVIN. Right. If you immunize those portions, it 
affects the retirement programs, doesn't it?
    Commissioner BARNHART. Well, depending on how one goes 
about financing the reforms that one puts in place.
    Mr. LEVIN. The more you exempt people from those cuts, the 
more you have to look elsewhere, right?
    Commissioner BARNHART. Well, I think it is true that in 
terms of looking at what the total solvency shortfall is, if 
you look at protecting certain categories of people who are 
receiving benefits today--and I think that is what you are 
saying--then you do have to look at making up the difference in 
the shortfall in other places. However, it would depend on how 
the Congress and the President ultimately decided to approach 
the whole solvency issue.
    Mr. LEVIN. Does Mr. Hubbard work for the President?
    Commissioner BARNHART. To the best of my knowledge he does, 
yes.
    Mr. LEVIN. Did he not say recently that the middle class 
benefit approach, benefit cut approach put forth by the 
President would apply to survivors?
    Commissioner BARNHART. To be honest, Mr. Levin, I couldn't 
speak to what every single person has----
    Mr. LEVIN. He is not a single person. He is an adviser on 
Social Security.
    Commissioner BARNHART. I understand, but there are many 
people that are speaking on the issue around the country, and 
obviously, I do my best to keep up with what everyone is 
saying, but I am really not in a position to speak to what 
every person allegedly said in a particular setting. I 
apologize, but I am just really not in that position to do so 
today.
    Mr. LEVIN. The 26-percent cut that you mentioned, that 
would be a cut from what was scheduled under wage indexing, 
correct? So, with the 26-percent cut people would still be 
receiving more in real dollar terms then than a recipient is 
receiving now?
    Commissioner BARNHART. Just to clarify----
    Mr. LEVIN. The answer is yes, right?
    Commissioner BARNHART. I want to make sure I understand 
what you are saying. The current benefit is waged indexed, and 
the 26 percent reflects a cut in that wage indexed benefit. So, 
what you are asking me is, is that more or less than--I just 
want to make sure I understand.
    Mr. LEVIN. Than someone today is receiving. In real dollar 
terms it would be a cut from the projected increase, the 
scheduled increase under wage indexing, but that amount would 
be higher than a beneficiary is now receiving.
    Commissioner BARNHART. My understanding is that all 
benefits, whether it is price indexing or wage indexing, the 
benefit still goes up as compared to today.
    Mr. LEVIN. It goes up much more under wage----
    Commissioner BARNHART. In real dollars. Obviously, it goes 
up much more.
    Mr. LEVIN. I think the answer to my question is yes. We 
just----
    Commissioner BARNHART. Well, I guess I would say though 
that depending on how one does the price indexing----
    Mr. LEVIN. No. I am talking about right now, wage indexing 
is there. I am saying if it is not modified, somebody would be 
receiving more today with this 26 percent cut. It would be a 26 
percent cut from the wage indexed benefit, right?
    Commissioner BARNHART. That is right. That is what the 26 
percent cut would be.
    Mr. LEVIN. Okay. I just wanted to finish by saying we can 
hear today from everybody about strengthening Social Security. 
In our judgment you don't strengthen it by replacing it. Thank 
you.
    Chairman MCCRERY. Mr. Shaw?
    Mr. SHAW. Mr. Chairman, I think the questions I had thought 
to ask are all out the window now that Mr. Levin has completed 
his comments. As I understand Mr. Levin, in answering his own 
question, said that the benefits would be a better deal with a 
20 some percent cut, which for some reason goes over my head. I 
don't really understand that, because I think that the workers 
are----
    Mr. LEVIN. I didn't say that.
    Mr. SHAW. I didn't interrupt you. This would be a severe 
cut. It would be--it would throw literally tens of thousands or 
hundreds of thousands of our senior citizens into below the 
poverty line. This is what we have to avert. Mr. Levin also 
commented in saying that the President said that the second 
plan that was in the Commission report was a good blueprint. 
That is in error. The President said that the Commission report 
was a good blueprint, and there were many plans in there. There 
were three of them and one of them actually is an add-on. I 
would like to comment too on what Mr. Levin said in setting out 
his blueprint, much of which I agree with. He said no decrease 
in benefits. I don't think we have to decrease benefits, and I 
am going to work hard to pass a plan that doesn't decrease 
benefits, and I am not talking about the 27 percent cut not 
being a cut in benefits, because I certainly do understand that 
it is. In fact, if you look at H.R. 750, the ``Social Security 
Guarantee Plus Act of 2005,'' it maintains the existing level 
of benefits.
    Mr. Levin also said we must retain the guarantees under 
Social Security. If you look at H.R. 750, it does guarantee. In 
fact, the name of the bill is the Social Security Guarantee 
Plus Plan. Then we have to go back and say, well, how do you 
maintain these guarantees? Do you maintain them through a 
promise to borrow? Do you maintain them by increasing taxes, or 
do you maintain them by now starting to prefund Social Security 
for younger workers? Commissioner Barnhart, do you understand 
that those are the choices if we are going to maintain 
benefits, or can you think of anything to add to----
    Commissioner BARNHART. In terms of the----
    Mr. SHAW. That I have just given?
    Commissioner BARNHART. The array of choices that we have?
    Mr. SHAW. Yes.
    Commissioner BARNHART. Traditionally, as you look back over 
time, Congress has made changes in the program and the funding 
issue has been dealt with through tax increases, changes to 
benefits, increasing the retirement age, which ultimately is a 
change in benefits to some extent because it affects when you 
get them and how much you get at different ages. So, I think 
generally it is agreed that the options that lie before us as 
we move ahead to try to deal with the financing shortfall 
pretty much come down to three areas: to increase taxes, to 
adjust benefits, or to increase the rate of return that we get 
on the money going into the system.
    Mr. SHAW. In your comments you talked about many changes at 
Social Security, and they have been for the better. The one 
change that isn't for the better is the demographics, and the 
question is how many workers are paying into the system now for 
every retiree? Back in 1935 it was over 40 workers per retiree. 
The system worked very well. Life expectancy was less than 65. 
I think it was 62, and the benefits didn't really start until 
65, so, the program was very, very solvent. There was no 
problem. The pay-as-you-go system was a good plan. Now, we are 
down though to three, a little over three workers per retiree, 
and we are headed, because of the fact we are living longer and 
having fewer kids, toward a situation where we are going to 
have two workers per retiree. That would simply mean in plain 
terms that if we are going to guarantee the benefits, that 
means two workers have to care for one beneficiary under Social 
Security. That is just too heavy a load, particularly for 
people that go from paycheck the paycheck. Also, the 
alternative of borrowing, we are looking at a $26 trillion cash 
shortfall. Now we can talk about it in terms of present 
dollars, but the actual cash shortfall over the next 75 years 
is $26 trillion. Our economy cannot sustain that.
    So, obviously, right now you would never devise a program 
today for Social Security that is identical to the one that we 
have currently. You would add something to it. You wouldn't 
provide for a program where the surpluses are going into the 
General Fund. You would retain them and invest them in 
something for the American workers. That is how I see the 
future of Social Security if we are going to care for the next 
generation and quit worrying about the next election. That is 
more important. Saving Social Security is much more important 
than anybody's reelection in this U.S. Congress. Thank you, Mr. 
Chairman. I yield back.
    Chairman MCCRERY. Thank you, Mr. Shaw. Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman. Well, I think we have 
heard a new one today, prefunding. This is an effort that has 
an ideological objective, privatizing Social Security. It is an 
objective in search of rationale. So, initially we heard you 
were not getting enough return on your Social Security, only 
now to have the President propose a lower return as they change 
from wage to price index. We heard that the system was in 
crisis, had to privatize Social Security, it was in crisis, 
until people looked at the thing being able to pay benefits as 
scheduled for the next 37 years, and figure we had a little 
time to work on this. So, that one didn't work. So, now it is 
prefund, we are going to prefund. Well, that all sounds fine 
and good too until you realize that prefund means dollars in an 
account, benefit guarantees reduced, benefit stability reduced.
    Commissioner, I find your testimony very interesting. I 
have at times previously extolled your administration of Social 
Security because I think you are doing a terrific job.
    Commissioner BARNHART. Thank you.
    Mr. POMEROY. We have not had a chance to talk about really 
the philosophical design, and I understand that is really not 
your core responsibility. You have got to make the trains run 
on time, get the checks out over there, make the system work. 
Is that correct?
    Commissioner BARNHART. That is correct.
    Mr. POMEROY. Do you view yourself as a premier architect or 
participant in the great Social Security privatization debate?
    Commissioner BARNHART. I view myself as a person making 
sure Social Security is a place where you, all the Members of 
this Subcommittee, all the Members of Congress, and the 
President and Members of the Administration can come to to get 
the facts about the program, to get the facts of the----
    Mr. POMEROY. I think you have given us some important facts 
today. Two-thirds of those who receive a Social Security check, 
that is most of their income, 20 percent, it is all their 
income. I heard about a figure of something like one-third, it 
is 90 percent or better of their income. Would that be about 
right?
    Commissioner BARNHART. That is about right, yes, it is.
    Mr. POMEROY. What is the average Social Security check?
    Commissioner BARNHART. The average Social Security check 
right now is somewhere around $955 a month.
    Mr. POMEROY. In my State, as of last year, I believe you 
and I spoke about a check that averaged about $834 a month.
    Commissioner BARNHART. That is for an individual, and for a 
couple it is somewhere around $1,600, and it goes up, 
obviously, if you have a couple.
    Mr. POMEROY. For an individual, the $834, is that right?
    Commissioner BARNHART. I believe $834 is the disability 
payment, Mr. Pomeroy, the average disability payment.
    Mr. POMEROY. A year ago the disability payment was I think 
$700 and some.
    Commissioner BARNHART. For '04, the average benefit for a 
disabled worker is $894, a retired worker is $955.
    Mr. POMEROY. North Dakota or national?
    Commissioner BARNHART. That is national. North Dakota may 
be different, that is very possible.
    Mr. POMEROY. It is lower, based on the lower----
    Commissioner BARNHART. Yes, that is very possible because 
of the lower earnings perhaps.
    Mr. POMEROY. --lower statistics. I am just looking at it 
from the perspective I have. Costs are higher in other places, 
which offset the higher check.
    Ms. BARNHART. Right.
    Mr. POMEROY. I think that if you have people--in fact, it 
is a high possibility that those depending on Social Security 
for all their check have a lower than average check because 
they would have had a lower than average earning history, 
reflecting their inability to save or have other retirement. 
That is why they are so dependent upon Social Security. So, as 
I think about the North Dakota check in the mid to low 800s, I 
am thinking, if you add volatility to this, with this thing 
bouncing around depending on where the stock market goes, or if 
you change the wage replacement value because you no longer 
have a wage index, you have a price index if you make over 
$20,000 a year, you definitely raise questions about whether a 
person will be able to live on that Social Security check.
    It is my view that volatility or benefit cuts off of the 
average check raise real questions about the ability of people 
to live independently, for that some significant portion, about 
one-third of all recipients, that depend on it for 90 percent 
or more of their check. Would you agree with that?
    Commissioner BARNHART. I understand what you are saying, 
and I think the point that you are making, as I am hearing it, 
is that Social Security is even more important for the most 
vulnerable people who are the people in the lowest quintile, or 
lowest one-third, of earners in the country, because they rely 
on it for a higher percentage if not all of their income and 
retirement, correct?
    Mr. POMEROY. Yes.
    Commissioner BARNHART. Yes.
    Mr. POMEROY. That check, if it is either subject to stock 
market volatility or reduced because you change the index and 
it no longer accrues at its wage index value, you raise real 
questions in terms--if that amount, which is averaging in the 
800 to $900 range now, is essentially lower for a future 
generation because we change the formula now, it will be harder 
for people to live on that independently; is that correct?
    Commissioner BARNHART. I understand what you are saying, 
and let me say I agree, that is a view. Let me just add one 
thing, if I may, and not to be confrontational, but simply to 
say it in the interest of trying to explore these issues and 
look at them from all sides of the coin. One of the concerns 
that I have, as we move forward in discussing the solvency 
debate and the level of benefits and those kinds of things, is 
that we make sure that what we are measuring against, in terms 
of looking at the different ideas, is what the actual payable 
benefits are today and not the scheduled benefits. Because, as 
the Chairman pointed out, the payable benefit right now looks 
like--and as Mr. Levin discussed--is somewhere around 74 
percent of what the scheduled benefit is.
    So, one of my concerns--and when I look at this whole 
notion of risk, Mr. Pomeroy, one of the things I think we need 
to take into consideration is that the program today, absent 
any changes, is not risk free because you can pretty much be 
guaranteed, based on what our actuaries say, that you are going 
to have a 26-percent reduction.
    Mr. POMEROY. I don't think anyone is suggesting we don't do 
anything, that we take--you talk yourself about how the program 
has been changed several times in history.
    Commissioner BARNHART. It has, right, it has.
    Mr. POMEROY. With 37 years out, we have time to change it.
    Chairman MCCRERY. Thank the gentleman.
    Mr. POMEROY. I yield back.
    [Laughter.]
    Chairman MCCRERY. Thank you very much, very generous. In 
fact, we hope to be talking about some ways to avert the 26-
percent-cut in benefits, and in fact we have actually proposed 
concrete things to do that. We are still waiting for you all to 
do that. Maybe you have something better than prefunding. We 
would love to hear it. Mr. Hayworth?
    Mr. HAYWORTH. I thank the Chairman. I listened with 
interest to the testimony of the Commissioner and the 
evaluation offered by the Ranking Member of the Subcommittee, 
and most recently by my friend from North Dakota. Mr. Chairman, 
my colleagues, I must say that I am, well, not completely 
astonished because we know that politics and policy are 
intermingled, but to hear such disparaging of even the 
exploration of prefunding, especially--and not to case personal 
aspersions, but knowing that my good friend from North Dakota, 
the former insurance commissioner, knowing that indeed this 
entire system was proposed by President Franklin Roosevelt, not 
only as old-age pensions, but a form of social insurance, if 
you will, knowing that a dynamic of insurance is prefunding in 
the real world, knowing that payroll taxes, although we have 
devolved into a pay-as-you-go system, knowing that in 1935 when 
you had 40 plus workers for every retiree, one of the basic 
perceptions of the program is, in fact, prefunding. I was a 
little curious to hear such venom utilized for the term, but 
that of course, is politics. We have to work on policy. My 
friend from Michigan said, as if it was a terrible, evil, 
devious plan, this observation from a Member of the 
Administration, quote, ``Details would need to be worked out 
through the legislative process,'' close quote.
    My colleagues, that is what we are engaged in, the 
legislative process to determine what is the best course of 
action. Good people can disagree, but to suggest that somehow a 
legitimate observation that, quite frankly, I believe all of us 
learned in civics class, that the legislative process comes up 
with an ultimate product that the President can either sign 
into law or veto, to somehow suggest that that is an assault on 
survivor's benefits or to at least leave that impression, is 
disingenuous at best.
    Again, just for the record, because from time to time there 
tends to be smoke and mirrors rather than straight chronicling 
of what in fact has been said, our President has laid out goals 
for Congress in developing legislation to strengthen this 
program. Any attempt to quantify the financial effects reflects 
the views and assumptions of authors and commentators, not 
those of the President. In the final analysis, it will be this 
Committee and this Congress that must work together to save and 
strengthen Social Security. So, enough of the politics. Let us 
get again to the policy itself. Madam Commissioner, in your 
testimony you discussed the changes enacted in 1983 to achieve 
solvency over 75 years. Those changes enacted included raising 
the retirement age, taxing Social Security benefits, and some 
other modifications. By design it achieved solvency by building 
up the Social Security Trust Funds with full knowledge that the 
program would start running deficits much sooner. In the end, 
the amendments 1983 simply kicked the can down the road rather 
than providing a lasting--and by that, in Washington parlance--
three-quarters of a century solution. Would you agree that a 
durable solution must do more than buildup bigger balances of 
Treasury IOUs in the trust fund; it must bring Social 
Security's income and costs in line with each other in the long 
run?
    Commissioner BARNHART. I do think you make a really 
important point about this whole notion of how we look at 
solvency, and traditionally it has been looked at over a 75-
year time period, and the Social Security Commission, I think 
it was in 1983, the Greenspan Commission, they defined 
sustainable solvency the way I did in my testimony, which was 
at the end of the 75-year period you have a situation where the 
trust funds are stable or rising. I think as we look ahead to 
the younger generations of Americans aging, we need to keep in 
mind, in my view, that we owe it to them to try to fix it 
permanently, to make sure that we are not, as you say, kicking 
the can down the road every so many years or every so many 
decades, and having to make adjustments to fix it.
    One of the reasons I think that is so important is because 
the younger people in this country. If you talk to them--and I 
have a 16 and a half year--old, and his friends are over at the 
house all the time--and I talk to my friends, in their 20s who 
are just starting to work, and they really have lost confidence 
in the system. I think it is critically important that we 
restore confidence in the system. I was reading a long article 
in one of the national news magazines just the other day, and 
it was pointing out how Social Security had been important to 
generations of families over a lifetime, but the most recent 
generation, the newest generation, the 20-somethings that are 
working in department stores now, are basically saying, I don't 
have any faith at all that it will be there when I retire. I 
think that is the issue that we want to address through 
sustainable solvency.
    Mr. HAYWORTH. Thank you, Commissioner Barnhart. Thank you, 
Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Hayworth. Mr. Becerra?
    Mr. BECERRA. Thank you, Mr. Chairman. Commissioner, always 
good to see you. Thank you very much for trying to answer the 
questions. Obviously, sometimes it is difficult because this is 
an issue that is important to everyone. We don't yet have all 
the concrete details of any particular plan out there to really 
work off of, so, I know that sometimes when we ask you 
questions, we are asking you to project.
    Commissioner BARNHART. I understand.
    Mr. BECERRA. So, thank you for every attempt that you make 
to try to answer as best you can. I would like to go back for a 
second and ask about the trust fund. As the Commissioner it is 
your responsibility to safeguard the Social Security system 
which includes the trust fund.
    Commissioner BARNHART. Right.
    Mr. BECERRA. Let me just ask you straight out: does the 
trust fund exist?
    Commissioner BARNHART. In my view, the trust fund 
absolutely does exist, because as required by law, when the 
payroll taxes come in every month, what we don't use to pay 
benefits in a given month is posted to the trust funds, 
credited, and then used to purchase government securities. That 
is required by law. We don't have an option but to do that.
    Mr. BECERRA. So, we have Treasury certificates that are 
banked away that reflect the amount of money that is in that 
trust fund?
    Commissioner BARNHART. In fact, in the past we have had to 
cash in those bonds on a number of occasions, and the 
government has made good. They are backed by the full faith and 
credit of the government, and that has always been the case. In 
fact, my understanding is the U.S. Government is one of a few 
Nations that has never defaulted.
    Mr. BECERRA. Excellent. That was my impression. So, then 
what are we to make of President Bush's visit to the place 
where you held so many of these Treasury certificates? Was it 
grandstanding to say it is just Monopoly money, or should 
Americans believe that in fact in 20 years when those trust 
fund dollars are being redeemed, that they can count on that 
money being there?
    Commissioner BARNHART. I think my recollection was that the 
President referred to them as IOUs, as----
    Mr. BECERRA. I said Monopoly money, he said IOUs.
    Commissioner BARNHART. That is what I remember.
    [Laughter.]
    Commissioner BARNHART. I can't remember everything 
everybody says, but I remember that one.
    Mr. BECERRA. He did try to leave the impression that these 
are IOUs that may not be paid?
    Commissioner BARNHART. I think that----
    Mr. BECERRA. Did that not concern you as the Commissioner 
of Social Security?
    Commissioner BARNHART. Well, he did call them IOUs. I 
remember that.
    Mr. BECERRA. So, is it your sense that that means that he, 
like every other American who puts money through Federal 
Insurance Contributions Act (FICA) taxes into the Social 
Security system and the trust fund, believes that they will be 
paid?
    Commissioner BARNHART. I assumed the point that he was 
trying to make was that in order to pay those bonds when they 
come due, that it is going to have to be taken out of other 
parts of the Federal budget.
    Mr. BECERRA. In other words, we are taking money from the 
trust fund, using it for other purposes, but at the end, in the 
future, when we have a call on those securities, those Treasury 
certificates, the government will have to pay, but just has to 
find other sources to pay for that?
    Commissioner BARNHART. In essence we are paying ourselves, 
yes, right.
    Mr. BECERRA. So, today, this day, May 17th, the 
Administration is going to use $400 million in Social Security 
Trust Fund dollars and spend them on things that have nothing 
to do with Social Security. At the end of the year, when you 
total up the year, it will total up to what, about $170 billion 
in those trust fund dollars, Social Security Trust Fund dollars 
that the President will have spent on things other than Social 
Security. If there is some chance that these so-called IOUs 
will not be paid, wouldn't it be incumbent upon the President 
to today stop spending at the rate of $400 million a day those 
Social Security Trust Fund dollars that he is using for non-
Social Security purposes?
    Commissioner BARNHART. Well, again, not to be 
confrontational, Mr. Becerra, but I do feel compelled to point 
out that the funds get spent also by the Congress and by 
programs that--the budget gets approved by the Congress. The 
appropriation comes from Congress.
    Mr. BECERRA. Very good point.
    Commissioner BARNHART. So, I would like to make that point. 
Let me say, I think that is an important point to make, because 
there is nothing strange about that. That is the way the system 
has always worked. It is an issue that comes up all the time 
when I am interviewed, when I am doing call-in radio shows with 
people across America. They talk about the fact that Congress 
and the President are misusing the Social Security money----
    Mr. BECERRA. Raiding the trust funds.
    Commissioner BARNHART. Right, raiding trust funds, and in 
fact, that was the way the system was designed, and I explain 
that.
    Mr. BECERRA. So, one of the things that we all should do is 
if we are talking about Social Security in trouble, there is a 
crisis, one of the first things we stop doing is spending 
Social Security moneys on non Social Security purposes, because 
the day of reckoning will come when we will need those trust 
fund dollars, and whether we have the trust fund moneys 
available or not, we are not going to shortchange Social 
Security recipients when they retire. So, I think to have an 
honest debate, you have to be honest in saying that today the 
Administration is spending $400 million a day in Social 
Security dollars on non Social Security purposes.
    Let me ask you this. As the President talks about 
privatizing Social Security, we just heard recently, last week, 
that United Airlines has decided that it cannot pay on its 
pension benefits for its employees to the tune of some $10 
billion that now, guess who, the taxpayers will be responsible 
for, and at the same time those United pensioners in the future 
will only get some pennies on their dollars. Who knows how much 
they are going to get. That was because those private pension 
dollars, those personal accounts that those United employees 
had in United pension plans, 401(k)s, are no longer there 
because United gambled with that money.
    Whether it is United--and we hear that Delta Airlines may 
be right around the corner, and Northwest Airlines may be 
around the corner, or we could talk about Enron, which did the 
same thing to its employees, thousands of employees with these 
401(k) plans, or we can talk about the city of San Diego, my 
State of California, which is on the verge--and Mr. Chairman, I 
will close with this comment--is on the verge of declaring 
bankruptcy because it too fiddled with its government employee 
moneys in these pension 401(k) accounts. Why would you--I don't 
want to say you--why would anyone want to put our guaranteed 
Social Security moneys in a plan that could be a gamble, and 
wouldn't a Commissioner be out there saying, ``Don't you dare 
touch those moneys that are guaranteed, and have been 
guaranteed for 70 years?''
    Commissioner BARNHART. Well, I think, one of the points 
that is important to make is that there would be a lot to be 
worked out in legislation as we move forward, and I think that 
is one of the reasons when people have talked about personal 
accounts, they have used the Thrift Savings Plan as an example, 
because there are certain safeguards built into that. I think, 
obviously-
    Mr. BECERRA. Talk to the San Diego employees who today are 
not guaranteed their benefits.
    Chairman MCCRERY. The gentleman's time has expired.
    Commissioner BARNHART. I think the situation you describe 
obviously didn't have the kind of safeguards that people would, 
obviously, be interested in having.
    Chairman MCCRERY. However, on my time, I would like to ask 
Mr. Becerra a question.
    Mr. BECERRA. Yes, sir.
    Chairman MCCRERY. You made the point that we should stop 
spending those surpluses, and you used a figure that was 
incorrect. In this year, the cash surplus that is available for 
us to spend, is about $69 billion. You said we ought to stop 
spending that. If we were to stop spending that, what would you 
do with it?
    Mr. BECERRA. You could pay down the interest on the 
national debt or the principal on the national debt, which 
would reduce our payments into the future. You could----
    Chairman MCCRERY. How would it reduce our payments into the 
future?
    Mr. BECERRA. Well, today we are paying, what is it, over 
$150 billion in interest simply on the national debt. If you 
reduce the principal that we owe, that reduces the amount of 
interest that you have to pay on the Nation's debt, which 
cumulatively will add up to billions and billions of dollars 
into the future. Actually, what I am proposing is nothing 
different from what President Bush first proposed when he came 
into office when he said he wouldn't have to touch Social 
Security when he enacted his tax cuts, but instead we find 
because of the deficits and so forth that he has had to, in 
essence, use all of the Social Security surplus to pay for the 
tax cuts.
    Chairman MCCRERY. So, you are saying we could pay down debt 
and that would save us interest, wouldn't it? We wouldn't have 
to pay that interest.
    Mr. BECERRA. It would.
    Chairman MCCRERY. The same thing would apply to the trust 
fund, wouldn't it? If we don't have to pay that interest inside 
the trust fund it would be easier to make good on those 
obligations.
    Mr. BECERRA. Well, the beauty of the Social Security system 
is that today the system runs a massive surplus so that the 
reason we have this surplus is because we are collecting more 
today than we need to pay out, so, there is a pot, a treasure 
pot that every worker in America is paying today into Social 
Security, that he and she believes will be there in the future 
for them. If we were smart, we would use that money wisely to 
try to reduce our obligations into the future so that way, we 
have the opportunity and the ability to pay those same American 
workers who contributed money today come time when they retire. 
So, Mr. Chairman, I think----
    Chairman MCCRERY. I agree with you. President Clinton, in 
fact, suggested that we save that money, not spend it, and 
invest it in the stock market, direct government investment, 
didn't he?
    Mr. BECERRA. Well, that was part of his proposal to try to 
shore up Social Security into the long term, right.
    Chairman MCCRERY. Right. So, that is another thing you 
could do if we didn't spend it, we could invest in the stock 
market and try to get interest, compound interest, working for 
the trust fund instead of against the trust fund, which it is 
now doing.
    Mr. BECERRA. Right. The peculiar feature about President 
Clinton's proposal, which makes it a safeguard, is that rather 
than let 47 million Americans try to invest that money wisely, 
you would have one entity, so that when there are good days and 
you make a good investment, everyone benefits, and when there 
are bad days, everyone shares the loss, versus having 48 
million Americans each trying to figure out if they had a good 
day or a bad day.
    Chairman MCCRERY. That is a debatable proposition, and it 
is one debate that we would love to have. Mr. Hulshof?
    Mr. HULSHOF. Thank you, Mr. Chairman. Am I correct, to my 
friend from California, that you joined this August body in 
1993 after a '92 election? Is it not a fact that in 1993 and in 
1994 and in 1995 and '96 and '97, while the gentleman was in 
the majority during those years, that----
    Mr. BECERRA. You have given me about three or 4 years of 
extra majority that I would have loved to have had.
    [Laughter.]
    Mr. HULSHOF. The point is that Congress, during those 
initial years that the gentleman joined this body, Social 
Security was borrowed from, was it not; the excess payroll 
taxes were spent on other government programs, isn't that a 
fact?
    Mr. BECERRA. The gentlemen is correct, that in those years 
President Clinton inherited what was then the largest budget 
deficit in the history of this Nation, of about $230 billion, 
and in order to come up with the money, President Clinton did 
use the Social Security moneys, and Congress allowed him to use 
those Social Security moneys. When President Bush took office, 
he came in with the largest budget surpluses in the Nation's 
history, and he still is using the Social Security surplus 
moneys as well. That is the difference.
    Mr. HULSHOF. Commissioner Barnhart, let me confirm this. I 
think it is in your testimony. The actual disability portion of 
Social Security, disability, cash benefits were authorized 
under the amendments 1956, is that true, and the actual cash 
program began in 1957?
    Commissioner BARNHART. That is correct, yes.
    Mr. HULSHOF. The Ranking Member, in his opening statement, 
made a point--and I am trying to determine the relevance of the 
point--that at the time the disability insurance program was 
created, that all 10 Members, Republican Members, voted against 
the disability insurance program. I have done a quick survey 
here, Mr. Levin. Not one Member on the Republican side 
presently serving on the Committee was here in Congress then. 
Is the gentleman suggesting that somehow those of us on this 
side of the aisle, as it relates to the disability portion of 
Social Security, that somehow we don't believe that it should 
be held in high esteem? Is that the point? The Ranking Member's 
statement, I am trying to determine the relevance of bringing 
up the fact that prior Congresses or other parties--would the 
gentleman wish me to talk about the civil rights debate of the 
'60s and the prominent Democrats that attempted to filibuster? 
What is the relevance of what happened in 1957 as it relates to 
the challenges that we are here to address with Commissioner 
Barnhart?
    Mr. LEVIN. Will you yield?
    Mr. HULSHOF. I will yield, yes, sir.
    Mr. LEVIN. First of all--and I urge that you go back and 
look at the history not only in the '50s, the '60s, and that 
is, the voting records are clear when it came to creation of 
disability and to other improvements in Social Security after 
that.
    Mr. HULSHOF. Let me----
    Mr. LEVIN. Let me just finish.
    Mr. HULSHOF. Okay.
    Mr. LEVIN. The Democrats overwhelmingly favored, and 
Republicans in the majority disapproved of those improvements, 
number one. Number two, we have never proposed to diverting 
Social Security moneys into private accounts which could well 
have the impact of affecting disability payments, because if 
you look--what happens if you have private accounts----
    Mr. HULSHOF. Well, I am going to reclaim my time, Mr. 
Levin. You have had your time and you have made your point.
    Mr. LEVIN. I surely have made my point.
    Mr. HULSHOF. The point is--I would say to the gentleman, 
and, Mr. Chairman, my disappointment runs deeply because when I 
was first allowed to serve on this Committee under then 
Chairman Jim Bunning, then under the gentleman from Florida, 
and had the opportunity to work with Ranking Members Coyne and 
Canelli and Matsui, as far as the disability program was 
concerned--and this Member particularly, as it relates to the 
Ticket to Work and Work Incentives Improvement Act (P.L. 106-
170), where we expanded, Republicans led the effort to expand 
the disability program, to remove obstacles in the workforce so 
that people with disabilities can continue, as far as 
vocational rehabilitation services, as far as maintaining 
Medicaid or Medicare, health care services.
    So, again, the point is, here we are today, and you are 
watching this tennis match, Commissioner, and that is 
unfortunate because the challenges are real. I would say to my 
good friend from North ``by gosh'' Dakota, the gentleman shared 
a stage with me in 1998 in Kansas City, Missouri, and the word 
``crisis,'' the first time I recall a prominent occupant of the 
Oval Office mentioning the word or using the word ``crisis'' as 
it relates to the demographic challenges of Social Security was 
when the gentleman and I, along with Senator Santorum and then 
Senator Bob Kerrey and President Bill Clinton, in the first 
ever great debate when he announced that there was a crisis 
facing Social Security, which again I thought was very useful 
at least to--and we are having the same discussions today as we 
did in 1998 about the demographic challenges.
    So, I would, again, Mr. Chairman, I would take the tact 
that you have taken, and I tip my hat to the gentleman from 
Florida, Mr. Wexler, and while I am not necessarily in support 
of his idea, at least now there is an idea on the table about 
addressing these shortfalls, and I am disappointed that, as the 
gentleman from Arizona has said, sometimes I think the politics 
overruns the policy. Thanks for the time.
    Chairman MCCRERY. Thank you, Mr. Hulshof. Ms. Tubbs Jones?
    Ms. TUBBS JONES. Good afternoon. How are you?
    Commissioner BARNHART. Good afternoon, thank you. Fine.
    Ms. TUBBS JONES. It is so interesting that it is politics 
when you are talking about the other party and it is policy 
when you are talking about your own, but we all are political. 
That is why we've got political parties operating here on the 
Hill. I am just so pleased to have you back, Commissioner 
Barnhart. Let us talk about women for a moment since we are so 
well represented on this Committee.
    [Laughter.]
    Chairman MCCRERY. I will second that.
    Ms. TUBBS JONES. Oh, thank you very much. We are agreeing 
on something. The fact is that in its inception, Social 
Security was intended to kind of help out--not in its 
inception, as it moved along--the woman who was working in the 
home, not working outside the home, and the payments for that 
work, was actually through the spouse's earnings. Then as time 
moved along, some considerations were given to working women. A 
lot of women to this day say that sometimes their benefit might 
have been better under their own ticket than under their 
spouse's ticket, and are--I don't want to say anger--but 
disappointed that they are not receiving the bigger dollar.
    Commissioner BARNHART. I think the issue you are pointing 
out is a really important one, but I believe--just to clarify, 
if I may.
    Ms. TUBBS JONES. Please.
    Commissioner BARNHART. The situation you are describing is 
that typically with a lower-earning spouse, and generally it is 
the wife, because women make less than men generally, the 
couple is entitled to, in the case of a one-earner couple, the 
male's Social Security and then half as much for the spouse. 
What happens if you have a two-earner couple, because again, 
women's salaries are often lower than men, is that even though 
Social Security is gender neutral and we do calculate the same 
benefit for a woman as for a man, often her benefit in her own 
right ends up being less than 50 percent of the higher-earning 
spouse's benefit. So, therefore, the woman feels like hers 
didn't really count.
    Ms. TUBBS JONES. Right. The other thing that we don't have 
a lot of discussion about, but the fact is that a non-working 
spouse at a younger age, under a disability or survivor 
program, is likely to get a greater benefit under the program 
should her spouse become--with minor children, should her 
spouse become disabled or die.
    Commissioner BARNHART. That is because of the total family 
benefit, you are absolutely correct, when you add up all the--
--
    Ms. TUBBS JONES. Right. For many low-income families, the 
ability to purchase that type of insurance, they don't have the 
ability to purchase the kind of insurance that Social Security 
provides either under disability or survivor.
    Commissioner BARNHART. That is why I think it is important 
for people to remember that Social Security is not just about 
retirement. It is disability. It is survivors, and in fact, a 
little known fact that most people don't focus on, one in three 
of our people who are receiving benefits are not retirees.
    Ms. TUBBS JONES. The fact is that the debate about whether 
or not African-Americans should be--there should be some 
discussion about increasing the benefit for African-Americans 
as they retire, really does not take into consideration--
because they die early, does not take in consideration the 
benefits that they receive under either a disability or 
survivor program, or their families receive.
    Commissioner BARNHART. Well, I think it depends on how you 
look at it, quite frankly--one can say that if you take someone 
who is in a similar situation but who happened to live 10 or 15 
years longer than the particular African American you are 
talking about, they would have reaped more benefits from the 
system than the individual you describe by moving on to receive 
more retirement benefits.
    Ms. TUBBS JONES. The fact is that an African American 
family, low-income African American family could not purchase 
the disability or survivor benefits with dollars that they 
receive under Social Security.
    Commissioner BARNHART. I think it would be difficult for 
anyone to do that, frankly.
    Ms. TUBBS JONES. Right. What is--let me strike that 
question and go back. I kind of lost my thought for a moment 
there. As we move along down this path of discussion of Social 
Security, it is your position that we should strengthen Social 
Security. Is that correct?
    Commissioner BARNHART. I believe we should strengthen 
Social Security for future generations, make sure that it is 
there and there is sustainable solvency for the future.
    Ms. TUBBS JONES. Well, the commercial I like most is where 
the plumber comes into the lady's house and he says I'm there 
to fix the sink.
    Commissioner BARNHART. I have seen it.
    Ms. TUBBS JONES. He says I have to tear down the house, and 
the response is, Don't do Social Security like that. If you 
only need to fix the sink, don't tear down the house to do it. 
Would you agree with that?
    Commissioner BARNHART. Well, I have seen that commercial, 
so, I----
    Ms. TUBBS JONES. It is kind of funny, isn't it?
    Commissioner BARNHART. I know the one that you are talking 
about. I don't know, those commercials strike a little close to 
home for me, so, I can't seem to laugh when I see them, 
particularly with my husband and son sitting there watching 
them sometimes, and saying, ``Mom, what are you going to do 
about that?'' So, let me say that I understand the point that 
you are making. I guess I would say this: I do think that as we 
consider changes and as we help you consider the changes and 
what you are going to do as we move forward, hopefully, 
together and in a bipartisan fashion, I think it is important 
to make sure that what we are creating and ensuring is a 
program that is going to be safe and secure in the future.
    Ms. TUBBS JONES. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Ms. Tubbs Jones. Mr. Lewis?
    Mr. LEWIS. Thank you, Mr. Chairman. I have seen that 
commercial, by the way, and I remember reading some scripture 
that says if you build your house on the sand, when the wind 
and rain and the storms come, that house will be blown away. 
You build it on a rock, and it will stand. I think the 
foundation at Social Security----
    Ms. TUBBS JONES. God is not going to let us legislate that 
in Congress.
    Mr. LEWIS. Excuse me. I think it is my time. If you look at 
what Social Security has been built on, the demographics just 
don't work. When you had 40 people paying in to Social Security 
and one person on retirement, that was wonderful. Now we are 
down to three and eventually down to two. So, I think we have 
built it on the sand. It has been a great program. I have an 
88-year-old father that depends on Social Security. I also have 
a daughter and a son that 1 day will have to depend on Social 
Security, maybe.
    I keep hearing the full faith and credit of the United 
States Government and that they will--the full faith and credit 
of the United States Government will stand behind the Social 
Security system and will pay the IOUs. Well, IOUs aren't a lot 
of comfort for my kids. Just saying that the full faith and 
credit of the United States Government is going to make sure 
that it is going to be there, when they know and I know that 
the government will be them, the taxpayer, future generations. 
My grandkids will have to pay for my children's retirement, 
their Social Security. So, isn't it correct that the 
government, the full faith and credit of the government will be 
the future generation that will have to pay for the Social 
Security on a pay-as-you-go system?
    Commissioner BARNHART. That is true. I think that there is 
an important point that may be getting lost, or maybe not--
maybe it is just being lost for me. That is, when we look at 
where the trust fund balances are now, they are at about $1.7 
trillion. Our actuaries project that if you look at it over the 
75-year period, even assuming that the trust fund money is all 
there and piled on this table today or in a bank and earning 
interest--and it is earning interest, in fact, in the bonds--we 
still need an additional $4 trillion today in the bank and 
earning interest.
    One of the great misconceptions that exists, and I say this 
from, again, my public appearances and taking calls from 
average Americans across the country and going out and talking 
to them, is that somehow the trust funds alone are enough to do 
the trick. They simply are not. That is a point that can't be 
lost in all of this, that it is not a question of only full 
faith and credit backing the $1.7 trillion in the trust fund, 
it is that it is over 75 years there is a $4 trillion 
shortfall, and using the infinite horizon measure, it goes up 
to $11 trillion.
    Mr. LEWIS. Yes, we just had testimony a few weeks ago from 
David Walker, the Controller General of the U.S. Government 
Accountability Office (GAO), and when you look at our overall 
unfunded liabilities and debt facing the country, our kids and 
grandkids have a tremendous burden to face if we don't start 
trying to solve some of these problems now. Social Security is 
one that we must start to tackle now. As you just mentioned, it 
is going to add up to trillions and trillions of dollars that 
we just can't stick in the sand and play politics and, as Clay 
Shaw said a little while ago, we cannot afford to play politics 
with this. We have to bring every idea to the table that we can 
possibly bring, and try to solve it now. The Wizard of Oz isn't 
going to be out there cranking out dollars to take care of 
these problems sometime in the near future.
    David Walker said that by the year 2041, that the money 
coming into the Federal treasury will only be enough to take 
care of the interest on the debt. There goes all the 
entitlements. So, it is time we all get real about these real, 
real serious problems. Thank you.
    Chairman MCCRERY. Thank you, Mr. Lewis. Mr. Neal?
    Mr. NEAL. Thank you very much, Mr. Chairman. One of the 
points I just want to touch upon that Mr. Lewis raised about 
his children and IOUs in the future. If he had minor children 
and something happened to him today, there is no doubt as to 
how the Social Security Trust Fund would react, right?
    Commissioner BARNHART. It would pay survivors' benefits.
    Mr. NEAL. It would pay survivors' benefits. Incidentally, 
Commissioner, I know something about survivor benefits and so 
do my sisters. Very important consideration. I heard a few 
minutes ago, with astonishment, one of the Members of this 
Committee say that it was unfair to bring up the history of 
this program or to bring up the history of actions by Members 
of Congress. There isn't a Member of this Subcommittee who has 
not used the words, actions or votes of their opponents during 
campaigns to make a point about why they should be elected to 
replace that person.
    Here is the nub of the problem, Commissioner. When I came 
to Congress 17 years ago, the Minority Leader, or the 
Republican leader in the Senate and the Republican leader in 
the House had both voted against the establishment of Medicare. 
Recall that Roosevelt's initiative was the middle ground. The 
left didn't like it, and the right chided it as being a Marxist 
initiative. Yet we hear the same party today in the majority 
talk about what a great and important program it has been for 
all of the American people. They ask us to kind of forget the 
history of their position as it relates to Social Security. 
Now, let me be a little bit more specific. How many children 
are there in America today who receive survivor benefits?
    Commissioner BARNHART. Children who receive survivor 
benefits, I think it is somewhere around 6 million or so, 4 to 
6 million.
    Mr. NEAL. Maybe the staff is going to give you an accurate 
number.
    Commissioner BARNHART. The total survivors are 6.7 million. 
The number of children is 2 million.
    Mr. NEAL. Thanks for emphasizing that point, that one-third 
of the Social Security beneficiaries today are not retirees. 
That is a very important consideration in this discussion. Now, 
how many women rely solely upon Social Security?
    Commissioner BARNHART. The number of women beneficiaries 
who rely solely on Social Security is 29 percent of unmarried, 
elderly women. That doesn't mean they were never married. It 
can mean widows. It includes women who outlive their husbands, 
or are single their whole life, or divorced. For them, for 29 
percent of these women receiving Social Security, it is their 
only source of income.
    Mr. NEAL. Only source of income. Do you have an average 
dollar amount on that?
    Commissioner BARNHART. The average dollar amount for 
women's benefits? I don't have that offhand. I don't think my 
staff brought that with us. We tried to anticipate most of the 
Committee's questions. Ah, it looks like they may have. I am 
looking here to see the--$826, the average women's benefit.
    Mr. NEAL. Eight hundred twenty-six dollars, as a sole 
source of support in retirement?
    Commissioner BARNHART. Yes.
    Mr. NEAL. I don't think anybody on this Subcommittee would 
argue that they are getting wealthy on that amount of money. 
Let me ask you this specifically. You signed as a trustee the 
recent----
    Commissioner BARNHART. Yes, I did.
    Mr. NEAL. You did. The recent report----
    Commissioner BARNHART. Yes, the report. Yes.
    Mr. NEAL. That report, if I am not mistaken, said that 
Social Security in its current form would pay full benefits 
through 2041 or 2042?
    Commissioner BARNHART. That is correct.
    Mr. NEAL. The CBO, which tends to be pretty accurate, a 
nonpartisan arm of the Congress, they said 2052?
    Commissioner BARNHART. They said 2052. That is right.
    Mr. NEAL. Now, the President took that information and he 
went out across the countryside for 60 days and he said Social 
Security was in crisis. As a trustee and as one who signed that 
report, would you argue that Social Security is in crisis?
    Commissioner BARNHART. Well, if I can say--my reaction to 
your question is this: As Commissioner of Social Security, the 
program which 95 percent of Americans rely on, my view is that 
it is too important a program to get involved in a semantic 
debate, to be perfectly honest, Mr. Neal. My view is this, as a 
parent. When my son was born 16 and a half years ago, my 
husband and I set up a college fund for him. Every month we 
have contributed to it. As a result, he is 16 and a half, he is 
going to be a junior next year, and the only thing that is 
going to limit his choice of college are his grades. Hopefully, 
these will not be too limiting. If we had waited until now to 
set up that college fund, obviously it would have been 
impossible.
    Mr. NEAL. The other side is complaining about politics in 
this debate. The President traveled across the country saying 
there was a crisis on a program that would pay full benefits 
until the year 2042. Signed by his own trustees, and the other 
party argues that this side is using politics in this debate? 
Lastly, because I know my time is running out, can you 
guarantee for us that on survivor benefits, that a family 
today, if we were to implement the President's private account 
proposal, would receive the same number of dollars on an annual 
basis that they currently receive?
    Commissioner BARNHART. I don't think I'm in a position to 
make any guarantee of any kind about anyone's plan or proposal 
because there is so much to be worked out----
    Mr. NEAL. I am delighted with your answer.
    Commissioner BARNHART. In terms of a legislative proposal.
    Mr. NEAL. Commissioner, I am delighted with your answer. 
You are not in a position to guarantee it. That is precisely 
the point of this debate that we have witnessed now for the 
last few months in Congress. Social Security does provide, as 
currently constructed, a guarantee. Thank you.
    Commissioner BARNHART. If I could just add one point, Mr. 
Neal, and that is that it does provide a guarantee as long as 
we can afford to pay the benefits. That is the problem. That 
was the point I was making about looking ahead to the future, 
and when I said I really think everything we do and discuss 
needs to be measured against.
    Mr. NEAL. My question was could you guarantee the same 
level of benefit, and you were unsure of that. I think the 
record should reflect that.
    Commissioner BARNHART. Well, I was just saying----
    Mr. NEAL. Is that fair?
    Commissioner BARNHART. My point is that I don't think we 
have enough details about anything.
    Mr. NEAL. Is that fair, Commissioner, that you aren't able 
to guarantee?
    Commissioner BARNHART. I think I am unable to guarantee 
anything today, quite frankly, because we haven't seen details 
on a lot of things at this point.
    Mr. NEAL. Thank you, Commissioner.
    Chairman MCCRERY. Thank you, Mr. Neal. Mr. Brady?
    Mr. BRADY. Thank you, Mr. Chairman. Commissioner, thanks 
for being here. By the way, tell your young son to hang in 
there. There were a few years that, looking back, apparently my 
philosophy was don't let the classroom get in the way of your 
education.
    [Laughter.]
    Mr. BRADY. In the end, sometimes, it all works out. This is 
an educational hearing, I think very important, a serious 
subject. We need serious solutions. Prefunding doesn't appear 
to be such a unique method of planning for the future. I would 
wager if we ask people in this room to raise their hands how 
many prefund their life insurance or their college fund or even 
their health care insurance, paying it through their premiums 
where the money is set aside and vested and there when you need 
them, I guess, virtually every hand in this room would go up. 
If we asked the Federal workers in this room how many are pre-
funding an important part of their retirement through the 
Federal Employee Retirement System, my guess is nearly all of 
us would raise our hand. Prefunding is a responsible and proven 
way, done right, to plan for the future. I think it ought to be 
an important part of our discussion as we look at serious 
solutions to preserving Social Security for every generation, 
once and for all.
    While we are on the lines of education, I think there is an 
unfortunate attempt to scare our seniors in a number of areas, 
especially with disability and in the survivors area. I am not 
as close to the President as Mr. Levin, but have you seen any 
statement, have you seen any plan by this President that 
changes the disability program or the survivors' program?
    Commissioner BARNHART. At this point, as I was saying to 
Mr. Neal earlier, I am not in a position to guarantee anything 
specific, except that I can say that from what I have seen and 
what I understand, it is the President's intent to preserve the 
disability and survivors programs. In fact, the comments that 
have been made most recently suggest that the disability 
benefit would not be affected and that the only issue really is 
what the ultimate plan will do in terms of how you transition 
from disability into the retirement benefit.
    Mr. BRADY. Well, I have been watching the President's 
proposal very carefully. In his words, after my dad died, mom 
raised five of us by herself, survivors was an important part 
of our getting by and of our--for my brothers and sisters and I 
getting through into college. I am not interested in changing 
and affecting the survivors' benefits, and I have watched the 
President very carefully for any indication that way, and I 
have seen none. So, I think we probably ought to do a little 
less scaring our seniors, a little more time trying to figure 
out a serious solution.
    Which sort of brings me to the final point. Disability and 
survivors are almost a third of Social Security today. A big 
part of the program. I think we can do better in both, frankly, 
in the way we administer them, and you have made proposals 
along that line. From an educational standpoint, in our 
townhall meetings and Social Security workshops back home, a 
lot of people aren't as knowledgeable because it is so 
confusing about who is eligible for disability, who is eligible 
for survivors, who is eligible for Supplemental Security Income 
(SSI). Can you just take a minute and sort of refresh our 
memories as we talk about one-third of our Social Security 
system?
    Commissioner BARNHART. Yes. Well, in terms of disability 
you generally have to have worked 5 out of the last 10 years to 
be eligible for disability, and you have to be fully insured, 
meaning that you have paid into Social Security for as many as 
10 years. In terms of the survivors program, it is widows or 
widowers and surviving children under the age of 18, or 19 and 
under and still in school.
    Mr. BRADY. The eligibility for that? How long must a worker 
work before their spouses and children are eligible?
    Commissioner BARNHART. The same period. They have to be 
fully insured, or for young survivor benefits, currently 
insured, meaning the worker must have one and a half years of 
work in the 3-year period before death.
    Mr. BRADY. We hear this question a lot in our Social 
Security workshops. Can an illegal alien, can someone walking 
across the border, someone here granted under a temporary visa, 
are they eligible for any of the Social Security benefits 
immediately?
    Commissioner BARNHART. Oh, absolutely not. One of the 
things about Social Security is that it is a program that I 
think is very reflective of American values. You work, you pay 
into the system, and you get out based on what you paid into 
the system. So, if you just walked across the border--in fact, 
I heard this question on a radio show I was doing recently. 
There is a lot of misinformation about that. It is absolutely 
not true. You cannot just walk in and get Social Security. You 
have to have paid into the system and meet the criteria to be 
able to be eligible for those benefits.
    Mr. BRADY. Great. I know we have worked on this 
Subcommittee in the past and continue to do that, on finding 
ways to stop the number of fraudulent Social Security IDs, try 
to tighten up the system tremendously.
    Commissioner BARNHART. Yes. We do quite a number of checks. 
In fact, I put in a number of extra measures for document 
verification since I have been Commissioner these past three 
and a half years, geared precisely at that, to make sure that 
people are not receiving Social Security under fraudulent----
    Mr. BRADY. I think everyone would agree we could even do 
better. There are, I think, more actions we can take and put in 
place. I appreciate the efforts that have been made. Thank you, 
Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Brady.
    Chairman MCCRERY. Commissioner Barnhart, thank you for your 
service and thank you very much for your testimony today.
    Commissioner BARNHART. Thank you very much. Allow me to say 
again that I applaud the Chairman and the Committee for holding 
this hearing. I just have to say as Commissioner of Social 
Security with the responsibility for administering this program 
that touches so many lives every single month, some of our 
Nation's most vulnerable citizens, it is so important that we 
make the system sound for the future and that we make sure that 
our younger generation--my son and those even older and younger 
than he--will have the same kind of confidence in the system 
that we have all had and that our parents and our grandparents 
had. Thank you.
    Chairman MCCRERY. Thank you. Our next witness is Barbara D. 
Bovbjerg, Director, Education, Workforce, and Income Security 
Issues, United States GAO. Ms. Bovbjerg?

    STATEMENT OF BARBARA D. BOVBJERG, DIRECTOR, EDUCATION, 
WORKFORCE, AND INCOME SECURITY ISSUES, UNITED STATES GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Chairman MCCRERY. Ms. Bovbjerg, I see you have someone with 
you. Would you like to introduce?
    Ms. BOVBJERG. Yes, I would. This is Alicia Cackley, who is 
an assistant director with Education, Workforce, and Income 
Security, in my office. I have a prepared oral statement. Ms. 
Cackley is here to help me answer questions and protect me.
    Chairman MCCRERY. Welcome, Ms. Cackley. Ms. Bovbjerg, your 
written testimony, of course, will be entered into the record 
in its entirety. We would ask you to summarize that written 
testimony in about 5 minutes, if you would. You may proceed.
    Ms. BOVBJERG. Thank you, Mr. Chairman, Members of the 
Subcommittee. I really am pleased to be here today to discuss 
the Social Security program's protections for vulnerable 
populations at this, your first hearing of the year, and to 
release the GAO primer on Social Security reform, which is 
before you today. As you know, Social Security is one of our 
Nation's great success stories. Thanks in part to this program, 
most elderly Americans today can be financially independent. 
Yet the program is facing financial changes in the long term 
that require changes to restore solvency and stability. The 
booklet we are issuing today is designed to help policymakers 
and the public better understand the choices before them and 
supplement the list of options we gave this Committee last 
week. In recognition of the context in which these challenges 
will be addressed, today I will talk about three things: First, 
the provisions of Social Security most important to vulnerable 
populations; second, the ways in which the socioeconomic 
environment has changed since the program's inception; and 
finally, the implications of those changes for the program.
    First, the protections. Several key pieces of the Social 
Security program assure that it protects the most vulnerable 
individuals. The benefit formula itself is one of the most 
important. The formula replaces a larger percentage of low-wage 
workers' pre-retirement income than it does higher-wage 
workers' income. This assures the overall progressivity of the 
program and offers a strong level of security for those workers 
with the least. The inclusion of disability insurance in Social 
Security provides protections for those who, although they once 
worked and contributed to the program, cannot work as a result 
of an impairment. In addition, spousal and survivor benefits 
assure that workers' families are protected, not only after the 
worker's retirement, but in the event of the worker's death or 
disability, and the policies of guaranteeing monthly benefits 
for life and indexing them to the cost of living are important 
protections against the erosion of real income. These 
provisions have been crucial to the income security of certain 
beneficiaries, such as older widows. Taken together, all of 
these provisions have assured that American workers and their 
families, including those at the most risk of poverty after 
retirement or disability, can remain financially independent.
    As to some of the external changes that have occurred since 
Social Security's inception, one of the most important is 
increased life expectancy. Since the 1940s, life expectancy at 
age 65 has increased steadily for both men and women. Men 
reaching age 65 in the 1940s could expect, on average, to live 
to age 77; today such men look forward to reaching age 81, and 
women have fared even better--meaning that Americans generally 
are living longer in retirement. Other important changes have 
also taken place. Although Social Security was created in a 
society where households were generally a one-earner married 
couple with children, today it is increasingly likely that both 
partners work or the household has only one adult, or no 
children. These workers may be doing a different sort of work 
than in the past and may change jobs more frequently.
    Their benefits have changed as well. Defined benefit 
pensions are becoming less common and less secure, and those 
workers who have pensions are increasingly bearing the risk of 
pension inadequacy. Unfortunately, one of the few things that 
have not changed is the proportion of workers who have an 
employer-provided pension. Despite our efforts to encourage 
better and more pension coverage, only about half of American 
workers have a pension plan.
    Let me turn now to the implications of these changes. 
Increased time spent in retirement raises Social Security's 
costs. Helping create incentives for Americans to work past 
traditional retirement ages could offer older people a more 
secure income, while helping the economy and the Social 
Security program itself. Congress has taken an important step 
in repealing the earnings test passed for retirement age, but 
more attention is needed to this issue.
    Another area to examine is spousal benefits. The one-
earner-family model of the past is no longer reflective of 
today's families, and in fact, no single model is likely to 
suffice. Finally, it would be important to recognize that while 
Social Security was never intended to be the sole source of 
retirement income for most, its roles as a secure source of 
income is ever more important in light of today's changing 
pension environment. Actions to reform Social Security should 
recognize its continued, and perhaps growing, importance to 
overall retirement income. In conclusion, the Social Security 
program has made a tremendous difference to America. Before 
Social Security, being old often meant being poor. Today older 
Americans are more financially independent and live better 
lives, thanks to the secure retirement income this program 
provides.In addressing the program's long-term financial 
problems, Congress indeed faces difficult decisions. 
Policymakers will need to address the escalating costs not only 
of Social Security, but of Medicare and Medicaid, while 
recognizing that these programs all are crucial to retirement 
well-being, especially for vulnerable populations. Clearly, 
this will not be an easy task, but few tasks will be so 
important to so many. That concludes my statement, Mr. 
Chairman.
    [The prepared statement of Ms. Bovbjerg follows:]
 Statement of Barbara D. Bovbjerg, Director, Education, Workforce, and 
  Income Security Issues; accompanied by Alicia P. Cackley, Assistant 
   Director, Education, Workforce, and Income Security Issues, U.S. 
                    Government Accountability Office
Social Security
Societal Changes Add Challenges to Program Protections
    Mr. Chairman and Members of the Committee:
    I am pleased to be here today to discuss how the Social Security 
program protects vulnerable populations and how the program may need to 
evolve to meet their changing needs. Before Social Security was enacted 
in 1935, at least half of those 65 and older in the United States were 
financially dependent upon others, including family members and public 
assistance.1 Today, the elderly's dependency on public 
assistance has dropped to a fraction of its Depression-era levels, and 
poverty rates among this group are now lower than for the population as 
a whole. At the same time, Social Security has become the single 
largest source of retirement income for Americans, supporting over 90 
percent of those 65 and older. Moreover, it is the only source of 
income for approximately 22 percent of the elderly population. However, 
Social Security's long-term financing problems will require changes to 
restore fiscal stability to the program. The challenge for policymakers 
will be to make the necessary changes while retaining protections that 
are so important to millions of Americans.
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    \1\ S. Rep. No. 74-628 at 4 (1935).
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    Today, I would like to talk about the key provisions in the Social 
Security program that support vulnerable populations, the ways in which 
those populations and American society in general have changed over 
time, and the implications of those changes for the Social Security 
program. GAO has conducted several studies related to Social Security 
reform and its impact on vulnerable populations;2 my 
statement is largely based on that work.
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    \2\ See Social Security and Minorities: Earnings, Disability 
Incidence, and Mortality Are Key Factors That Influence Taxes Paid and 
Benefits Received, GAO-03-387 (Washington, DC: April 23, 2003); Social 
Security: Program's Role in Helping Ensure Income Adequacy, GAO-02-62 
(Washington, DC: Nov. 30, 2001); Social Security Reform: Potential 
Effects on SSA's Disability Programs and Beneficiaries, GAO-01-35 
(Washington, DC: Jan. 24, 2001); Social Security Reform: Implications 
of Raising the Retirement Age, GAO/HEHS-99-112 (Washington, DC: Aug. 
27, 1999); Social Security Reform: Implications for Women's Retirement 
Income, GAO/HEHS-98-42, (Washington, DC: Dec. 31, 1997).
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    In summary, the Social Security program today continues to provide 
protection from poverty in old age just as it was designed to do 70 
years ago. Social Security protects workers through a benefit formula 
that advantages low-wage workers, benefits for the disabled, spousal 
and survivor benefits, and a monthly annuity and yearly cost of living 
adjustment. At the same time, much in American society has changed 
greatly since the inception of the Social Security program. People are 
living longer, women's labor force participation has increased 
significantly and household composition has changed dramatically. In 
addition, labor force growth has slowed significantly, and the nature 
of work has changed in many ways, some of which affect workers' ability 
to save for retirement. These changes suggest that the Social Security 
system as it is currently designed may not be as effective as it could 
be in addressing the needs of our society. Some of the areas where 
changes in design could bring the program more in alignment with the 
current structures of work and families include encouraging older 
workers to remain in the labor force, addressing questions about the 
equity of spousal benefits, and redesigning the Disability Insurance 
program. At the same time, as policymakers consider changes that will 
restore financial solvency and modernize the program, it will be 
important for them to keep in mind Social Security's role in protecting 
vulnerable populations.
Background
    Title II of the Social Security Act, as amended, establishes the 
Old-Age, Survivors, and Disability Insurance program, which is 
generally known as Social Security. The program provides cash benefits 
to retired and disabled workers and their dependents and survivors. The 
Congress designed Social Security benefits, at least implicitly, with a 
focus on replacing lost wages.3 Because the program is 
financed on a modified pay-as-you-go basis, payroll tax contributions 
of those currently working are transferred to current beneficiaries. 
Current beneficiaries include insured workers who are eligible for 
retirement or who cannot work due to disability, these workers' 
dependents, and certain survivors of deceased insured workers. Workers 
become eligible when they have enough years of earnings covered under 
Social Security (i.e., earnings from which Social Security taxes are 
deducted); they and their employers pay payroll taxes on those covered 
earnings to finance benefits. In 2004, more than 156 million people had 
earnings covered by Social Security.
---------------------------------------------------------------------------
    \3\ The original formula, as well as subsequent modifications, 
computed benefits as a percentage of wages covered under the program in 
a way that favors low-wage earners.
---------------------------------------------------------------------------
    Social Security was originally an old-age retirement program. 
However, the Social Security amendments 1939 added two new categories 
of benefits: dependent benefits paid to the spouse and minor children 
of a retired worker, and survivor benefits paid to the family after the 
death of a covered worker. The amendments transformed Social Security 
from a retirement program for workers into a family based economic 
security program. The amount of Old-Age and Survivors Insurance (OASI) 
benefits paid in 2004 totaled $415 billion for about 40 million 
recipients.
    Similarly, the Social Security Disability Insurance (DI) program 
was established in 1956 to provide monthly payments to eligible workers 
with disabilities who are under the normal retirement age, and to their 
dependents.4 To be eligible for DI benefits as an adult, a 
person must have a certain number of recent quarters of covered 
earnings 5 and must be unable to perform any substantial 
gainful activity by reason of a medically determinable physical or 
mental impairment. The impairment must be expected to result in death 
or last or be expected to last for a continuous period of at least 12 
months.6 As with retired worker benefits, disability 
benefits are funded by payroll taxes paid by covered employees and 
their employers. In calendar year 2004, about 8 million individuals 
received approximately $78 billion in DI benefits.7
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    \4\ In 1956, the Social Security Act was amended to provide 
benefits to disabled workers aged 50-64 and disabled adult children. 
Over the next 4 years, Congress broadened the scope of the program, 
permitting disabled workers under age 50 and their dependents to 
qualify for benefits, and eventually disabled workers at any age could 
qualify.
    \5\ The eligibility requirements for DI are different from the 
requirements for OASI.
    \6\ Work activity is generally considered substantial and gainful 
if the person's earnings exceed a particular level established by 
statute and regulations.
    \7\ These numbers do not include adult disabled children who are 
dependents of deceased or retired workers, disabled widows and 
widowers, or disabled parents, who receive their disability benefits 
from the OASI program. About $6 billion were paid out of the OASI trust 
fund to these beneficiaries.
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    Outside Social Security, but integrated with the program, other 
legislation has also addressed income adequacy in various ways. In 
1965, Medicare and Medicaid were created to alleviate the historically 
increasing strain that health care placed on incomes. In 1972, Title 
XVI's Supplemental Security Income (SSI) replaced Title I's Old-Age 
Assistance. This means tested program provides cash to meet basic needs 
for food, clothing, and shelter. It is the nation's largest cash 
assistance program for the poor, and although it is administered by the 
Social Security Administration, it is funded by general tax revenues 
and not the Social Security trust fund.8
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    \8\ States have the option of supplementing their residents' SSI 
payments. This state-supplemented SSI payment may be administered by 
the state, or states may choose to have the additional payments 
administered by the federal government.
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    Over the years Social Security has contributed to reducing poverty 
among the elderly. (See fig. 1.) Since 1959, poverty rates for the 
elderly have dropped by more than two-thirds, from 35 percent to about 
10 percent in 2003. While poverty rates for the elderly in 1959 were 
higher than for children or for working-age adults (aged 18 to 64), in 
2003 they were lower than for either group. Factors other than Social 
Security, for example, employer-provided pensions, have also 
contributed to lower poverty for the elderly. Still, for about half of 
today's elderly, their incomes excluding Social Security benefits are 
below the poverty threshold, the level of income needed to maintain a 
minimal standard of living. Nearly two-thirds of the elderly get at 
least half of their income from Social Security.
Figure 1: Poverty Rates for Elderly Have Declined Faster than for Other 
                                 Groups

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Source: U.S. Bureau of the Census
Notes: Data for years indicated by dashed lines were not available but 
are available for 1959.
    Currently Social Security faces a long-term structural financing 
shortfall, largely because people are living longer and having fewer 
children. Social Security's benefit costs will soon start to grow 
rapidly. According to the 2005 intermediate--or best-estimate--
assumptions of the Social Security trustees, Social Security's annual 
benefit payments will exceed annual revenues beginning in 2017, and it 
will be necessary to draw on trust fund reserves to pay full benefits. 
And, in 2041 the trust funds will be depleted. At that time, annual 
income will only be sufficient to pay about 74 percent of promised 
benefits. As a result, some combination of benefit and/or revenue 
changes will be needed to restore the long-term solvency and 
sustainability of the program.
Key Provisions of the Social Security Program Protect the Most 
        Vulnerable Populations
    From its inception, Social Security was intended to help reduce the 
extent of dependency on public assistance programs. Over time, that 
objective has come to be stated more broadly as helping ensure adequate 
incomes. Several key provisions of the program have helped to protect 
the most vulnerable individuals: the progressive benefit formula that 
advantages low-wage workers, disability insurance benefits, survivor 
and dependent benefits, and the fact that the benefit comes in the form 
of an annuity, with an annual cost-of-living adjustment (COLA).
Progressive Benefit Formula
    Social Security's benefit formula is designed to be progressive; 
that is, it provides disproportionately larger benefits, as a 
percentage of earnings, to low-wage earners than to high-wage 
earners.\9\ By replacing a larger percentage of low-wage workers' pre-
retirement income in this way, the Social Security benefit helps ensure 
adequate retirement incomes for these workers. The progressive nature 
of the Social Security system remains even after taking account of the 
fact that contributions to the system come in the form of a regressive 
payroll tax.
---------------------------------------------------------------------------
    \9\ Social Security: Distribution of Benefits and Taxes Relative to 
Earnings Level, GAO-04-747 (Washington, D.C.: Jun. 15, 2004).
---------------------------------------------------------------------------
Disability Insurance and Supplemental Security Income Benefits
    From its origin in 1956, the purpose of the DI program has been to 
provide compensation for the reduced earnings of individuals who, 
having worked long enough and recently enough to become insured, have 
lost their ability to work.\10\ Payroll deductions paid into a trust 
fund by employers and workers fund DI benefits. Thus, DI, while it has 
important protections for vulnerable populations, is designed to 
provide insurance for all insured workers. The purpose of the SSI 
program, on the other hand, is to provide cash assistance to those who 
are age 65 and older, blind, or disabled and who have limited income 
and resources. It is a means tested program that serves those not 
insured by Social Security or those whose Social Security benefits fall 
below SSI's means test threshold.
---------------------------------------------------------------------------
    \10\ The DI program was established under title II of the Social 
Security Act.
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Spousal and Survivors' Benefits
    Workers' earnings may generate Social Security benefits for their 
spouses and dependents as well as themselves. For example, spouses of 
retired or disabled workers may receive benefits based on a percentage 
of the workers' benefits. Additionally, after the worker has died, 
their eligible dependents receive survivor benefits.\11\ Because 
workers do not make any additional contributions to receive these 
auxiliary benefits, workers with families receive a higher implicit 
rate of return than workers without families. Benefits are paid to 
family members of workers under certain circumstances. Spouses and 
divorced spouses of eligible workers may also be eligible at age 62 but 
can be eligible at younger ages if they are disabled, widowed, or 
caring for eligible children. An eligible worker's children under 18 
are eligible for survivors' benefits, and adult children are eligible 
if they became disabled before age 22. Dependent parents and 
grandchildren of eligible workers are also eligible for survivors' 
benefits under certain circumstances.
---------------------------------------------------------------------------
    \11\ Some workers qualify for Social Security benefits from both 
their own work and their spouses'. Such workers are called dually 
entitled spouses. Such workers do not receive both the benefits earned 
as a worker and the full spousal benefit; rather the worker receives 
the higher amount of the two.
---------------------------------------------------------------------------
Annuitization and Cost of Living Adjustment
    Social Security benefits are paid out in the form of an annuity. 
Annuities are monthly payments for a specific period time, for example, 
the lifetime of a retired worker.\12\ Benefits are also increased each 
year to keep pace with increases in the cost-of-living (inflation). The 
COLA is based on the Consumer Price Index. This automatic adjustment 
was not always a feature of the program. It was introduced in the 
1970s, as part of a broader set of reforms, in order to ensure that 
benefits did not erode over time.
---------------------------------------------------------------------------
    \12\ Social Security benefits are not paid for the lifetime of all 
beneficiaries depending on various eligibility requirements, for 
example, for surviving parents of young children.
---------------------------------------------------------------------------
Changes in the Workforce and the Nature of Work
    Much in American society has changed greatly since the inception of 
the Social Security program. People are living longer, women's labor 
force participation has increased significantly and household 
composition has changed dramatically. In addition labor force growth 
has slowed significantly, and the nature of work and workers' benefits 
has changed in many ways, some of which affect workers' ability to save 
for retirement.
Life expectancy
    Life expectancy has increased continually since the 1930s, and 
further increases are expected. The average life expectancy for men who 
reach age 65 has increased from 12 years in the 1940s to 16 years in 
2005, and is projected to increase to 17 years by 2020. Women have 
experienced a similar rise--from 14 years in the 1940s to over 19 years 
in 2005. Life expectancy for women who reach age 65 is projected to be 
20 years by 2020. (See fig. 2.)
Figure 2: Life Expectancy at Age 65 Has Increased

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


Note: Life expectancy numbers are based on period tables.

    The aged population is growing dramatically, as a result of 
increased life expectancy and the aging of the baby boom generation. 
For example, individuals aged 65 and over are currently 12 percent of 
the population. In 30 years, they will be more than 20 percent of the 
population.
Changing Composition of Households and Increased Labor Force 
        Participation of Women
    Social Security was designed around a working father, a stay-at-
home mother, and children. Society has moved away from this model. 
There are many more single parent and two-earner households than in the 
past. Women's labor force participation rates are now at 59 percent--a 
substantial increase from their participation rates when the program 
was introduced.\13\ At the same time, women have different work 
patterns from men. Women are more likely to work part-time and work 
intermittently as they may take time out of the labor force to raise 
children or care for elderly parents.
---------------------------------------------------------------------------
    \13\ In 1961, women's labor force participation rate was 38 
percent, compared to 83 percent for men.
---------------------------------------------------------------------------
Slow Labor Force Growth
    Increasing life expectancy, coupled with lower fertility rates, 
means that labor force growth will begin to slow by 2010. By 2025 it is 
expected to be less than a fifth of what it is today. (See fig. 3.) 
Relatively fewer U.S. workers will be available to produce the goods 
and services that all will consume. Without a major increase in 
productivity or immigration, low labor force growth will lead to slower 
growth in the economy and to slower growth of federal revenues. This in 
turn will only increase the overall pressure on the federal budget.
Figure 3: Labor Force Growth Is Expected to Slow Significantly

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Source: GAO analysis of data from the Office of the Chief Actuary, SSA.
Note: Percentage change is calculated as a centered 5-yr moving average 
of projections based on the intermediate assumptions of the 2005 
trustees Reports.

    This slowing labor force growth, as well as the increases in life 
expectancy, has important implications for the solvency of the Social 
Security system. Fewer workers will be contributing to Social Security 
for each aged, disabled, dependent, or surviving beneficiary.
Change in the Nature of Work
    In recent decades the national economy has moved away from 
manufacturing-based jobs to service--and knowledge-based employment. 
Another change in the nature of work is employers' increasing use of 
temporary and contingent workers. Contingent workers are less likely 
than the rest of the workforce to receive health insurance and pension 
benefits through their employers. Many of these workers either are not 
offered benefits by their employers or do not qualify for benefits 
because they do not work enough hours or have not worked for their 
employers long enough. Furthermore, when their employers offer health 
insurance and pension plans, many contingent workers do not participate 
because of the cost of the plans. The mobility of these workers also 
has an impact on their ability to save for retirement, since they may 
not stay with one employer long enough to qualify for a pension.
Re-structuring of Employer-Sponsored Pension Plans
    Currently, only about 50 percent of workers have an employer-
sponsored pension plan to supplement their Social Security benefit. For 
those workers who do have pensions, however, the structure of those 
plans has changed over time. More and more employers are switching from 
defined benefit (DB) to defined contribution (DC) plans. In doing so 
they are shifting an increasing share of the responsibility for 
providing for one's retirement from the employer to the employee. DC 
plans have lower participation rates than DB plans because many DC 
plans require the employee to opt for coverage, whereas most DB plans 
enroll participants automatically. Additionally, increasing costs of 
other benefits, such as health care, are making employers less willing 
or able to increase other forms of compensation packages, including 
pensions. As a result, employer-sponsored pensions may provide workers 
a smaller share of retirement income than they have in the past.
Changing Needs of Society Has Implications for Social Security
    Regardless of all these changes, and in some cases, because of 
them, many workers still rely heavily on Social Security for their 
retirement. At the same time, changes in-household structure, labor 
force participation, and life expectancy all suggest that the system as 
it is currently designed is not as effective as it could be in 
addressing the needs of our society. There are several areas where 
changes in design could bring the program more in alignment with the 
current structures of work and family.
Working Longer
    As a consequence of increases in life expectancy, individuals are 
generally spending more years in retirement. The average male worker 
spent 18 years in retirement in 2003, up from less than 12 years in 
1950. Encouraging older workers to remain in the labor force could 
increase revenues to Social Security and significantly improve 
individuals' standard of living in retirement. Although some workers 
may face significant health problems, there is evidence that the health 
of older persons generally is improving. Research has shown that the 
majority of workers aged 62 to 67 do not appear to have health 
limitations that would prevent them from extending their careers, 
although some could face severe challenges in attempting to remain in 
the workforce.\14\ In general, however, today's older population may 
have an increased capacity to work compared with that of previous 
generations.\15\ Congress has already provided an incentive for older 
workers to continue working by repealing the earnings test for 
individuals at or above the full retirement age. This change allows 
older workers to continue working without any reduction in their Social 
Security benefits. It will be important to have institutions in place 
that can further facilitate the continued employment of older workers.
---------------------------------------------------------------------------
    \14\ GAO/HEHS-99-112.
    \15\ It should be noted, however, that life expectancy is related 
to income, and low-income workers tend to have lower life expectancies 
and poorer health outcomes.
---------------------------------------------------------------------------
Spousal Benefits
    As women's participation in the labor force has increased, more of 
them may be entitled to Social Security benefits based on their own 
earnings records rather than their spouses'. As a result, there will 
probably be relatively more two-earner couples and relatively fewer 
one-earner couples in the system. Under the current program, non-
working spouses can receive a spousal benefit even though they had no 
covered earnings of their own. Spouses can be entitled to a benefit 
based on their own earnings record that is equal to or less than the 
benefit they are entitled to on their spouses' earnings records. The 
household benefit in such cases is no greater than if such spouses had 
never worked at all. Similarly, when a woman becomes widowed, her total 
household income can potentially be cut much more deeply if she was 
receiving a retirement benefit based on her own earnings while her 
spouse was alive, compared to a widow whose benefit was based only on 
her spouse's earnings. Thus two-earner couples may question whether 
they are receiving an adequate return on their contributions. In 
considering alternatives to the one-earner model on which the program 
was created, however, a two-earner model is not necessarily the answer. 
In a country as heterogeneous as America, probably no one model is 
optimal. The increase in women in the workforce and two-earner couples 
raises questions about the equity for working women of the current 
design of the spousal benefit.
Federal Disability Programs
    The DI program is based on the concept of assisting individuals 
whose impairments have adversely affected their work capabilities. The 
program provides compensation for reduced earnings due to a disability 
and attempts to facilitate the efforts of individuals with disabilities 
to return to work. However, GAO's work on federal disability 
programs,\16\ including DI, has found that these programs are neither 
well aligned with 21st century realities nor are they positioned to 
provide meaningful and timely support for Americans with disabilities. 
Our work suggests that these programs remain grounded in outmoded 
concepts of disability, and are not updated to reflect scientific, 
medical, technological and labor market improvements. Moreover, the 
enactment of various DI work incentives that are intended to encourage 
beneficiaries to work--and, potentially, to leave the disability 
rolls--has had little discernible impact on beneficiaries' success in 
returning to the workforce. Policymakers will need to consider how 
these realities fit into the evolving role of the DI program, 
particularly as the baby boom generation reaches their disability-prone 
years.\17\
---------------------------------------------------------------------------
    \16\ High-Risk Series: An Update, GAO-05-207 (Washington, DC: Jan. 
2005).
    \17\ The average age of disabled workers is approximately 50.
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Concluding Observations
    Before the advent of Social Security, being old often meant being 
poor. Today, older Americans' dependency on public assistance is 
dramatically lower than Depression-era levels, and poverty rates among 
the elderly are now lower than for the population as a whole. At the 
same time, Social Security has become the single largest source of 
income for the elderly, providing retirement income to more than 90 
percent of persons aged 65 and older.
    Given its long-term solvency problems, however, there are difficult 
decisions to be made about Social Security, largely because the program 
is so important to so many people. The challenges posed by the growth 
in Social Security spending become even more significant in combination 
with the more rapid growth expected in Medicare and Medicaid spending 
and the need for reform of the private pension system. Medicare, in 
particular, presents a much greater, and more complex fiscal challenge 
than does Social Security. Policymakers will need to address the 
escalating costs of both Social Security and Medicare while recognizing 
that these programs are crucial to retirement wellbeing, especially for 
vulnerable populations.
    There are tough decisions to be made, and action is needed sooner 
rather than later. Most importantly, however, the solvency and 
sustainability of Social Security should be addressed within the 
context of the program's role of protecting vulnerable populations, 
while at the same time considering how carrying out that role may need 
to change to better address changing societal needs. We at GAO look 
forward to continuing to work with this Committee and the Congress in 
addressing this and other important issues facing our nation.
    Mr. Chairman and Members of the Subcommittee, this concludes my 
prepared statement. I'd be happy to answer any questions you may have.
    GAO Contacts and Staff Acknowledgments
    For further information regarding this testimony, please contact 
Alicia Puente Cackley, Assistant Director, on (202) 512-7215. Gretta L. 
Goodwin also made key contributions to this testimony.

                                 

    Chairman MCCRERY. Thank you, Ms. Bovbjerg. The U.S. 
Comptroller General, David Walker, testified before the 
Committee on Ways and Means earlier this year, and he said that 
Social Security has a large gap between promised and funded 
benefits. He said, ``This gap is growing as time passes. Given 
this and other major fiscal challenges, including expected 
growth in Federal health spending, it would be prudent to act 
sooner rather than later to reform the Social Security 
program.''
    While we are using household analogies, it is kind of like 
your discovering a leak in your roof. It is not really causing 
much damage; in fact, you could put a pot under the leak to 
catch the water for now. If you don't address the problem, it 
gets bigger, and pretty soon you have a big hole in your roof, 
and there is a lot of damage to your house. Do you agree with 
Comptroller General David Walker's assessment that the sooner 
we act to reform the system, the better?
    Ms. BOVBJERG. Absolutely. The information I think that he 
had provided at that hearing was that acting now and solving 
the 75-year problem would require a 13-percent-cut in the 
benefits side if you did it all on the benefits side, or a 15-
percent-increase in revenue if you did it all on the revenue 
side. If you wait, those amounts get much larger, and they are 
still only going to get you out to 2079-2080 now. Another 
reason to act sooner is that we have all talked about the 
importance of giving people time to plan, and protecting 
retirees and near-retirees. Well, the baby boomers are rapidly 
becoming near-retirees, and soon will be retirees. If the baby 
boom generation is to participate in any solution to the Social 
Security fiscal imbalance, now would be the time.
    Chairman MCCRERY. If we don't take action and we see those 
kinds of reductions in benefits, how does that affect the most 
vulnerable populations served by Social Security?
    Ms. BOVBJERG. Well, like so many things in Social Security, 
it would depend on how it was done. I believe that when 
Commissioner Barnhart was talking about trust fund exhaustion 
as a possible scenario, I think that would be hard on everyone 
who was a beneficiary. Those cuts could be across the board. It 
is not clear what any of that----
    Chairman MCCRERY. If they were across the board, wouldn't 
vulnerable populations be affected more harshly than non-
vulnerable populations?
    Ms. BOVBJERG. Yes, because they are more dependent on 
Social Security.
    Chairman MCCRERY. Fine. You highlighted in your testimony 
Social Security's importance in helping to reduce poverty among 
seniors. What would you suggest as options to enhance Social 
Security's role in providing a basic floor of protection for 
low-income seniors? For example, would maintaining or 
increasing the progressivity of the current benefit formula, or 
enhancing the minimum benefit offered under Social Security 
help prevent poverty among seniors even more than we are today?
    Ms. BOVBJERG. It could. You would have to look at the 
entire package of changes and see how they interacted to see 
how that might work. For example, several years ago we reported 
on the progressivity in a couple of different types of Social 
Security reform proposals, and we noticed that the Model Two 
proposal was somewhat more progressive than the current system. 
However, that is not to say that it was more adequate. Which is 
to say that, while the benefits were more progressive, they 
were lower than under the scheduled benefits of today.
    Chairman MCCRERY. Right. Right.
    Ms. BOVBJERG. So, you would have to balance those.
    Chairman MCCRERY. Sure. The progressivity, though, of the 
system benefits, for example, lower income workers who, without 
that progressivity, could very well be below the poverty line. 
But, because of the progressivity, because Social Security 
replaces a greater percentage of their wages than higher-income 
workers, they are protected, in many cases, from poverty. Isn't 
that correct?
    Ms. BOVBJERG. The could be, but it would depend on what 
level of benefits they received as well as the degree of 
progressivity.
    Chairman MCCRERY. Sure. Sure. No, I understand what you are 
saying. In the current system, the progressivity of the system 
ensures that the vast majority of seniors are kept out of 
poverty, doesn't it?
    Ms. BOVBJERG. That is true. I noticed the Commissioner was 
talking about the SSI Program as well, which we mention in our 
testimony. I don't mean to be confusing. That is not part of 
Title Two of the Social Security Act (P.L. 74-271).
    Chairman MCCRERY. No, no, I understand what you are saying.
    Ms. BOVBJERG. It is an important backstop.
    Chairman MCCRERY. So, do you have any suggestions about how 
we could improve Social Security's function or about keeping 
seniors out of poverty?
    Ms. BOVBJERG. I think it would be important to think of 
Social Security in a broader retirement income environment. I 
know I work on retirement issues, Social Security pensions, but 
I know that it is really important to interact more with people 
who are thinking about health care, about Medicare, about 
Medicaid, about retiree health insurance. It is also important 
to consider what is happening in the pension world While it 
sounds like maybe I am saying you have to do everything all at 
once as if it is not already a really hard issue, I just think 
it is important to keep what is going on in the environment 
around Social Security in mind as you are making changes.
    Chairman MCCRERY. I will suggest that to Chairman Thomas. 
Since you mentioned it, would you explain the differences 
between SSI, and the Social Security program?
    Ms. BOVBJERG. The SSI Program is called supplemental 
because it really is the backstop to Social Security. The SSI 
Program covers aged and disabled people, and their benefits are 
means tested. So, anyone who either does not qualify for Social 
Security because they haven't earned enough credits to be fully 
insured, or people who are receiving a Social Security 
benefit--and there are at least two million of them who receive 
the Social Security benefit, and also receive SSI to top it 
off, essentially. It is funded by the General Fund. It is not 
funded by the Social Security Trust Fund.
    Chairman MCCRERY. What qualifies them for SSI?
    Ms. BOVBJERG. Well, if they are below retirement age, they 
must be disabled and they go through the same disability 
assessment process that the Disability Insurance (DI) 
applicants do. They also must have income below a certain 
level. They have to report living arrangements and things like 
that.
    Chairman MCCRERY. There are two tests for people under 65. 
They have to be disabled, and they have to be under a certain 
income level. If they don't meet both of those tests, then they 
don't get any benefit at all, do they?
    Ms. BOVBJERG. That is correct.
    Chairman MCCRERY. That is, under SSI.
    Ms. BOVBJERG. That is correct.
    Chairman MCCRERY. Then for the aged, those who are over 65, 
they must only meet the income test to get SSI?
    Ms. BOVBJERG. Yes, and the age test.
    Chairman MCCRERY. Right. If they are over the age--if they 
pass the age test, then they have to also pass the income test 
to be eligible for any benefit under SSI.
    Ms. BOVBJERG. That is correct.
    Chairman MCCRERY. Have you thought about any options for 
improving the coordination between Social Security and SSI?
    Ms. BOVBJERG. I think it is really important, as we 
consider trust fund solvency and the program, to remember that 
SSI is there--and I know that a number of proposals have talked 
about minimum benefits--and just to think about these things 
together. I know that administratively the SSA has taken some 
steps to make sure that these programs are better coordinated. 
I think in a policy sense we don't always think about them 
together. Certainly, in the Social Security reform debate we 
have not.
    Chairman MCCRERY. All right, thank you. Mr. Levin?
    Mr. LEVIN. Thank you, Mr. Chairman. Thank you for your 
testimony. I don't think you have anything to worry about. 
Indeed, we appreciate your objectivity and your sensitivity in 
answering these questions. There have been references by us to 
houses and leaks and roofs, and analogies just carry one so 
far. Our position is we want to repair leaks--and I don't ask 
that you comment on this--we just don't want over time the 
house to be burned down.
    That becomes all the more important when one looks at your 
document, your testimony, on page 10. You, in response to 
questions, I think you have been careful to say one has to look 
at the whole picture. I think that is very true. One piece of 
the whole picture that we have to look at is referenced on page 
10, and I just want to read it, though it is going to be in the 
record. I don't think you referred to it in your summation 
because you had to be brief.
    More and more employers are switching from defined benefit 
(DB) to defined contribution plans (DC). In doing so, they are 
shifting an increasing share of the responsibility for 
providing for one's retirement from the employer to the 
employee. The DC plans have lower participation rates than DB 
plans because many defined contribution plans require the 
employee to opt for coverage, whereas most DB plans enroll 
participants automatically. Then at the end, ``As a result, 
employer sponsored pensions may provide workers a smaller share 
of retirement income than they have in the past.''
    I just wanted to say that it is really important that 
everybody realize what is being proposed here by the President. 
That is a shift, at least for the vast majority of people, from 
a DB to a DC plan. I think that is one reason he is having so 
much difficulty with his idea. When the public sees more and 
more defined benefit plans being torn apart and more of a shift 
of the retirement responsibility, as you say here, for 
providing one's retirement from the employer to the employee, 
what is being proposed here--and we need to have honest 
discussion of it--is a more major shift to the employee.
    That is also at a time when people realize more 
increasingly, the risk of investments in stocks. They 
understand that there are huge differences, there will be, as 
to how much people would receive when they retire, depending on 
the nature of the stock market at that time. One only has to 
look at last year or the year before to see these huge swings. 
You can try to diminish the impact by saying you have to invest 
in what the government would prescribe--which also turns off 
younger people, who thought this was going to be something of 
their own.
    Last, I just want to say when we talk about high- and low-
wage-earners, I think we better be cautious. Under what the 
President proposed, if one in today's dollars had an average 
income of over $20,000, one would be caught by the shift from 
wage to price indexing. As I go out, the vast majority of 
people, whose average income is anything above $20,000, unless 
it is $120,000 don't think that they are high-wage, high-income 
earners. So, I think your effort to round out the picture has 
been very helpful to us. I hope that people will understand 
where we are coming from.
    By the way, to my friend from Missouri, I will show you 
this AP story. The headline is, ``Official says Bush Social 
Security plan would cut some survivor benefits.'' That is Mr. 
Hubbard. He also said it would not reflect on disability. Then 
I quoted the spokesperson for the President, and I do urge you, 
as you look at the interplay between disability, survivor, and 
retirement benefits, that there be an understanding that if 
there is going to be an insulation of disability benefits, it 
would have an impact on everybody else's benefits, and there 
would have to be attention paid to what happens when people who 
were receiving disability went into retirement. If the 
retirement benefit dropped under these proposed cuts, then 
there would be a cut in the disability benefit.
    Also, I would urge that you look at the Commission plans 
and look at the statements of the President regarding them. We 
aren't making this up. We need to have--and I think the 
Chairman wants to; we once had a private discussion about 
this--have a thorough, honest discussion about what is proposed 
as a major shift, as you say, in responsibility. Here it 
wouldn't be from the employer to the employee, but it would be 
from a Social Security system that guaranteed benefits, to the 
employee. Thank you, Mr. Chairman. Thank you for giving me an 
extra minute.
    Chairman MCCRERY. Yes, sir, Mr. Levin. You make a good 
point. Those are questions that this Subcommittee needs to 
examine. That is why we are here today talking about these 
things. As far as I can tell, most of the Members of this 
Committee on both sides want to make sure that we protect 
vulnerable populations being served by Social Security. So, 
that is a good point. Mr. Shaw?
    Mr. SHAW. Thank you, Mr. Chairman. I would like to--I can't 
speak to all of the Social Security plans. As I understand it, 
some of them are a little murky as far as the drafting is 
concerned. I can speak to two of them that I am very familiar 
with--of course, my own, which is the Social Security Guarantee 
Plan, which is H.R. 750, which in no way affects survivor 
benefits and no way affect disability benefits. I can also 
speak to Mr. Ryan's plan. I think these are the two leading 
plans that are being considered at this particular point, and 
his plan does not in any way affect survivor benefits or 
disability. I am proud to co-sponsor this with Mr. Lewis and 
several other people on our Committee.
    The fact that you go to individual or personal accounts 
doesn't mean that you can't guarantee benefits. If you look at 
750, you will see that we do guarantee benefits. We do not, as 
a matter of fact in H.R. 750, we do not touch anything in the 
existing Social Security plan. What we do is simply add to it. 
I think that perhaps some of my colleagues on the Democrat side 
should go back and visit that plan and, if you don't want to 
become supporters of it, that you might want to take things 
from it that you might particularly like.
    There is no question but that the markets will fluctuate. 
This is why we decided to put the guarantee in there. You can 
do no less than you would under the existing system. We don't 
even change the cost of living index. We leave that totally 
alone, everything totally alone. So, I think that that is 
important, that we understand that there are ways to pre-fund, 
if you may--I mention Mr. Ryan's name and he walks in.
    Mr. RYAN. I was here.
    Mr. SHAW. I was defending you. You were being attacked 
unmercifully by Mr. Levin.
    [Laughter.]
    Mr. SHAW. Ms. Bovbjerg, I do have a question for you. The 
General Accounting Office has published many reports about 
issues relating to pensions. So, as we think about 
strengthening Social Security, what do we need to keep in mind 
in terms of how changes to Social Security may affect pensions 
and other retirement savings?
    Ms. BOVBJERG. Well, we did a report, I believe, for you, 
Mr. Shaw, when you were Chairman of this Subcommittee on 
pensions and Social Security reform. In that report, we talked 
about the linkages between certain employer-sponsored pensions 
and Social Security and how changes not limited to 
restructuring, like individual accounts, but other kinds of 
changes could affect employer-sponsored pensions and that there 
might be changes and additional costs for employers and things 
of that nature.
    I think that the concerns that we have raised in the 
testimony are really more of the retirement income concerns and 
thinking that Social Security is becoming all the more 
important as the security of certain pensions, such as the 
participants in United Airlines's pension, is eroding; that it 
is important to think about these things together--to think 
about what kinds of retirement income people might have later. 
That is part of why we think earnings is so important for 
people who can work to continue to work longer.
    I think that in thinking about these things together, it is 
important to think about defined benefit, defined contribution, 
who contributes, who bears risk, how people accumulate 
retirement funds, how these retirement funds are paid out; that 
we are talking about people who are going to be getting things, 
we hope, from a variety of different sources, and it would be 
important in considering that to look at managing risk, 
managing the kinds of contributions you might expect from 
people, from their employers; that we not do something that has 
the same effect in Social Security, in pensions, in health on 
the same people that might make something much more difficult 
for them to--it might make it more expensive for them, it might 
make their retirement income less, it might make it more risky 
by making it less hedged. I just think that there are an 
abundant number of ways to do these things, and it is really 
important to look at them together and, as you say, to look at 
these in comprehensive packages, not just look at individual 
features.
    Mr. SHAW. Thank you. Thank you, Mr. Chairman.
    Chairman MCCRERY. Mr. Pomeroy has graciously assented to my 
request to have Mr. Hulshof go next. Mr. Hulshof, you may 
inquire.
    Mr. HULSHOF. I appreciate that, due to a previous 
commitment. I do welcome, as the gentleman from Michigan talked 
about having an honest discussion. I truly do. I think this is 
the Subcommittee where it needs to begin.
    I note, for instance, a couple of weeks ago when President 
Bush talked about a progressive benefit formula that the loyal 
opposition, if you will, decried that idea. In fact, I even 
heard the word--I am thinking maybe it was in the full 
Committee, the idea that somehow this was creating a means 
testing or a means test. Yet, as you point out in your 
testimony, Ms. Bovbjerg, on page five, under current law Social 
Security's benefit formula is designed to be progressive; that 
is, it provides disproportionately larger benefits, as a 
percentage of earnings, to low-wage earners than to high-wage 
earners. So, certainly as the President's idea may be to 
accelerate that or to amplify that, I think that is a 
legitimate point for us to have discussion.
    I have been perusing as you have been talking. This was 
today that you put this together? My colleague from Ohio, who I 
used to serve with on the Committee on Official Standards of 
Conduct, I think I can hawk this for you as this is not a 
private entity. If folks out in America wish to get this, this 
is a really good, by the way, compendium or summary of answers 
to key questions in a nonpartisan way. How can an average 
citizen across the country get this, Ms. Bovbjerg?
    Ms. BOVBJERG. They can ask GAO to send them a hard copy, or 
they can go on our Web site, www.gao.gov, and it is right up 
there.
    Mr. HULSHOF. There you go. Commercial message.
    Ms. BOVBJERG. Thank you for the opportunity.
    Mr. HULSHOF. You are welcome. Let me go to that because I 
know--and I apologize for not getting to remain for the 
entirety of the next panel, but I know that there will be some 
ideas, for instance. One, in fact, our colleague from Florida 
who talked about raising the cap on taxable earnings. Either 
you, Ms. Bovbjerg, or you Ms. Cackley, on page 42 you reference 
this, again, as questions that are being asked.
    Mr. SHAW. If the gentleman would yield. If you would make 
it clear that it is not this gentleman----
    Mr. HULSHOF. It is not this gentleman from Florida, but his 
colleague Mr. Wexler from Florida. Right now, earnings above 
$90,000 are not subject to payroll taxes. Again, I am 
paraphrasing what is included in this booklet. If the cap was 
raised and the benefit formula remained the same, workers with 
earnings above the old cap would ultimately receive somewhat 
higher benefits as well as pay more taxes.
    In fact, let me just--in the interests of time, a quick 
hypothetical, at least according to the National Academy of 
Social Insurance, says that if someone pays taxes on a lifetime 
earning of a million bucks, if somebody's a millionaire, they 
make an annual salary of a million dollars, at least according 
to the National Academy of Social Insurance, under the current 
structure that individual at retirement would receive a monthly 
benefit of about $13,500 a month. That is $162,000 a year.
    The point of me mentioning that--do you quarrel with the 
numbers, Ms. Cackley? You are on the back of the envelope. You 
are doing some quick figuring. The point is that, at least 
under the current system, and as Commissioner Barnhart talked 
about, and I paraphrase what she said at the end of her 
testimony: The idea of Social Security when it was created, if 
you work hard, you play by the rules, you pay into the system, 
you get out of the system. At least, even with this progressive 
benefit formula, you get out of the system at least as you pay 
into the system. So, my concern is, or question is, perhaps 
reserved for the next panel, is that if you simply raise the 
payroll tax earnings cap, take it off entirely, the issue of 
solvency isn't fully addressed because we continue then to give 
benefits, or that individual will get benefits out of the 
system according to what they are paying in.
    Is that----
    Ms. BOVBJERG. That is correct. Their returns would be 
substantially lower because the progressive benefit formula 
than the people at the lower end of the distribution. But, yes, 
they would get paid benefits.
    Mr. HULSHOF. Based on that caveat, and I guess, then, I 
would say, again, as, again, one of those options on the table, 
and I certainly wish to look at Mr. Wexler from Florida's 
proposal in more detail, Mr. Shaw, but perhaps, I guess, the 
suggestion is raising the cap and then cutting benefits or 
restricting the amount of benefits that that high-income wager 
earner could receive. Again, if we go back to the idea of the 
purpose of paying into the system, work hard, play by the 
rules, and you get out of the system, and not wanting it to 
turn into any sort of a, in my term, welfare system.
    As a final point, Mr. Chairman, I would just say, as we had 
this honest discussion, I will quote a former president, who 
said this about Social Security and the challenges that we 
have. This was a speech given in 1997. ``Our children deserve 
what our conscience demands. God willing, we will disappoint 
neither.'' The author of that quote, former President Gerald 
Ford, a Republican. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Hulshof. Mr. Pomeroy?
    Mr. POMEROY. Thank you, Mr. Chairman. I am happy to 
cooperate with anything you may request, but especially to 
afford the questioning of my good friend from Missouri, Mr. 
Hulshof. It strikes some of us that when you talk about benefit 
reductions for those making more than $20,000 a year, it is not 
all that progressive. Not all that smart, either. I want to 
introduce for the record the Business Week, not known to be a 
particularly liberal publication. They have a cover story in a 
recent edition, ``I Want My Safety Net.'' It is an excellent 
essay on the whole Social Security issue. I want to quote from 
it and ask your reaction, Ms. Bov--Ms. GAO.
    [Laughter.]
    Mr. POMEROY. ``Big swings in family income, according to 
studies by Yale University political scientist Jacob Hacker, 
have increased markedly over the past two decades as the 
finances of two-earner households have been stretched thin. 
That has made families, especially those with unskilled 
workers, more vulnerable to catastrophic jolt, such as job loss 
or serious illness. The financial pressure has become much more 
acute because of another squeeze occurring in the private 
sector. Corporations vying to compete globally have steadily 
shifted costs and responsibility for pensions and health care 
to their employees as part of the restructuring wave that began 
in the seventies.''
    I would ask you--and it really relates much to your 
testimony--it seems like workers carry more risk today relative 
to their retirement income security than perhaps they did some 
years ago.
    Ms. BOVBJERG. They pretty clearly do, as there has been a 
shift, as we have discussed, from DB to DC pension plans. The 
investment risk is on the employee. Some of the risks are self-
induced. Employees will take money out of their 401(k)s for 
other purposes, non-retirement purposes, and then they have 
less when they go to----
    Mr. POMEROY. Absolutely. There are all kinds of risks with 
DC plans that were not present in the old DB pension. Do they 
save enough? The Business Week article says 26 percent don't 
even participate on average, so, some don't even participate. 
Of those who do, there is market risk, market volatility. I was 
very surprised to hear my friend and colleague--and I know he 
is a biblical scholar--from Kentucky refer to the stock market 
as the solid rock. I think many who have been through this 
correction we saw at the turn of the decade wouldn't see the 
stock markets as solid rock to build your retirement foundation 
on at all. So, you have income and investment volatility as 
well. I would ask you, based on your general knowledge of 
investing, is it a common investing strategy to augment risk in 
an investment portfolio by looking for additional high risk, or 
do you augment risk in an investment portfolio by looking for 
low risk security?
    Ms. BOVBJERG. Do you mean what do people do?
    Mr. POMEROY. No, I mean as an investment strategy, common 
investment strategies.
    Ms. BOVBJERG. Well, commonly people would like to hedge.
    Mr. POMEROY. Exactly. I believe not just--be it Wall Street 
money managers or whatever, it is basic finance. If you have 
risk, you offset risk with low risk. It seems to me a lot of 
the discussion of privatizing Social Security would take the 
risk, the higher risk that your testimony speaks to on the 
private retirement savings side, and then compound that with 
higher risk in Social Security, something that today serves a 
defined benefit, guaranteed payment, adjusted for inflation, 
and all secure over the next 37 years. Albeit, we have to 
attend to it after that, but in this near-term and mid-term 
context, something that is relatively low-risk, especially 
compared to the volatility and the risks they are facing on the 
private side.
    Ms. BOVBJERG. When you measure risk, I think it would be 
important to think about the totality of particular proposals. 
There is quite a range out there, and there are proposals that 
may create greater risk on one side but attempt to reduce it 
with another provision.
    Mr. POMEROY. Final point. Much of the discussion about 
Social Security has been Social Security in the context of the 
Federal budget. Fair enough. I think your testimony redirects 
us a bit, and it is the critical question we ought to have. 
About an individual, in terms of individual retirement savings 
security, looking carefully at what is occurring relative to 
private sector activity in terms of retirement income. As we 
look at changes we want to make in terms of the public part, 
Social Security, we make sure that they complement one another, 
not that they actually act to exacerbate the already tough 
swing to risk they have taken on the private side. I yield 
back.
    Chairman MCCRERY. Thank you, Mr. Pomeroy. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman. Ms. Bovbjerg, thank 
you very much for your testimony. It is great to have you here 
again. Thank you for all the valuable information and the 
details on this system. As usual, the GAO has done a remarkable 
job of adding some clarity to sometimes very murky questions 
that are often asked. Let me ask you a little bit about the 
Social Security program, because you outline it well in this 
booklet, with regard to disability and survivor benefits. My 
understanding is, because oftentimes when I get asked back home 
by folks who are interested in this subject, what the value of 
your Social Security benefit is, I have to break it up. 
Obviously, if you are getting ready to retire, it is what you 
will get in a retirement benefit. If you are still young and 
you want to know what it might do for you, you are talking not 
just about what it might do in 20 or 30 or 40 years for you, 
but if you should become disabled, what it means for you. Or, 
by some unfortunate circumstance you happen to pass away, and 
if you have survivors, what it means for them.
    My understanding is that a good gauge is to say that if you 
are 27 years old with a spouse and two children, Social 
Security is providing you with the equivalent of a $400,000 or 
so life insurance policy, and a $350,000 or so valued 
disability insurance policy. Now, do you have any sense of what 
it would cost for someone shopping in the private sector today 
to buy an insurance policy for life insurance or disability 
insurance to get equivalent levels of coverage for someone who 
is 27 with a spouse and two kids?
    Ms. BOVBJERG. Sorry. I don't know. I have no idea.
    Mr. BECERRA. Yes, I would love to know, and I am no longer 
27, so, I could not easily just call and ask. I would be 
interested to find out if you could even get certain insurance 
companies to offer you a policy. I suspect the more risky your 
work, the less likely an insurance company is willing to offer 
you a policy, or at least a reasonably priced policy, for 
either accidental death or life insurance, or even disability 
insurance. Let me ask you another question with regard to this 
whole issue of the trust fund. As we talk about Social Security 
and trying to ensure that for the next 75 years or longer that 
it is there for people, as it has been there for people today 
and has been there for people in the past 70 years, is it fair 
for us to talk about a trust fund as existing?
    Ms. BOVBJERG. I think so, but it is important to understand 
that it is a budget account.
    Mr. BECERRA. Right.
    Ms. BOVBJERG. It is not a trust fund in the way that the 
people outside government might think of a trust fund. It is a 
budget account. It has assets in it, United States Treasury 
bonds. The United States Government, as the Commissioner said, 
has never defaulted on its bonds, will make good on its bonds. 
It is important to understand that it is the government 
essentially repaying itself. That is the hard thing, I think, 
to explain to people.
    Mr. BECERRA. So, the only reason we could count on those 
trust funds not being available is if the government defaulted 
on paying itself.
    Ms. BOVBJERG. I don't like to think about that, but yes.
    Mr. BECERRA. So, it is a strange notion to consider, but 
how do you default if it is a payment to yourself unless we are 
in essence saying the Government of the United States of 
America no longer exists? So, unless you believe that the 
United States is going to crumble in the next couple of 
decades, then you would have to expect that we are going to 
live up to our promises and our guarantees through these--to 
repayment when these Treasury bonds are redeemed.
    Ms. BOVBJERG. That is correct, and I think that much of 
what we talk about at GAO is just the difficulty of doing that, 
the fiscal and economic difficulty.
    Mr. BECERRA. Right. That is what I want to get to next, the 
fiscal difficulty in getting there, because ultimately the 
money has to come from somewhere. There is no money tree that 
will solve our problems. So, today, as we run the largest 
deficits in the Federal Government's operating budget--not in 
Social Security, but in its operating budget--in our history, 
at the same time that the Social Security system is actually 
accruing the largest surpluses in its history, we have a total 
difference in accounting. Social Security today is running 
surpluses. Today, the Bush Administration is running the 
largest deficits ever. The Bush Administration is taking the 
Social Security moneys that are in surplus to the tune of about 
$170 billion this year and using it to help cover the size of 
its deficit, and by spending it for things that have nothing to 
do with Social Security. Yet, in the future we know we are 
going to have to repay Social Security for those moneys that 
the Bush Administration is using today.
    So, we are in a fiscal crisis, and I would think that what 
we would be trying to do is get our fiscal house in order 
today, not in 20, 30, 40, or 50 years, but today, in order to 
make sure that we don't cause Social Security further problems 
that had nothing to do with Social Security itself, but the 
inability of the Federal Government or the Administration to 
wisely budget its moneys today.
    Ms. BOVBJERG. Also, that we are prepared for the coming 
obligations in health, which will overshadow Social Security.
    Mr. BECERRA. Thank you. I yield back, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Becerra. Mr. Lewis?
    Mr. LEWIS. Thank you, Mr. Chairman. Those future 
liabilities, those future obligations, if we do not solve the 
problem now, Social Security in 2041, benefits will be cut by 
26 percent. That is just the reality. To meet the future 
obligations, the full faith and credit of the United States 
Government will have to get the money from somewhere. Where 
will they get the money to pay those IOUs in the future? 
Wouldn't Congress have to increase taxes or cut benefits?
    Ms. BOVBJERG. Or borrow.
    Mr. LEWIS. Or borrow.
    Ms. BOVBJERG. Or reduce spending in other programs, but 
yes, it would have to take some action.
    Mr. LEWIS. Yes. Mr. Walker said to us a few weeks ago that 
the gap is getting larger year by year on all the unfunded 
liabilities and debt, and I think he said something like $46 
trillion. Is that correct?
    Ms. BOVBJERG. I am not sure exactly what number he used for 
that. We are getting into fiscal policy, which is not my area. 
I do know that when we talk about 21st century challenges, and 
when we have looked out to the future, when you pull all of the 
commitments and the public priorities together, that it is a 
staggering number.
    Mr. LEWIS. If you look at local, State, and the Federal 
Government combined, I think you said something in the 
fifties--$53 trillion, something like that. You have got great 
charts in here, and it shows Social Security just taking a 
dramatic plunge. This is reality. We just cannot stick our head 
in the sand and think these things are going to go away. Mr. 
Walker said that we needed to do something about it today, 
right now. We cannot put it off to try to solve it sometime in 
the future. I think if we care anything about our kids, our 
grandkids, and future generations, and about this country, then 
we do not have a choice to sit here and fuss back and forth 
about whether we need to do something or not, or how we are 
going to do it. We just need to bring everything to the table. 
My description about building a house, well, it seems to me 
like the Social Security house is built on the sand at this 
point.
    When you had 40-some people paying for one person on 
retirement, great deal. The chain has come to an end now where 
we are down to three people working for one, and it is going to 
be two about the time my kids--grandkids come into their own. 
So, if that isn't building your house on the sand, I don't know 
what is. I am not saying that the stock market is building your 
house on a rock. I am saying we have got to come up with ideas, 
we have got to come up with a way to put this on a solid 
foundation, and do it as soon as we possibly can. One way that 
we can look at doing that is personal accounts, or however you 
want to describe them, retirement accounts, private accounts, 
whatever. If that will provide, through compound interest, more 
funding for our kids and grandkids and future generations and 
save Social Security, then put it on the table, and let's look 
at it. Just saying we just cannot go there is putting aside 
something that may have a real opportunity to save this 
country, and this program, and future generations from some 
really tragic consequences. Thank you.
    Ms. BOVBJERG. Mr. Lewis, if I could just jump in for a 
minute, we have long said that it is really important to act 
sooner rather than later, and just an illustration of sooner, 
the Social Security surplus, the cash surplus, is going to 
start to get smaller. It is not that it is going to go away, 
but it is going to start to get smaller in a very few years 
when the boomers, the front end of the boomers start to retire. 
Just fiscally it will be harder to make that change if we wait 
much longer.
    Mr. LEWIS. Absolutely. Thank you.
    Chairman MCCRERY. Thank you, Mr. Lewis. Ms. Tubbs Jones?
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Thank you, ma'am, 
for coming before the Committee. From all that I have read and 
heard, it is clear that we can talk about private accounts all 
we want to, but private accounts alone will not cure the 
insolvency of Social Security. Is that a fact?
    Ms. BOVBJERG. We have testified to that. I will say in 
saying that, I would also urge you to look at these things not 
piece by piece, but as a package.
    Ms. TUBBS JONES. The fact is that my colleague, Mr. Lewis, 
just said that private accounts--allowing the opportunity to 
invest in the market could cure the problem that we are facing 
in Social Security, and the fact is private accounts alone will 
not cure the insolvency of Social Security. You agree with 
that?
    Ms. BOVBJERG. Not by themselves. They have the potential to 
make----
    Ms. TUBBS JONES. That was my question, ma'am.
    Ms. BOVBJERG. It more stable.
    Ms. TUBBS JONES. Private accounts alone will not cure the 
insolvency of Social Security.
    Ms. BOVBJERG. That is correct.
    Ms. TUBBS JONES. Thank you. The booklet, this is produced 
by GAO, a nice little booklet. You produced it today?
    Ms. BOVBJERG. We got it from the printer this morning.
    Ms. TUBBS JONES. You got it from the printer this morning.
    Ms. BOVBJERG. We have been working on this for some time.
    Ms. TUBBS JONES. We have been working--okay. Let me turn to 
a couple pages in the booklet. I highlighted it. I passed it--
oh, here we go. Changing benefits, page 37. One of the ways to 
change the benefits formula, one of them, it says, is indexing 
the lifetime earnings used in the formula by prices instead of 
wages. If you go further down, it says indexing to prices 
rather than wages commonly implemented by modifying the 
replacement percentages with reduced benefits. Fact?
    Ms. BOVBJERG. Yes.
    Ms. TUBBS JONES. Going further down, indexing the benefit 
formula to reflect improvements in longevity, indexing benefits 
to such improvements in longevity would be similar to 
increasing the full retirement age, as workers would have to 
retire at an older age to get the same benefit they would under 
current formula, and would result in a proportional benefit 
reduction across all earning levels.
    Ms. BOVBJERG. Correct.
    Ms. TUBBS JONES. There has been a lot of discussion about 
changing how we compute the benefits, but the fact is, moving 
from wage indexing to price indexing is going to force 
everybody's benefit down, is going to reduce it unless you do 
some of this tricky math called progressive indexing, right?
    Ms. BOVBJERG. Compared to current law, compared to what 
is----
    Ms. TUBBS JONES. Yes, exactly.
    Ms. BOVBJERG. Promised.
    Ms. TUBBS JONES. Well, all we can do--when we say reduce, 
we are going to by what we have--excuse me. Maybe that is not--
that is presumptive of me. Compared to current law, the 
benefits would be reduced using these formulas.
    Ms. BOVBJERG. Yes.
    Ms. TUBBS JONES. How do we get these for our constituents? 
We just call and ask?
    Ms. BOVBJERG. Absolutely.
    Ms. TUBBS JONES. So, there are millions available to the 
American public?
    Ms. BOVBJERG. Our budget is not such that they would let me 
print millions. I had to beg and plead to get some today. We do 
have a fair number.
    Ms. TUBBS JONES. Who is your----
    Ms. BOVBJERG. There will be bunches of them coming to this 
Committee, in particular.
    Ms. TUBBS JONES. Okay. So, I do not have to put in my 
request for a few.
    Ms. BOVBJERG. No, and if you do not get your copies, please 
have your staff call me. I will make sure that you----
    Ms. TUBBS JONES. That number is? No, I am kidding.
    [Laughter.]
    Ms. BOVBJERG. I will tell you later.
    Ms. TUBBS JONES. In any of the research that you have done, 
can you tell me if there is any--and I did not have a chance to 
look through this, issues with regard to gender in here? Are 
there issues--not issues. Information with regard to gender, 
any information with regard to race?
    Ms. BOVBJERG. Well, we have done a lot of work on that.
    Ms. CACKLEY. We have done work on both of those issues, but 
I cannot tell you offhand whether it is in a book. We don't 
think so.
    Ms. TUBBS JONES. We don't think so, okay. Would you forward 
me some of that?
    Ms. CACKLEY. I would be happy to.
    Ms. TUBBS JONES. Thanks. Mr. Chairman, I am yielding back 
my 2 seconds.
    Chairman MCCRERY. I thank the gentlelady. Mr. Brady?
    Mr. BRADY. Mr. Chairman, I always appreciate Ms. Bovbjerg's 
testimony, but just in the interest of time for the next panel, 
I will pass. Thank you for being here.
    Chairman MCCRERY. Thank you, Mr. Brady. Mr. Neal?
    Mr. NEAL. Thank you, Mr. Chairman. In the interest of time, 
I won't pass.
    [Laughter.]
    Thank you very much, Mr. Chairman. Mr. Hulshof quoted 
Gerald Ford, a well-regarded, highly respected figure here, and 
our staff has been able to get an exceptional quote from 
President Eisenhower, a revered figure as well in American 
history. He suggested that should any political party attempt 
to abolish Social Security, unemployment insurance, and 
eliminate labor laws and farm programs, you would not hear of 
that political party again. There is a tiny splinter group, of 
course, that believes you can do these things, and among them 
are a few Texas oil millionaires and an occasional politician 
or businessman from other areas. Their number, of course, is 
negligible and, as President Eisenhower noted, quote, ``They're 
stupid.''
    I thought that was interesting that Mr. Hulshof drew a 
quote from, again, another highly regarded figure, President 
Ford, and we will offer this one for the record as well. I 
appreciate your testimony, but let's go back to this notion of 
survivor benefits and the most vulnerable. Let me follow on a 
train of questions that I began with the previous witness.
    [The information follows:]
                    Quote from Dwight D. Eisenhower:
    Should any political party attempt to abolish Social Security, 
unemployment insurance, and eliminate labor laws and farm programs, you 
would not hear of that party again in our political history. There is a 
tiny splinter group, of course, that believes you can do these things. 
Among them are H. L. Hunt (you possibly know his background), a few 
other Texas oil millionaires, and an occasional politician or 
businessman from other areas.5 Their number is negligible and they are 
stupid.

                                 

    Ms. Barnhart testified that there are two million children 
who receive survivor benefits, and that she could not guarantee 
that those benefits would remain stable for minor children who 
qualified for Social Security or survivor benefits because of a 
parent's death. Let me talk hypothetically for a moment about 
what would happen to these children if, as the President's 
chief economic adviser suggested, their benefits would be 
subject to the President's middle-class benefit cut. Under the 
current system, if a 30-year-old man dies leaving 3 minor 
children, his widow and each of the minor children are 
guaranteed an indexed dollar sum every month. Isn't that the 
case?
    Ms. BOVBJERG. Yes, it is.
    Mr. NEAL. Okay. Now, can we guarantee, even though that 
benefit would grow with the economy, that under the President's 
plan, that benefit would remain guaranteed?
    Ms. BOVBJERG. I haven't seen anything in a Presidential 
proposal that addresses survivor or disability, really, very 
directly.
    Mr. NEAL. Okay. The President's plan tries to sell a 
tradeoff. In exchange for a private account, people must accept 
a large benefit cut and pay a privatization tax out of the 
proceeds of that account. My thought is that this approach is a 
double hit to survivors. They have to deal with a benefit cut, 
and they are expected to get along at a private account that 
has not necessarily grown very big. A 30-year-old worker who 
dies wouldn't have had many years to contribute to his account. 
The principal would be small, and it wouldn't have grown much 
from interest as a result. What would happen to the children of 
this young 30-year-old worker who dies?
    Ms. BOVBJERG. Well, that is similar to a situation with 
someone who is disabled early in their working life. You could 
have that situation. When we looked at the Model Two, the 
Commission's Model Two proposal, what we discovered was that 
disabled beneficiaries were gaining from the minimum benefit 
that was part of that proposal. However, I understand that the 
Commission had said they did not intend to affect disability 
benefits. As I believe someone here said earlier in this 
hearing, any change to retirement benefits necessarily affects 
disability and survivor benefits. So, you would need to do 
something explicitly to protect those populations if that was 
your intent.
    Mr. NEAL. Thank you, but the point that I am trying to 
raise is that there is no guarantee that these children will 
have enough support from that private account to see them 
through adulthood, is there?
    Ms. BOVBJERG. I can't say yes or no because I haven't seen 
a proposal. I don't want to say that there is no guarantee when 
I haven't seen that there is a proposal.
    Mr. NEAL. I think part of the argument that we have here 
today--and I hope this is clarifying for the public--is that we 
really are talking about rolling the dice as opposed to the 
guaranteed benefit. When you zero in on the respective 
arguments that Members of the Committee are making, that is 
what it really comes down to--the guarantee that the current 
system provides versus what an alternative system might 
provide. That is the problem in this debate. Thank you very 
much.
    Chairman MCCRERY. Thank you, Mr. Neal. Mr. Ryan?
    Mr. RYAN. I unfortunately will not pass. I won't use my 
full 5 minutes in the interest of time, but I wanted to go 
through and just try and correct for the record a couple of 
things that have been said. First, I just want to point out, 
this is a great book, but on page 58 you have some printing 
errors, so, you may want to check that out. Maybe it is just my 
copy, but I just wanted to point that out. You may want to look 
at that.
    Mr. NEAL. It is just your copy.
    Mr. RYAN. Just my copy, then, okay. I will show it to you a 
little later. Okay. You said to Mrs. Tubbs Jones that personal 
accounts do not in and of themselves help achieve solvency. Do 
you stand by that quote?
    Ms. BOVBJERG. I do, by themselves.
    Mr. RYAN. Do they help achieve solvency?
    Ms. BOVBJERG. That is sort of a technical--I see that as 
sort of a technical response. It depends on what else is around 
them.
    Mr. RYAN. I don't know if you have taken a look at the plan 
that I introduced with Senator Sununu, which has been scored 
officially by the Chief Actuary of the SSA three times now, and 
that is a large personal account bill with no benefit change, 
no tax increase, which three times they have scored as 
achieving full solvency. So, you can look at medium-sized 
accounts, small accounts, which do contribute to solvency 
because of the benefit offset, but large personal retirement 
accounts, which now, according to the Social Security Chief 
Actuary, who three times told us that the accounts, in and of 
themselves do restore solvency.
    Mr. POMEROY. Will the gentleman yield?
    Mr. RYAN. Sure.
    Mr. POMEROY. A quick question. It is my understanding that 
you got that score because you make provision for infusion into 
the Social Security program of revenues from the general fund.
    Mr. RYAN. Oh, yes. Yes, yes.
    Mr. POMEROY. It is indeed that provision that got you that 
score.
    Mr. RYAN. No. That gets you the transition financing. It is 
the benefit offset that brings you into solvency. Let me just--
it goes to the issue Mr. Neal was talking about, which is--and 
this is the question. I am getting to a question. If I, as a 
35-year-old worker decide to have a personal retirement 
account, and I put a portion of my payroll taxes in that 
account, I don't get a traditional benefit based on those 
dollars that go into my personal retirement account because I 
am going to get it from my personal retirement account. If I 
got that traditional benefit and my personal retirement 
account, I would be double-dipping. I would be getting two 
benefits for the price of one. Double-dipping is wrong, because 
it would not be right for a person to get two benefits for the 
price of one, and I will instead get that portion of my Social 
Security benefit from my personal retirement account based upon 
those dollars from my payroll tax that go into that account. I 
forego that traditional benefit and, therefore, Social Security 
is off the hook to pay me that traditional benefit. It is that 
benefit offset which helps bring the system into solvency. If 
the accounts are large enough, the benefit offset is even 
larger, which brings the system into solvency.
    Now, for me as a 35-year-old, all I have to do is beat 1 
percent, because that is what my generation is going to get 
under Social Security, if Social Security could meet the 
promises that it is promising me, which right now it is about 
$4 trillion shy in doing. For my children to beat their 
benefit, they would have to beat a negative 1-percent rate of 
return. So, the point I am making is----
    Mr. NEAL. Would the gentleman yield?
    Mr. RYAN. Sure.
    Mr. NEAL. Didn't the gentleman receive survivor benefits?
    Mr. RYAN. Yes, I actually did receive survivor benefits.
    Mr. NEAL. Then you already beat the system.
    Mr. RYAN. Yes, well, okay. Thank you. The gentleman is 
referring to my personal situation.
    Mr. NEAL. Mine as well, and Mr. Brady's as well.
    Mr. RYAN. I am going to reclaim my time. My dad passed away 
when I was 16. I did get survivor benefits. It helped me pay 
for college. It helped my mom go back and learn a trade to go 
back to work and start a business. My mom was given a choice 
when my dad died. She was given a choice of either get the 
benefit based upon the payroll taxes she had paid all those 
years she worked or the benefit based on the taxes my dad paid, 
not both. She got a $250 death benefit, and then she had to 
forego all those payroll taxes she paid into the system when 
she worked and then get my dad's benefit. Under a personal 
retirement account, not only would my mom be able to keep all 
those payroll taxes she put into the system, she would get my 
dad's personal retirement account on top of it. So, I think 
there are a lot of inequities in the system that are addressed 
with this kind of an idea, but the notion, or the statement 
that personal retirement accounts do not help contribute to 
solvency, or in my bill's case, do not achieve solvency, is a 
false notion. I just wanted to ask you to respond to that.
    Ms. BOVBJERG. Well, I would like to say that we see a 
number of proposals that are scored--I know that your proposal 
has been scored as achieving solvency, Mr. Shaw's proposal has 
been scored as achieving solvency, that have individual 
accounts in them. There are other provisions such as, as you 
mentioned, the benefit offset. That is why I said it is kind of 
a technical point that the account itself does not achieve 
solvency.
    Mr. RYAN. That is right. I just want to make sure we clear 
that up. The account itself, but if combined with the benefit 
offset that prevents double-dipping, can therefore, contribute 
toward solvency.
    Ms. BOVBJERG. That is why we do urge that people look at 
the entire comprehensive proposal, look at how everything fits 
together.
    Mr. RYAN. Right. Thank you. I yield.
    Chairman MCCRERY. Thank you, Mr. Ryan.
    Ms. BOVBJERG. May I just add?
    Chairman MCCRERY. Certainly.
    Ms. BOVBJERG. My very-on-top-of-it-staff point out that my 
phone number is on page two in here. I know I am going to 
regret pointing this out. So, anytime you want more copies of 
this, we are there.
    Chairman MCCRERY. Okay. Thank you very much.
    Ms. BOVBJERG. We will get them to you.
    Chairman MCCRERY. Ms. Bovbjerg and Ms. Cackley, for your 
contribution to today's hearing. We appreciate your being here.
    Ms. BOVBJERG. Thank you.
    Ms. CACKLEY. Thank you.
    Chairman MCCRERY. Now we call our final panel of the 
hearing: Carrie Lukas, Director of Policy, Independent Women's 
Forum; Marty Ford, Co-Chair of the Social Security Task Force, 
Consortium for Citizens with Disabilities; Michael Tanner, 
Director, the Cato Institute's Project on Social Security 
Choice; Maya Rockeymoore, Vice President of Research and 
Programs, Congressional Black Caucus Foundation; Nancy Duff 
Campbell, Co-President, National Women's Law Center. If you all 
would please take your seats. Welcome everybody. I think you 
know the procedure. Your written testimony will be inserted 
into the record in its entirety, and we would like for you to 
summarize your written testimony in about 5 minutes each. So, 
we will begin with Ms. Lukas.

 STATEMENT OF CARRIE L. LUKAS, DIRECTOR OF POLICY, INDEPENDENT 
                         WOMEN'S FORUM

    Ms. LUKAS. Thank you. Mr. Chairman, distinguished Members 
of this Committee, thank you for inviting me to appear before 
you today to testify on an issue so critical to our country's 
future. My name is Carrie Lukas, and I am the Director of 
Policy at the Independent Women's Forum, a nonprofit 
organization dedicated to exploring how public policy can give 
women greater freedom, independence, and economic security. I 
first began studying Social Security's looming financial 
problems and its impact on women in 1997, when I arrived in 
Washington at age 24. I realized then that all women--from 
those in retirement to those just beginning their careers--have 
a great deal at stake in the Social Security reform debate.
    Today, when I think about Social Security and its effects 
on women, I have one woman in particular in mind. In September, 
my husband and I will be blessed with our first child, and we 
just found out that we are having a baby girl.
    When I think about the challenges facing Social Security 
and how Congress should be evaluating reform proposals, I 
believe it is critical that we focus on creating a system that 
will serve the next generation.
    I believe there will be universal agreement on this panel 
that as we reform Social Security, we need to make certain that 
the new system preserves Social Security's promise and protects 
the most vulnerable members of society--many of whom are women. 
Clearly, that requires protecting the benefits of current 
seniors and those approaching retirement. It also means that we 
should protect the benefits of low-income workers so that 
Social Security fulfills its promise of keeping seniors out of 
poverty. I believe we also need to think seriously not just 
about how the system will affect those of us working today, but 
the workers of tomorrow. What kind of Social Security system do 
we want to endow to my daughter and her peers entering the 
world in 2005?
    For those children, Social Security's financial crisis is 
not something that can be shrugged off as occurring in a 
distant future. It will be a reality they face throughout their 
lives. Social Security will be running a deficit before my 
little girl finishes grade school. If nothing is done to 
address Social Security's shortfall, by the time my daughter 
graduates from college, she will not only lose 12.4 percent of 
her income to payroll taxes, but a portion of her income taxes 
also will have to be used to prop up Social Security as well. 
Well before my daughter reaches retirement, Social Security 
will be unable to meet its present obligations, and her 
retirement benefits will be slashed. We must do better for our 
children. In my submitted testimony I highlight some of the 
pitfalls of the existing system that particularly affect women.
    In brief, Social Security's benefit structure penalizes the 
decisions of some women while rewarding others. Women whose 
marriages last for 10 years have no right to the benefits 
accrued by their husbands during their marriage, which means 
that many divorced women have to start from square one in 
saving for retirement. Married women receive no additional 
benefits for their payroll taxes, which may deter some from 
entering the workforce. Single mothers who work all of their 
lives but die before reaching 65 cannot pass on any of their 
Social Security benefits to their adult children. All of these 
inequities are the result of Social Security's lack of 
ownership. None of the money paid into the system by these 
women and their family members is saved for their retirement. 
This needs to change. Incorporating a system of personal 
accounts into Social Security is the key ingredient for making 
the system more financially sound and addressing the existing 
inequities in the current system for women. Personal accounts 
would put women on more equal footing. Those women who choose 
to work would be putting money away for their retirement. If 
they take time out of the workforce, their personal accounts 
would continue to accrue in value.
    Personal accounts would be an individual's private 
property. Therefore, in the event of divorce, the personal 
account could be divided equally between the husband and wife 
during settlement, just like all other assets. Personal 
accounts would also be inheritable. That single mother who has 
been paying payroll taxes all her life would know that if she 
dies before reaching retirement, her adult children would 
receive the benefit of her lifetime of labor. Personal accounts 
would also give women the opportunity to earn a higher rate of 
return on their income, which is particularly important for 
women since we are less likely than men to have jobs that 
provide other retirement savings options, like 401(k)s or 
corporate pensions.
    Incorporating a system of personal accounts into Social 
Security would not require eliminating guaranteed benefits from 
the system. In fact, reform proposals such as the President's 
proposal to use progressive indexing to reduce Social 
Security's unfunded liability would strengthen the safety net 
compared to current law by ensuring that low-income Americans 
would not have their benefits cut in the future.
    I urge Congress to act immediately to reform our Social 
Security program. I believe American women deserve greater 
control over their retirement dollars and more choice when it 
comes to Social Security. The combination of personal 
retirement accounts and progressive indexing will create a 
better, stronger, and fairer Social Security system for women.
    Finally, these reforms are critical to easing the burden on 
future generations. This is something that is too often 
overlooked when we talk about Social Security reform and women. 
Most women's top priority is making sure that their children 
have more opportunities than they do. Social Security should be 
no exception. We cannot simply push tough choices down the road 
and leave our children with a mountain of debt and a crushing 
tax burden through our Social Security program. We should act 
now to create a funded, fairer Social Security system and a 
better future for the next generation. I thank you and look 
forward to your questions.
    [The prepared statement of Ms. Lukas follows:]
 Statement of Carrie L. Lukas, Director of Policy, Independent Women's 
                                 Forum
    Mr. Chairman and distinguished Members of this Committee, I thank 
you for inviting me to appear before you today, to testify on an issue 
so critical to our country's future. I am thrilled that this Committee 
is holding this hearing to consider Social Security's effects on women.
    My name is Carrie Lukas and I am the director of policy for the 
Independent Women's Forum, a nonprofit organization dedicated to 
exploring how public policy can give women greater freedom, 
independence, and economic security. I first began studying Social 
Security's looming financial problems and its impact on women in 1997, 
when I arrived in Washington at age 24. I realized that all women--from 
those in retirement to those just beginning their careers--have a great 
deal at stake in the Social Security reform debate.
    But today, when I think about Social Security and its effects on 
women, I have one woman in particular in mind. In September, my husband 
and I will be blessed with the birth of our first child, and we just 
found out that we are having a baby girl.
    When I think about the challenges facing Social Security and how 
Congress should be evaluating reform proposals, I believe it's critical 
that we focus on creating a system that will serve the next generation.
    I believe there will be universal agreement on this panel that as 
we reform Social Security, we need to make certain that the new system 
preserves Social Security's promise and protects the most vulnerable 
members of society--most of whom are women. Clearly that requires 
protecting the benefits of current seniors and those approaching 
retirement. It also means that we should protect the benefits of low-
income workers so that Social Security fulfills its promise of keeping 
seniors out of poverty.
    But I believe that we also need to think seriously not just about 
how the system will affect those of us working today, but the workers 
of tomorrow. What kind of Social Security system do we want to endow to 
my daughter and her peers entering the world in 2005?
    For those children, Social Security's financial crisis is not 
something that can be shrugged off as occurring in a distant future--it 
will be a reality they face throughout their lives. Social Security 
will be running a deficit before my little girl finishes grade school. 
If nothing is done to address Social Security's shortfall, by the time 
my daughter graduates from college, she will not only lose 12.4 percent 
of her income to payroll taxes, but a portion of her income taxes will 
also have to be used for Social Security. And well before my daughter 
reaches retirement, Social Security will be unable to meet its present 
obligations and her retirement benefits will be slashed.
    We must do better for our children. So today I will discuss some of 
the problems with the current system--in particular its disparate 
affect on women--and how incorporating personal retirement accounts 
into Social Security can address existing inequities, move us closer to 
solvency, and create a better, fairer system for future generations of 
women.
Problems in the Current System for Women
    Social Security was designed at a time when few women were working 
outside of the home. It was designed to meet the needs of traditional 
families--a working husband and a full-time homemaker.
    Great changes have taken place during the seventy years since 
Social Security's creation. Today, most women are working outside of 
the home. Many women--with or without children--never marry, and 
divorce has become more prevalent among those who do, putting many 
women at risk of economic hardship. Unfortunately, Social Security's 
structure hasn't been updated to reflect the changing times.
    Today, women take on many roles. We are homemakers; we are workers; 
we are the caretakers of elderly family members; we are spouses; we are 
single earners; and sadly, we are also widows. Women will take on many 
of these roles during their lives, and often must make difficult 
choices about what's best for themselves and their families. It is an 
important principle in public policy that individuals should be free to 
make these personal decisions without government interference. 
Unfortunately, under the current system, Social Security penalizes some 
women for their choices while rewarding others. When considering 
reforms to Social Security, it should be a goal to treat all women 
equally.
    Under the current system, women either receive benefits based on 
their own work history or as a result of their husbands' work history. 
A woman who never joins the formal workforce and pays no Social 
Security taxes will receive benefits worth 50 percent of her husband's 
monthly benefit at retirement. A married woman who works will receive 
the higher of either half of her husband's benefits or a payment based 
on her own work history. That means that many married women who join 
the workforce receive no additional benefit for the taxes they pay into 
the system.
    This is unfair to working women and distorts the decision of 
whether to enter the workforce in the first place. A married woman 
already faces high marginal tax rates because her income is combined 
with her husband's for tax purposes. If she expects to receive no 
additional retirement benefits from the taxes deducted from her 
paycheck, then she may be further discouraged from taking a job.
    Social Security also includes some very serious drawbacks for the 
stay-at-home mom. Consider the situation of a stay-at-home mom who ends 
up divorced. This woman agreed to forgo earning her own income in order 
to raise children while her husband worked. But if she gets divorced 
after having been married for less than 10 years, that woman has no 
right to any portion of the retirement benefits that her husband 
accrued while they were married. This means that many divorced women 
are forced to start from square one when saving for retirement.
    Many single women also face problems under Social Security. 
Consider a 60-year old single-mom who has been working all of her life 
to raise her children. In addition to struggling to provide for her 
family's needs, she has been paying taxes to Social Security. If she 
dies at age 60 and her children are over age eighteen, according to 
Social Security's rules, her family will receive a paltry $255 death 
benefit. Her years of work and thousands dollars in taxes paid will 
have been for nothing. This example is not an aberration: U.S. Census 
Bureau data shows that, each year, tens of thousands of single women 
between the ages of 24 and 64 die.
    All of these inequities are the result of Social Security's lack of 
ownership. None of the money paid into the system by these women and 
their family members is saved for their retirement. This needs to be 
changed.
Future Funding Shortfall
    The final problem I would like to highlight is that the current 
system is not only unfunded, it is unsustainable.
    Opponents of reform correctly emphasize that women are more 
dependent on Social Security than are men. However, because they offer 
no real solutions to the funding problems ahead, they leave women at an 
even a greater risk of poverty than today. In fact, a Social Security 
Administration study showed that if nothing is done to fix looming 
problems, the poverty rate of our elderly will double! Doing nothing 
simply is not an option.
    The reasons are obvious: If nothing is done to address Social 
Security's financial problems, it will begin running a deficit in just 
over 10 years. At that time, Social Security will require significant 
infusions of additional revenue, which means that the government will 
either have to raise taxes or cut spending on other programs. By the 
time that I am getting ready to retire in 2040, Social Security will 
only have enough money coming in to pay about three-quarters of the 
benefits that I have been promised. That means that either my benefits 
will have to be slashed or my daughter--who will likely be working to 
raise a daughter of her own by that time--will face a skyrocketing tax 
burden.
    I urge Congress to act now to put Social Security on firm financial 
footing, so that men and women have time to prepare for the changes 
that must take place. In reforming Social Security, Congress should 
address the inequities in the existing benefit structure so that it 
treats women, regardless of the roles they take on during their lives, 
more fairly.
The Benefits of Personal Retirement Accounts
    Incorporating a system of personal retirement accounts into Social 
Security is the key ingredient for achieving all of these goals--for 
making the system more financially sound and addressing the inequities 
in the current system for women.
    Personal accounts would put women on more equal footing. Those 
women who choose to work would be putting more away for retirement. 
Those who choose to stay at home would still be earning interest on the 
money they previously invested, and a woman would know that if and when 
she chooses to return to the workforce, she won't just be throwing her 
payroll taxes away.
    Personal accounts would be an individual's private property. 
Therefore, in the event of divorce, the personal account could be 
divided equally between the husband and wife during settlement, just 
like all other assets. Personal accounts also would be inheritable. 
That single mother who has been paying payroll taxes all her life would 
know that if she dies before reaching retirement, her adult children 
will receive the benefit of her lifetime of labor. They could use that 
money to go to college or to start a business.
    Personal accounts would also give women the opportunity to earn a 
higher rate of return on their income, which is particularly important 
since women are less likely than men to have jobs that provide 
retirement savings options, such as corporate pensions or 401(k)s.
    Opponents of personal retirement accounts often dismiss the 
importance of achieving higher rates of return and emphasize the 
``risk'' associated with investing in the market. But none of these 
opponents--and I would assume no one in this room--actually believes 
that people should avoid investing in a sound mix of assets, including 
stocks and bonds.
    So if there is general agreement that saving and investing is an 
important part of retirement planning, then the real debate is simply 
whether individuals should have the choice to use some of this money--
their payroll taxes--to fund personal retirement accounts. Those who 
don't want people to use payroll taxes want individuals to come up with 
other money and invest that for retirement.
    Women tend to be the household money managers; we know just how 
difficult it can be to make ends meet. This is particularly true for 
lower income women. They are paying for housing and food. They are 
paying for healthcare. And, they may be trying to put money away for a 
child's future college education. After paying taxes, it's nearly 
impossible for these women to scrape up extra money that can go into a 
retirement fund.
    That's why using current payroll taxes to fund personal retirement 
accounts is so important. Workers already lose nearly 1 in every 8 
dollars they earn to Social Security. Why should we tell that cash-
strapped working mom to cut something else out of her budget so that 
she can put more away for retirement? It's time to let her make the 
most of the money that is already supposed to be dedicated to her 
retirement--her payroll taxes.
Preserving Social Security's Promise for Vulnerable Americans
    Incorporating a system of personal retirement accounts into Social 
Security would not require eliminating guaranteed benefits from the 
system. In fact, reform proposals being discussed would strengthen the 
safety net compared to current law by ensuring that lower income 
Americans will not have their benefits cut in the future.
    Under the President's proposal to use progressive indexing to 
reduce Social Security's unfunded liability, low-income Americans would 
be protected from the benefit cuts scheduled under current law. It 
would ensure that all Americans would receive benefits equal to or 
greater than the benefits received by today's seniors, even after 
adjusting for inflation. However, this proposal would recognize that 
the government cannot pay all of the benefits that have been promised 
and would make gradual adjustments to reduce Social Security's 
liabilities in a manner that is equitable and gives individuals time to 
adjust their retirement savings plans accordingly.
Conclusion
    In our society, a woman has the right to choose where to live, whom 
to marry, whether or not to have children, and how to protect herself 
and her family from very real threats that exist in our country today. 
Women also should be able to decide for ourselves whether we want to 
keep putting all of our money into Social Security, or keep a portion 
of it in an account that we own and can watch grow.
    I believe American women deserve greater control over their 
retirement dollars and more choice when it comes to Social Security. 
The combination of personal retirement accounts and progressive 
indexing will create a better, stronger, and fairer Social Security 
system for women. Among the many benefits of this proposal is that it 
will:

      Protect the benefits of current retirees;
      Improve the safety net for low-income Americans, who are 
disproportionately women, compared to current law;
      Make the system more equitable in its treatment of women; 
and,
      Create inheritable assets for all Americans who choose 
personal accounts.

    Finally, these reforms are critical to easing the burden on future 
generations. This is something too often overlooked when we talk about 
Social Security and women. Most women's top priority is making sure 
that our children have more opportunities than we do. Social Security 
should be no exception. We cannot simply push tough choices down the 
road and leave our children with a mountain of debt and a crushing tax 
burden. We should act now to create a funded, fairer Social Security 
system and a brighter future for the next generation.

                                 

    Chairman MCCRERY. Thank you, Ms. Lukas. I would urge you 
not to paint the room pink just yet.
    [Laughter.]
    Ms. LUKAS. You never know.
    Chairman MCCRERY. Our second boy was supposed to be a girl, 
so, I would hold off on that until a little later.
    Ms. LUKAS. Thank you.
    Chairman MCCRERY. Ms. Ford?

STATEMENT OF MARTY FORD, CO-CHAIR, SOCIAL SECURITY TASK FORCE, 
           CONSORTIUM FOR CITIZENS WITH DISABILITIES

    Ms. FORD. Thank you. Chairman McCrery, Representative 
Levin, and Members of the Subcommittee, thank you for this 
opportunity to testify on behalf of the Consortium for Citizens 
with Disabilities' Social Security Task Force. The Social 
Security retirement, survivors, and disability programs are 
vitally important to people with disabilities and their 
families. Adults with severe disabilities have a very low 
employment rate. According to a Harris survey, only 35 percent 
of people with disabilities work full-time or part-time, 
compared to 78 percent of those without disabilities.
    Social Security is a very successful insurance program, 
protecting against poverty in retirement, in the event of 
severe disability, and in the event that a family wage earner 
dies. People with disabilities and their families receive 
Social Security benefits from all three programs.
    First, the retirement program covers people who are 
disabled workers when they reach normal retirement age. At that 
point their benefits convert automatically from disability to 
retirement insurance and remain at the same level. Their 
spouses and disabled adult children may also qualify. Others 
with disabilities also receive retirement benefits. This 
includes people who did not meet the strict rules for 
disability insurance, yet are prevented from working regular 
hours because of their health. They earned less, had less 
opportunity to save, and therefore, will have a greater need 
for Social Security retirement benefits in the future. Second, 
the survivors program includes disabled widows and widowers and 
disabled adult children. Finally, the disability program covers 
disabled workers, their children and spouses, and their 
disabled adult children. This is the program that most people 
are referring to when they talk about the disability program. 
Even with Social Security, the poverty rate among disabled 
workers and their families is 18 percent, twice as high as 
other people who get benefits. It is estimated, however, that 
55 percent of families of disabled workers would live in 
poverty without Social Security.
    Certain program elements are common across the three 
programs. The definition of disability is the same for all of 
the programs. The formula for determining individual benefits 
using the primary insurance amount is the same for all three 
programs, including for people with disabilities. People move 
between programs as life circumstances change. Those receiving 
disabled adult child (DAC) benefits are particularly vulnerable 
to changes in the benefits formula, and since they may receive 
benefits from any of the three programs, they illustrate how 
interconnected the programs are. They receive benefits when 
their parent becomes disabled, retires, or dies. While the 
parent is living, the DAC benefit is up to 50 percent of the 
parent's benefit. When the parent dies, the DAC benefit is up 
to 75 percent of the parent's benefit. The size of the parent's 
benefit will affect the disabled adult child's income for life.
    Social Security has a number of critical features that are 
important to meet the needs of people with disabilities and 
their families. They include the guaranteed monthly payment, 
adjusted each year for inflation, and the weighted benefit 
formula, ensuring that people with the lowest incomes are 
protected. Because they are affected by changes to any of the 
three programs, people with disabilities must be considered in 
evaluating all proposals. We believe that any changes should 
follow these principles: keep Social Security's current 
structure based on payroll taxes; preserve Social Security as 
social insurance; guarantee monthly benefits adjusted for 
inflation; preserve Social Security to meet the needs of people 
who are eligible now and in the future; and restore Social 
Security's long-term financial stability.
    We believe it is possible to make the Social Security 
programs more financially secure with modest targeted changes 
over time. We oppose plans that would partially replace Social 
Security's Trust Funds or revenues with individual private 
accounts. We believe they would be harmful to people with 
disabilities who must rely on Social Security for life's 
essentials. The more limited ability of beneficiaries with 
disabilities to work and to save for the future and the reality 
of their higher rates of poverty must be taken into 
consideration in any efforts to change the Social Security 
programs.
    We strongly urge Congress to require a comprehensive 
analysis of the impact that each proposal will have on people 
who receive Social Security now and in the future. There are 
many sub-populations of Social Security beneficiaries. It is 
essential that Congress understand how each will be affected. 
We urge Congress to request a beneficiary impact statement on 
every major proposal under consideration. While we do not 
support private accounts that reduce Social Security benefits, 
there are a number of recommendations that we have for 
improvements to the traditional Social Security program. They 
include eliminating the 24-month Medicare waiting period and 
the 5-month Social Security waiting period, and increasing the 
substantial gainful activity level for people with disabilities 
to that level used for people who are blind. We have other 
recommendations in my written testimony, and I thank you for 
this opportunity to testify.
    [The prepared statement of Ms. Ford follows:]
    Statement of Marty Ford, Co-Chair, Social Security Task Force, 
               Consortium for Citizens with Disabilities
    Chairman McCrery, Representative Levin, and Members of the 
Subcommittee, thank you for this opportunity to testify on protecting 
and strengthening Social Security.
    I am a member of the policy team for The Arc and UCP Disability 
Policy Collaboration, which is a joint effort of The Arc of the United 
States and United Cerebral Palsy. I am testifying here today in my role 
as cochair of the Social Security Task Force of the Consortium for 
Citizens with Disabilities. CCD is a working coalition of national 
consumer, advocacy, provider, and professional organizations working 
together with and on behalf of the 54 million children and adults with 
disabilities and their families living in the United States. The CCD 
Social Security Task Force focuses on disability policy issues in the 
Title II disability programs and the Title XVI Supplemental Security 
Income program.
Importance of the Social Security Programs for People with Disabilities
    The Social Security Old Age, Survivors, and Disability Insurance 
programs are vitally important to people with disabilities. Social 
Security is far more than a retirement program. In fact, more than one-
third of all monthly Social Security checks go to over 17 million 
people who are not retired. They include:

      Almost 6 million disabled workers. To qualify they must 
have a severe disability that is expected to last at least 12 months or 
result in death.
      About 1.6 million minor children of disabled workers.
      About 759,000 disabled adult children. These individuals 
have a severe disability that began before age 22. They qualify when a 
parent becomes disabled, retires or dies. They get benefits from 
different Social Security programs depending on their parent's status.
      Over 200,000 disabled widow(er)s, ages 50 to 65.

    Social Security benefits are critical to people with disabilities 
and their families. People can plan for retirement over many years. But 
disability can affect anyone at any time and often is completely 
unexpected. Disability-related expenses for individuals and families 
can be extraordinary and can have a significant impact on the 
individual's or family's ability to save for the future or the needs of 
other family members.
    Millions of families face disability. Adults with severe 
disabilities have a very low employment rate. According to a 2004 
Harris Survey, only 35 percent of people with disabilities reported 
working full or part time, compared to 78 percent of those who do not 
have disabilities. Disabilities can interfere with the ability to work 
until normal retirement age and the ability to save for a family's 
future. Families of workers who become disabled need a guaranteed 
income.
    We view Social Security as a very successful insurance program. It 
insures people against poverty in retirement years, in the event of 
severe disability during work years, and in the event that a family 
wage earner dies. In fact, people with disabilities and their families 
receive Social Security benefits from all three programs.
    Retirement Insurance: When disabled workers (those receiving 
Disability Insurance benefits) reach normal retirement age, their 
benefits convert automatically from disability to retirement insurance. 
Spouses and disabled adult children (discussed further below) also 
qualify. Other people with disabilities also get retirement insurance. 
Although they did not meet the strict rules for disability insurance, 
their health may have prevented them from working regular hours. As a 
result, they earned less and had fewer chances to save money. Parents 
who must stop working to care for their children with disabilities face 
the same situation of having less income now and a greater need for 
Social Security retirement benefits in the future.
    Survivors Insurance: Individuals who qualify include minor children 
and spouses of workers and retirees who have died; disabled widow(er)s; 
and disabled adult children. For a young family, Social Security 
provides benefits that are equivalent to life insurance worth $400,000.
    Disability Insurance: Individuals who qualify include disabled 
workers, their children and spouses, and disabled adult children. For a 
young worker with a spouse and two children, Social Security provides 
benefits that are equivalent to disability insurance worth $353,000.
Integration of Disability Programs
    As described above, people with disabilities are found throughout 
the Social Security retirement, survivors, and disability programs and 
certain program elements are common across the three programs.
    The Social Security Act establishes that disability means 
``inability to engage in any substantial gainful activity by reason of 
any medically determinable physical or mental impairment which can be 
expected to result in death or which has lasted or can be expected to 
last for a continuous period of not less than 12 months''. In 2005, the 
substantial gainful activity (SGA) level, as established in 
regulations, is $830/month for people with disabilities and $1,380/
month for individuals who are blind. The definition of disability is 
the same for all of the programs.
    The formula for determining individual benefits, using the primary 
insurance amount, is the same for all three programs, including for 
people with disabilities.
    Beneficiaries receiving disabled adult child (DAC) benefits 
illustrate the interconnectedness of the programs and are particularly 
vulnerable to changes in the benefits formula. Individuals qualify for 
disabled adult child benefits if they: have a severe disability that 
began before age 22; are not married (with some exceptions); and are 
unable to earn more than the SGA level. Disabled adult children receive 
benefits when their parent becomes disabled, retires, or dies. Most 
disabled adult children get retirement or survivor insurance, but some 
get disability insurance. While the parent is living (either disabled 
or retired), the DAC benefit equals up to 50 percent of the parent's 
benefit. When the parent has died, the survivor's DAC benefit equals up 
to 75 percent of the parent's benefit. In both cases, the actual 
benefit may be lower, based on the application of the family maximum to 
all of the benefits based on one worker's record. Technically, the DAC 
benefit is paid from the Disability Insurance Trust Fund when the 
parent is drawing disability insurance benefits, while the DAC benefit 
is paid from the Old Age and Survivors Insurance Trust Fund when the 
parent is either retired or deceased.
Important Features of Social Security Benefits
    Current Social Security benefits have a number of critical features 
that are important to meet the needs of people with disabilities and 
their families. They include:
    Guaranteed monthly payment: Once determined eligible, disabled 
workers and their families can expect a set payment each month. Changes 
in the PIA will change not only retirement benefits, but also survivor 
and disability benefits and DAC benefits because they are set by the 
same formula. Reducing the PIA will force more people with disabilities 
further into poverty.
    Adjusted each year for inflation: Annual cost of living adjustments 
(COLAs) protect the value of Social Security benefits. Reducing the 
COLA by even a small amount makes a big difference over time. Also, the 
current benefit formula is tied to the ``wage index.'' A change in that 
formula would affect all categories of beneficiaries.
    Weighted benefit formula: The current benefit structure favors 
workers with lower earnings by using a higher replacement rate for 
lower earnings. This approach is especially helpful for workers with 
disabilities (even those who never qualified for disability insurance 
benefits) because many are only able to work part time, intermittently, 
or at reduced levels.
Social Security Reduces Poverty for Workers with Disabilities & Their 
        Families
    Almost half (48 percent) of families with a disabled worker rely on 
Social Security benefits for half or more of their family income. Close 
to one-fifth (18 percent) rely on benefits for nearly all of their 
income and about 6 percent have no other income besides Social 
Security.
    When workers die, their children get benefits. About 98 percent of 
children who are under age 18 when their parent dies get benefits. The 
survivor's benefit is based on the earnings of the person who died. The 
average monthly benefit in 2005 for a widowed mother with two children 
was $1,979 [$23,748 a year].
    Although Social Security reduces poverty, disabled workers and 
their families still struggle financially. But without Social Security, 
their circumstances would be even worse.
    The poverty rate among disabled workers who receive Social Security 
and their families is twice as high as other people who get benefits. 
However, it is estimated that 55 percent of families of disabled 
workers would live in poverty without Social Security benefits.
Principles for Proposed Changes to Social Security
    Most of the discussions regarding Social Security and its future 
revolve around retirement benefits. However, it is clear that people 
with disabilities also have a major stake in this debate. The CCD 
Social Security Task Force strongly believes that people with 
disabilities have such a major stake in this debate that it is critical 
that their needs be one essential lens through which all proposals are 
evaluated. We believe it is possible to make the Social Security 
programs more secure financially with modest, targeted changes over 20 
to 30 years. We believe that it is not necessary to make any drastic 
changes. Furthermore, any changes should follow these principles:

      Keep Social Security's current structure based on payroll 
taxes.
      Preserve Social Security as a social insurance program 
for everyone who is eligible.
      Guarantee monthly benefits adjusted for inflation.
      Preserve Social Security to meet the needs of people who 
are eligible now and in the future.
      Restore Social Security's long-term financial stability.

    Some of the specific questions that we will ask, and that we ask 
each Member of Congress to ask, about proposed changes include the 
following:

      Does the proposed change ensure a benefit formula that 
does not force more people with disabilities into poverty? A proposal 
to lower the Primary Insurance Amount (PIA) will cut both retirement 
and disability benefits because they are set by the same formula. 
Reducing the PIA will force more people with disabilities further into 
poverty. It is essential to set benefits at adequate levels.
      Does the proposed change provide protection against 
inflation? Social Security benefits are adjusted for inflation to 
protect their value. Reducing the COLA by even a small amount makes a 
big difference over time. Also, the current benefit formula is tied to 
the ``wage index.'' Switching to a formula based on the ``price index'' 
would seriously reduce benefits and the standard-of-living for all 
future beneficiaries, especially over time. It is essential to maintain 
a benefits formula that provides adequate future income.
      Does the proposed change protect disabled adult children 
and other family members with disabilities? It is essential to provide 
adequate income for people with disabilities who depend on workers who 
retire, die, or become disabled. Private disability insurance is not 
the answer. Only about 28 percent of private sector workers had long-
term disability insurance in 2003. Compared to Social Security, 
individually purchased private disability insurance generally is not 
adjusted for inflation, not designed to cover children of disabled 
workers, and not available to workers with disabilities and other 
health problems. For instance, private disability insurance would not 
be affordable for people who would receive DAC benefits.
      Does the proposed change protect the disability insurance 
program from any pressure that would be caused if the retirement age 
were raised? Raising the normal retirement age (NRA) would increase the 
number of older workers who would need to apply for disability 
benefits. Many manual laborers must stop working when they can no 
longer do physical labor and many would have to apply for disability 
benefits if they are not eligible for full retirement benefits at that 
time. It is essential to maintain the important roles of the disability 
and retirement insurance programs.
Individual Private Accounts
    The nature of the OASDI programs as insurance against poverty is 
essential to the protection of people with disabilities. The programs 
are unique in providing benefits to multiple beneficiaries and across 
multiple generations under coverage earned by a single wage earner's 
contributions. Proposals that partially or fully eliminate the current 
sharing of risk and replace it with the risks of private investment 
will be harmful to people with disabilities who must rely on the OASDI 
programs for life's essentials. Diversion of Social Security revenues 
to private investment accounts would shift the risks from the federal 
government, and the larger community of which we are all a part, back 
to the individual. This could have a devastating impact on people with 
disabilities and their families as they try to plan for the future. The 
basic safety nets of retirement, survivors, and disability insurance 
would be substantially limited and individuals, including those with 
limited decisionmaking capacity, would be at the mercy of fluctuations 
in the financial markets.
    The more limited ability of beneficiaries with disabilities to work 
and to save for the future and the reality of their higher rates of 
poverty must be taken into consideration in any efforts to change the 
Social Security programs. We raise several issues that need to be 
addressed if a system of individual private accounts is contemplated. 
They include:

      Does the proposal provide the same level of benefits? 
There is no guarantee that people with private accounts will do better 
than (or even as well as) people who get fixed monthly Social Security 
benefits. In January 2001, the Government Accountability Office [GAO] 
studied several plans to change Social Security. Its report (GAO-01-35) 
concluded that, compared to the current program, people with 
disabilities would get much lower benefits under plans that would use 
payroll taxes to create individual private accounts. In addition, it 
found that disabled retired workers would find it more difficult than 
most non-disabled retired workers to replace lost benefits with other 
sources of income such as earnings.
      Does the proposal provide adequate benefits at retirement 
age? Upon reaching normal retirement age, disabled workers currently 
are switched from disability to retirement benefits. At this point, 
under a private accounts plan, disabled workers could find that they 
have very small private accounts because they were unable to contribute 
earnings and their investments did not grow. Further, if benefits are 
reduced for all beneficiaries, disabled workers who reach retirement 
age will have even less income. Many disabled adult children will have 
very small or no private accounts at retirement age since they have a 
lifelong limited ability to work and save for old age. There is also a 
potential issue regarding the level of benefits at normal retirement 
age for people who have received disability benefits. A new income 
``cliff'' at retirement for disabled workers would be very harmful.
      Does the proposal include protections if annuities and 
disability insurance must be purchased? Some proposals may require 
people to buy an annuity or disability insurance. But when workers die, 
they may have spent their entire private account, leaving nothing for a 
disabled adult child or spouse. A typical annuity does not pass on to 
surviving dependents. Insurance companies typically do not index 
disability policies for inflation, unless that extra coverage is 
purchased, and do not cover family members as Social Security does. And 
generally, people with disabilities or other serious health conditions 
cannot buy private disability insurance.
      Does the proposal minimize risk and address capacity to 
manage accounts? The ability to manage private accounts to make a 
profit in the stock market requires education and money management 
skills. Many people are unable to make wise investment decisions. These 
concerns are even greater for people with cognitive impairments [such 
as mental retardation] or mental illness. Individual private accounts 
remove the shared-risk protection of social insurance. Such accounts 
would greatly increase the personal risk for millions of people, both 
with and without disabilities.
Beneficiary Impact Statement
    The CCD Social Security Task Force is very concerned that the 
various proposals under consideration to include individual accounts in 
Social Security or otherwise make dramatic changes in Social Security 
do not fully comprehend the negative consequences that will result for 
people with disabilities--both workers who become disabled and their 
dependents and those beneficiaries who are disabled and receive their 
benefits on the account of a retired, disabled, or deceased worker 
parent or spouse. We strongly urge the Congress to require that it be 
provided with a comprehensive analysis of the impact each proposal will 
have on people who receive Social Security now and in the future. Just 
as with the required actuarial analysis, Congress should not act on any 
proposal that it does not fully understand--especially with regard to 
whom it helps and whom it hurts. There are many subpopulations of 
Social Security beneficiaries and it is essential that Congress 
understand how each will be affected by each plan it is considering. 
Therefore, we urge that Congress request a beneficiary impact statement 
on every major proposal, or component of a proposal, under serious 
consideration. We urge Members of the Subcommittee to raise these 
issues in Social Security solvency discussions.
Possible Improvements to Social Security
    The CCD Social Security Task Force has a number of recommendations 
for making improvements to the Social Security programs for people with 
disabilities. I will highlight some of these proposals here and we 
would be happy to work with the Subcommittee on these and others.
Social Security and Medicare Waiting Periods
    Ways and Means Committee Chairman Thomas is reported to be 
interested in eliminating the 2-year waiting period for Medicare for 
people who become newly eligible for disability benefits under the 
Title II OASDI programs. This waiting period applies to most people 
receiving Title II disability benefits, including disabled workers and 
disabled adult children. It imposes true hardships on people who, by 
definition, are limited in their ability to earn, have been 
acknowledged to have very serious health problems, and who likely are 
in great need of medical coverage. They must resort to using any 
available resources to pay for medical care at a time when their future 
ability to earn and replenish those resources is in question. Many go 
without care that might have stabilized or even reversed their medical 
condition. We wholeheartedly agree with Chairman Thomas that it is time 
to eliminate the harsh Medicare waiting period. Such an effort has also 
been supported by many Democrats.
    We also urge the Committee and Subcommittee to consider reducing or 
eliminating the 5-month waiting period for Social Security disability 
benefits. People who apply for disability benefits often do so after 
exhausting other alternatives, including attempting to continue working 
despite their disability. By the time they apply for Title II, having 
to wait another 5 months for benefits creates a huge burden and 
additional stress for people who are already struggling financially and 
with their health conditions, are no longer employed, and, in addition 
to themselves, often have a family to support.
Substantial Gainful Activity Level
    We urge that the substantial gainful activity level be raised for 
people who are disabled. As indicated earlier, the SGA level for people 
who are disabled is $830/month, while the level for people who are 
blind is $1,380/month. We believe that there should be no distinction 
made between the two groups of individuals regarding their level of 
work effort and that the level for people who are disabled should be 
increased to $1,380/month.
Work Incentives: Overpayments
    For the success of work incentive provisions, including the Ticket 
to Work program, to be realized, SSA must address its current inability 
to track wages and adjust benefit levels when working beneficiaries 
report earnings. As the system stands now, the chronic problem of 
overpayments to beneficiaries is a major barrier to efforts to assist 
beneficiaries in working or returning to work.
    Overpayments, with the resulting letters from SSA stating that the 
beneficiary may owe SSA thousands of dollars in back benefits, are such 
a nightmare to many people that the potential for the existing work 
incentives in the Title II and SSI Programs is limited. CCD has 
recommended that SSA develop and establish a reliable, efficient, 
beneficiary-friendly method of collecting and recording information 
regarding a beneficiary's earnings and adjusting benefits appropriately 
in a timely manner. The system must stop punishing the beneficiary for 
SSA's inability to properly track and act upon the earnings 
information. SSA is working to develop systems to address this problem, 
but this remains a significant ongoing problem.
Work Incentives: Proposed Amendments To TTWWIIA
    CCD also has a series of recommendations designed to improve the 
Ticket to Work program, so that it is able to function more effectively 
in serving Title II and SSI beneficiaries who wish to attempt to return 
to work. There are three key themes: the heath care provisions need to 
be strengthened; beneficiaries' access to vocational providers can be 
broadened by strengthening the Employment Network system; and 
beneficiaries need clearer assurances that, should their effort to work 
fail, they can return to benefit status expeditiously. While the 
improvements needed are modest, many require statutory changes. I will 
provide a detailed list of these recommendations to the Subcommittee 
staff.
Work Incentives for Young People
    We also believe there are significant opportunities--requiring 
legislative changes--to improve the rules in Social Security, SSI and 
Medicaid so that young people with disabilities are encouraged to 
maximize their potential with the goal of working to the best of their 
ability as adults, allowing them to follow their dreams just like other 
young people. Currently, the programs' rules provide conflicting 
messages and sometimes require young people to risk current and future 
eligibility for key benefits they may need if they attempt to maximize 
their potential. This discourages or undermines their efforts (and 
those of their families and others) to maximize their potential. We 
would be happy to discuss these recommendations further with you and 
your staff.
Work Incentives for Disabled Adult Children
    Another area requiring legislative action involves people who are 
severely disabled prior to age 22, but whose parents have not yet 
triggered their own Social Security benefits. Ultimately, these 
individuals might qualify as disabled adult children when their parents 
retire, die, or become disabled, if they have not worked above the SGA 
level. Others with the same level of impairment, who have already 
worked above the SGA level, will not qualify for DAC benefits, even if 
the work incentives provisions in the SSI Program encouraged such work. 
This is a disincentive for these individuals to work, especially since 
they are likely to be severely disabled for life and will need supports 
of the type available under the OASDI and Medicare programs. We urge 
the Subcommittee to consider provisions to eliminate the work 
disincentive for this group of people with severe disabilities.
Limitation on Administrative Expenses (LAE)
    We urge the Subcommittee to work to secure the full LAE for SSA 
sought by President Bush for FY 2006. Improving the disability 
determination process, including reducing the backlog and processing 
times, must remain a high priority. We urge commitment of resources and 
personnel to resolve the exorbitant waiting times and make the process 
work better for people with disabilities. SSA must be provided with the 
resources to fully meet its administrative responsibilities. We support 
the President's budget request for FY 2006 for $9.403 billion for the 
Limitation on Administrative Expenses, an increase of just under 8 
percent over the FY 2005 appropriation of $8.732 billion.
    In addition, we urge this Subcommittee to work to separate SSA's 
Limitation on Administrative Expenses budget authority from the Section 
302(a) and (b) allocations to the Appropriations Subcommittees. This 
would allow for growth that is necessary to meet the needs of the 
coming baby-boomer retirement years (including the retirement of SSA 
and state DDS personnel); continue the efforts to improve the 
processing time for initial applications and appeals, particularly 
through technological improvements; continue the efforts to ensure 
integrity in the program through continuing disability reviews (CDRs) 
and other redeterminations; permit SSA to better accomplish the post-
entitlement work related to ensuring that SSA's systems support rather 
than discourage efforts to return to work (for example, through more 
timely actions on reports of earnings thereby reducing discouraging 
overpayments); and allow for replacement of staff in a timely manner 
and to provide for adequate training and mentoring. SSA's LAE would 
still be subject to the annual appropriations process and Congressional 
oversight. Currently, SSA's administrative expenses total less than 2% 
of benefit payments paid annually. Congress would still maintain its 
role in ensuring continued administrative efficiency.
    When Congress decided to make SSA an independent agency in the mid-
1990s, the Ways and Means Committee clearly stated its concerns about 
the state of SSA at that time.\1\ Congress hoped that making SSA an 
independent agency would provide SSA with administrative stability and 
the ability to better anticipate and address current and future systems 
needs.
---------------------------------------------------------------------------
    \1\ ``Support for making SSA an independent agency is rooted in a 
marked decline in the agency's performance over the past 15 years. 
Several factors have contributed to this decline, including frequent 
turnover in agency personnel, multiple internal reorganizations, and 
increasing political intervention in the administration of the 
program.''
    ``With respect to personnel, SSA has had 10 commissioners in the 
past 15 years, 4 of whom served only as acting commissioners and 6 of 
whom served less than 18 months. During this same period, the agency 
has undergone a series of reorganizations which have displaced 
personnel at all levels, creating repeated changes in responsibilities 
for program administration and policy development.''
---------------------------------------------------------------------------
    House Report No. 103-506, Ways and Means Committee, May 12, 1994, 
pp. 44-45.
    The current Commissioner of Social Security, Jo Anne B. Barnhart, 
began her term in November 2001 and is making significant progress in 
such areas as instituting technological improvements and changes in 
systems design to provide higher quality decisions earlier in the 
disability decision process. With the costs of the administration of 
this large independent agency representing a very small percentage of 
the benefits paid by SSA, it makes sense to ensure that SSA has 
whatever resources it needs to make timely and accurate decisions, to 
address post-entitlement issues and changes as they happen, and to meet 
the range of responsibilities it has that are not related to Social 
Security and Supplemental Security Income (SSI) benefits, such as 
issuance of Social Security numbers and Medicare issues.
    This proposal has been under consideration for years. Given SSA's 
growing responsibilities--in Social Security, SSI, and Medicare--it is 
essential to breathe new life into this issue and get it resolved now. 
We urge the Social Security Subcommittee and the full Ways and Means 
Committee to press for resolution of this issue this year.
Observations on Current Administration Initiatives
SSA's Disability Demonstration Projects
    SSA's disability demonstration projects in Title II and SSI are 
exciting, need time to work, and are likely to provide the Congress and 
SSA with important information about assisting people with disabilities 
who receive Title II and SSI to work.
    The demonstration projects that SSA has underway or in the 
development process are designed to look at a range of issues related 
to disability and work. One of the demonstrations is the 
Congressionally mandated study to test the effects of allowing Title II 
beneficiaries to work without total loss of benefits by reducing their 
monthly benefit by $1 for every $2 the person earns above a specified 
level. As part of this work, SSA also is looking at whether there is a 
combination of services or supports that can assist beneficiaries in 
moving to work.\2\ SSA is also working on demonstration projects 
related to youth with disabilities and projects designed to intervene 
earlier in the process to assist those who may be able to remain 
working, with adequate supports, such as health care coverage. This is 
very important work. It is essential that Congress not attempt to make 
changes that would negatively impact people with disabilities in Title 
II or SSI disability without the information that these demonstration 
projects will provide--too much is at stake for too many people with 
disabilities and their families to make mistakes in policy choices or 
decisions.
---------------------------------------------------------------------------
    \2\ For a detailed discussion of SSA's demonstrations projects, see 
Eileen P. Sweeney, SSA's Disability Demonstration Projects Likely to 
Provide Important Information about Disability Work Incentives, Center 
on Budget and Policy Priorities, August 2004, available at http://
www.cbpp.org/8-6-04socsec.htm.
---------------------------------------------------------------------------
Improvements to the Disability Determination Process
    For people with disabilities, it is critical that SSA improve its 
process for making disability determinations. We applaud Commissioner 
Barnhart for establishing as a high priority the administration's 
efforts to improve the disability determination process and for making 
the design process an open one.
    The highlights of our disability determination process 
recommendations follow. We strongly support efforts to reduce 
unnecessary delays for claimants and to make the process more 
efficient, so long as they do not affect the fairness of the process to 
determine a claimant's entitlement to benefits. We strongly support 
efforts to implement the electronic disability folder, AeDIB, since it 
has great potential for improving the adjudication process and is 
critical to the success of any changes. We believe that SSA must 
maintain the independence and ensure the quality of medical experts, 
consultative examiners, and vocational experts. We recommend that there 
not be a separate appeal from the proposed Reviewing Official (RO) 
level to the administrative law judge level. The official record of the 
case should not be closed after the ALJ decision and the claimant 
should retain the right to submit new and material evidence after the 
ALJ decision. The Appeals Council should be retained and improved, or, 
in the alternative, its review functions should be carried out by some 
other entity within SSA. Further, the claimant's right to request 
review by the Appeals Council should be retained. Our complete comments 
to Commissioner Barnhart on her proposed revisions to the disability 
determination process are available for the record should the Members 
of the Subcommittee wish to see them.
SSA Work on Reviewing and Updating the Listing of Impairments
    CCD applauds the manner in which SSA is going about reviewing the 
current listings. In many cases, this has involved issuance of an 
advance notice of proposed rulemaking, providing the public with the 
opportunity to comment to SSA on a current listing before SSA issues an 
NPRM. In addition, we believe that the public forums that SSA has held 
on certain listings, including mental impairments, immune disorders, 
and chronic liver disease, will help to significantly improve the 
quality of the final provisions. These forums have served as an 
excellent source of cutting edge medical expertise for SSA.
    Again, I thank the Subcommittee for considering our viewpoints on 
all of these critical issues. We stand ready to work with you and your 
staff regarding the concerns of people with disabilities.
    ON BEHALF OF:
    American Association of People with Disabilities
    American Association on Mental Retardation
    American Council of the Blind
    American Foundation for the Blind
    American Network of Community Options and Resources
    Association of University Centers on Disabilities
    Bazelon Center for Mental Health Law
    Easter Seals
    Epilepsy Foundation
    National Alliance for the Mentally Ill
    National Association of Councils on Developmental Disabilities
    National Association of Protection and Advocacy Systems
    National Organization of Social Security Claimants' Representatives
    NISH
    National Mental Health Association
    National Multiple Sclerosis Society
    Paralyzed Veterans of America
    Research Institute for Independent Living
    The Arc of the United States
    Title II Community AIDS National Network
    United Cerebral Palsy
    United Spinal Association

                                 

    Chairman MCCRERY. Thank you, Ms. Ford. Mr. Tanner with the 
Cato Institute, we appreciate you at the last moment being able 
to come and join us. We really appreciate your time. Thank you.

 STATEMENT OF MICHAEL TANNER, DIRECTOR, CATO INSTITUTE PROJECT 
                   ON SOCIAL SECURITY CHOICE

    Mr. TANNER. Well, thank you, Mr. Chairman. I wouldn't miss 
the opportunity to talk to you once again. I do thank you very 
much for the privilege of appearing here today, and for the 
opportunity to discuss how Social Security reform can benefit 
vulnerable populations. It, of course, is now generally 
acknowledged that Social Security is facing a severe future 
financing problem. The program will begin running deficits in 
just 12 years, and it is facing total unfunded obligations of 
roughly $12.8 trillion, if you include the cost of redeeming 
the trust fund. As a result, changes to the program are 
inevitable. In making these changes, however, it is 
particularly important that we consider their impact on the 
most vulnerable Americans who disproportionately depend on 
Social Security. It is also important to understand that it is 
not just reform that will affect these vulnerable Americans, 
but so too will a failure to reform the system. Since Social 
Security currently cannot pay the promised benefits, those 
benefits will eventually have to be reduced by roughly 26 
percent, a reduction that will fall most heavily on those who 
can least afford it.
    On the other hand, reform, properly structured, can not 
only protect the poor and vulnerable from these otherwise 
inevitable benefit cuts, but can actually produce an improved 
Social Security system that will leave them better off. We can 
give low-income workers a chance to build real inheritable 
wealth. We can give them an ownership stake in the American 
economy. While maintaining a safety net, we can give them a 
chance to earn a higher rate of return, leading to higher 
retirement benefits that would lift millions of seniors out of 
poverty.
    Now, Social Security has elements of both an insurance and 
a welfare program. It is, in effect, both a retirement and an 
anti-poverty program. In attempting to combine these two 
functions, it has ended up doing neither particularly well. 
While much more time has been spent discussing Social 
Security's shortcomings as a retirement program, far less 
attention has been paid to its inadequacies as an anti-poverty 
program. For example, despite receiving Social Security 
benefits, roughly 1 out of 10 seniors still lives in poverty. 
In fact, the poverty rate among seniors remains slightly higher 
than that for the adult population as a whole. Among some sub-
groups, the problem is far worse. The poverty rate is about 20 
percent among elderly women who have never married or who are 
widowed; roughly 30 percent among divorced or separated women; 
African American seniors are disproportionately left in 
poverty, with nearly a third of African Americans over 65 
having incomes below the poverty level.
    In addition, lifetime Social Security benefits depend in 
part on longevity. As a result, people with identical earnings 
histories will receive different levels of benefits depending 
on how long they live. An individuals who lives to be 100 
receives far more in benefits than someone who dies at 66. 
Therefore, those groups in our society with shorter life 
expectancies, such as the poor and African Americans, are put 
at a severe disadvantage. This disparity has a significant 
impact on the concentration of wealth in our society because 
Social Security benefits are not inheritable. A worker can pay 
Social Security taxes for 30 or 40 years, but if the worker 
dies without children under the age of 18 or a spouse over the 
age of 65, none of that money paid into the system is passed on 
to his heirs. As Cato Senior Fellow Jagadedesh Gokhale has 
noted, Social Security essentially forces low-income workers to 
annuitize their wealth, preventing them from making a bequest 
of that wealth to their heirs. This helps turn inheritance into 
a disequalizing force in America, leading to greater inequality 
of wealth. The wealthy are able to pass their wealth on to 
their heirs, while the poor cannot.
    Properly constructed, a Social Security reform plan 
including personal accounts can solve these problems. The 
``Individual Social Security Investment Program Act of 2005'' 
for example, introduced by your colleague Mr. Johnson, provides 
an excellent example of how this would work. Mr. Johnson's bill 
would allow younger workers to save and invest their half of 
the Social Security payroll tax, about 6.2 percent of wages, 
through personal accounts. Because workers would own the money 
in their accounts--which they do not under the current system--
that money would be fully inheritable. If they die before 
retirement, they could pass all the money in their account on 
to their loved ones. Death after retirement would still leave 
substantial unused portions for their heirs.
    It is not just future generations who would benefit from 
this ownership. Personal accounts would also give low-income 
workers a chance to build a nest egg of real wealth for the 
first time in their lives, giving them a real and personal 
stake in the economy. As Michael Sherraden of Washington 
University in St. Louis has shown, ownership can have 
significant beneficial impact on a variety of social 
pathologies, not only increasing work effort and the propensity 
to save, but even reducing crime, drug abuse, school drop-out 
rates, and illegitimacy. Giving people an ownership stake in 
America--something H.R. 530 with its recognition bonds does 
even more than other personal account plans--could be 
considered one of the most important anti-poverty proposals 
that we could undertake.
    Finally, H.R. 530 would establish an enhanced safety net to 
protect the most vulnerable. It leaves current survivor and 
disability benefits unchanged. However, it also includes a new 
minimum Social Security benefit equal to 100 percent of the 
poverty level, a significant increase over today. Thus, under 
Mr. Johnson's bill, no eligible senior would ever again retire 
into poverty. Other personal account plans, including Mr. 
Ryan's, and to a lesser extent Mr. Shaw's, also represent a 
significant boost for low-income and otherwise vulnerable 
Americans.
    In summation, Social Security reform is inevitable. If we 
simply fall back on the old ways of raising taxes and cutting 
benefits, we will significantly harm those most in need. If we 
do nothing, we end up with a benefit reduction that the poor 
and vulnerable can ill afford. However, by making personal 
accounts part of any Social Security reform, we can give low-
income workers a chance to build a nest egg of real inheritable 
wealth. In combination with an enhanced safety net, we can 
provide vulnerable workers with a new and better Social 
Security system. Thank you.
    [The prepared statement of Mr. Tanner follows:]
Statement of Michael Tanner, Director, Cato Institute Project on Social 
                            Security Choice
    Mr. Chairman, Members of the Subcommittee:
    I very much appreciate the privilege of appearing before you today, 
and the opportunity to discuss how Social Security reform can benefit 
vulnerable populations. It is now generally acknowledged that Social 
Security is facing severe future financing problems. The program will 
begin running deficits in just 12 years, and is facing total unfunded 
obligations of roughly $12.8 trillion (including the cost of redeeming 
the trust fund). As a result, changes in the program are inevitable.
    In making these changes, however, it is particularly important that 
we consider their impact on the most vulnerable Americans who 
disproportionately depend on Social Security. For example, the poorest 
20 percent of Americans receive nearly all of their retirement income 
from Social Security, while the wealthiest fifth of Americans receive 
less than 20 percent of their retirement income from the system. It is 
also important to understand that it is not just reform that will 
affect these vulnerable Americans, but so to will a failure to reform 
the system. Since Social Security currently cannot pay promised 
benefits, those benefits will eventually have to be reduced by roughly 
26 percent, a reduction that will fall heaviest on those who can least 
afford it.
    On the other hand, reform, properly structured, can not only 
protect the poor and vulnerable from these otherwise inevitable benefit 
cuts, but can actually produce an improved Social Security system that 
will leave them better off. We can give low income workers a chance to 
build real inheritable wealth. We can give them an ownership stake in 
the American economy. And, while maintaining a safety net, we can give 
them a chance to earn a higher rate of return, leading to higher 
retirement benefits that would lift millions of seniors out of poverty.
    Social Security has elements of both an insurance and a welfare 
program. It is, in effect, both a retirement and an anti-poverty 
program. However, in attempting to combine these two functions, it has 
ended up doing neither particularly well. While much time has been 
spent discussing Social Security's shortcomings as a retirement 
program, far less attention has been paid to its inadequacies as an 
anti-poverty program.
    There is no question that the poverty rate among the elderly has 
declined dramatically in the last half century. As recently as 1959, 
the poverty rate for seniors was 35.2 percent, more than double the 17 
percent poverty rate for the general adult population. Today, it has 
declined to approximately around 10 percent.
    Clearly Social Security has had a significant impact on this trend. 
Studies suggest that in the absence of Social Security benefits more 
than half of seniors would have income below the poverty level. This 
suggests that receipt of Social Security benefits lifted millions of 
seniors out of poverty. Moreover, the percentage of elderly in poverty 
after receiving Social Security benefits has been steadily declining in 
recent years, indicating the increased importance of Social Security as 
an anti-poverty remedy.
    However, there is a superficiality to this line of analysis. It 
assumes that any loss of Social Security benefits would not be offset 
through other sources of income. In other words, it simply takes a 
retiree's current income and subtracts Social Security benefits to 
discover, no surprise, that the total income is now lower and, indeed, 
frequently low enough to throw the retiree into poverty.
    That much should be obvious. Social Security benefits are a 
substantial component of most retirees' income. It constitutes more 
than 90 percent of retirement income for one-quarter of the elderly. 
Nearly half of retirees receive at least half of their income from 
Social Security. The question, therefore, is not whether the sudden 
elimination of Social Security income would leave retirees worse off--
clearly it would--but whether in the absence of Social Security (or an 
alternative mandatory savings program) retirees would have changed 
their behavior to provide other sources of income for their own 
retirement.
    However, even taking the idea of Social Security as an anti-poverty 
tool on its own terms, the evidence suggests that the current Social 
Security is inadequate. After all, despite receiving Social Security 
benefits, roughly one out of ten seniors still lives in poverty. In 
fact, the poverty rate among seniors remains slightly higher than that 
for the adult population as a whole. And, among some subgroups the 
problem is far worse. For the poverty rate is over 20 percent among 
elderly women who are never married or widowed and roughly 30 percent 
among divorced or separated women. African-American seniors are also 
disproportionately left in poverty. Nearly a third of African-Americans 
over the age of 65 have incomes below the poverty level.
    In addition, lifetime Social Security benefits depend, in part, on 
longevity. As a result, people with identical earnings histories will 
receive different levels of benefits depending on how long they live. 
Individuals who live to be 100 receive far more in benefits than 
individuals who die at 66. Therefore, those groups in our society with 
shorter life expectancies, such as the poor and African-Americans, are 
put at a severe disadvantage.
    Of course, Social Security does have a progressive benefit formula, 
whereby low-income individuals receive proportionately higher benefits 
per dollar paid into the system than do high-income workers. The 
question, therefore is to what degree shorter life expectancies offset 
this progressivity.
    Using income as the sole criteria, the literature is mixed. Some 
studies, such as those by Eugene Steuerle and Jan Bakja of the Urban 
Institute and Dean Leimer of the Social Security Administration 
conclude that shorter life expectancies diminish but do not completely 
offset Social Security's progressivity. However, there is a growing 
body of literature, including studies by Daniel Garrett of Stanford 
University, the RAND corporation, Jeffrey Liebman, and others that show 
the progressive benefit formula is completely offset, resulting in 
redistribution from poor people to wealthy.
    The question of Social Security's unfairness to ethnic minorities 
appears more straightforward, particularly in the case of African-
Americans. At all income levels and all ages, African-Americans have 
shorter life expectancies than do whites. As a result, a black man or 
woman, earning exactly the same lifetime wages, and paying exactly the 
same lifetime Social Security taxes, as his or her white counterpart, 
will likely receive far less in lifetime Social Security benefits.
    This disparity has a significant impact on the concentration of 
wealth in our society. Social Security benefits are not inheritable. A 
worker can pay Social Security taxes for 30 or 40 years, but if that 
worker dies without children under the age of 18 or a spouse over the 
age of 65, none of the money paid into the system is passed on to his 
heirs. As Cato Senior Fellow Jagadedesh Gokhale, has noted, Social 
Security essentially forces low-income workers to annuitize their 
wealth, preventing them from making a bequest of that wealth to their 
heirs.
    Moreover, because this forced annuitization applies to a larger 
portion of the wealth of low income workers than high income workers, 
it turns inheritance into a ``disequalizing force,'' leading to greater 
inequality of wealth in America. The wealthy are able to bequeath their 
wealth to their heirs, while the poor cannot. Indeed, Gokhale and 
Boston University economist Laurence Kotlikoff estimate that Social 
Security doubles the share of wealth owned by the richest one percent 
of Americans.
    Martin Feldstein of Harvard University reaches a similar 
conclusion. Feldstein suggests that low-income workers substitute 
``Social Security wealth'' in the form of promised future Social 
Security benefits for other forms of savings. As a result, a greater 
proportion of a high-income worker's wealth is in fungible assets. 
Since fungible wealth is inheritable, while Social Security wealth is 
not, this has led to a stable concentration of fungible wealth among a 
small proportion of the population. Feldstein's work suggests that the 
concentration of wealth in the United States would be reduced by as 
much as half if low-income workers were able to substitute real wealth 
for Social Security wealth.
    Properly constructed, a Social Security reform plan including 
personal accounts can solve these problems. HR 530, introduced by your 
colleague Mr. Johnson, provides an excellent example of how this would 
work. Mr. Johnson's bill would allow younger workers to save and invest 
their half of the Social Security payroll tax (6.2 percent of wages) 
through personal accounts. Because workers would own the money in their 
accounts--which they do not under the current system--that money would 
be fully inheritable. If they die before retirement prematurely, they 
would be able to pass all the money in their account on to their loved 
ones; death after retirement would still leave substantial unused 
portions for their heirs.
    And, it is not just future generations who would benefit from this 
ownership. Personal accounts would give low-income workers a chance to 
build a nest egg of real wealth for the first time in their lives, 
giving them a real and personal stake in the economy. As Michael 
Sherraden of Washington University in St. Louis has shown, ownership 
can have significant beneficial impact on a variety of social 
pathologies, not only increasing work effort and the propensity to 
save, but even reducing crime, drug abuse, school drop out rates, and 
illegitimacy. Giving people an ownership stake in America--something 
that HR 530, with its recognition bonds does even more than other 
personal account plans--could be considered one of the most important 
anti-poverty proposals we could undertake.
    Finally, H.R. 530 would also establish an enhanced safety net to 
protect the most vulnerable. It leaves current survivor and disability 
benefits unchanged. However, it also includes a new minimum Social 
Security benefit equal to 100 percent of the poverty level, a 
significant increase over today. Thus, under Mr. Johnson's bill, no 
eligible senior would ever again retire into poverty.
    Other personal account plans, including Mr. Ryan's and to a lesser 
extent Mr. Shaw's, would also represent a significant boost for low 
income and otherwise vulnerable Americans.
    In summation, Social Security reform is inevitable. If we simply 
fall back on the old ways of raising taxes and cutting benefits, we 
will significantly harm those most at need. If we do nothing, we end up 
with a benefit reduction that the poor and vulnerable can ill afford. 
However, by making personal accounts part of any Social Security 
reform, we can give low-income workers a chance to build a nest egg of 
real inheritable wealth. In combination with an enhanced safety net, we 
can provide vulnerable workers with a new and better Social Security 
system.
    Thank you.

                                 

    Chairman MCCRERY. Thank you, Mr. Tanner. Again, thank you 
for coming on such short notice. Dr. Rockeymoore?

    STATEMENT OF MAYA ROCKEYMOORE, PH.D., VICE PRESIDENT OF 
RESEARCH AND PROGRAMS, DIRECTOR, CENTER FOR POLICY ANALYSIS AND 
     RESEARCH, CONGRESSIONAL BLACK CAUCUS FOUNDATION, INC.

    Ms. ROCKEYMOORE. Chairman McCrery, Ranking Member Levin, I 
am pleased to be here before you to talk about an issue that is 
very important to all American workers, but especially 
important to vulnerable populations in the United States. 
Social Security has been an anti-poverty and retirement program 
that is a comprehensive family values program, not only 
covering retirement, but also disability and survivor benefits. 
So, as that, Social Security is a valuable program that would 
be unaffordable for most American workers on the private 
market. It is important that we realize that.
    Social Security's retirement benefits are also, of course, 
for a lifetime. When you retire, you don't have to worry about 
outliving your private savings because you know that Social 
Security will be there for you as long as you live. It is a 
steady benefit. You don't have to worry about how the stock 
market is performing. You know what that benefit will be on a 
month-to-month basis, and you know that it is inflation 
adjusted for a lifetime. When we are talking about specific 
populations of vulnerable people, we have to understand that we 
are talking about primarily women and their children. Women and 
their children are the majority of individuals drawing down on 
Social Security's retirement benefit. We have a situation where 
women are historically low lifetime earners and, as a result, 
are disproportionately reliant on the progressivity of the 
Social Security program. It is important to realize that.
    The same situation with African Americans. African 
Americans are generally lower income earners, and I would just 
like to address something that Mr. Tanner said. He suggested 
that Social Security helps prevent wealth creation in these 
low-income populations. I would suggest to you that it is not 
Social Security that is creating that inability to create 
wealth.
    Just for your information, I am only the third generation 
from slavery on my mother's side. We had a situation in this 
country where we had a whole population group who did not have 
the ability to accumulate wealth by law. Even after that 
particular advent in history, we had Jim Crow, where people who 
tried to accumulate wealth who looked like me, their assets 
were confiscated at the whim of those who were in the majority 
at that time. So, we had a situation where many people that 
look like me--women, African Americans, Hispanics--this is all 
they have, Social Security is all they have because of this 
historical discrimination in our country. So, it is not Social 
Security that is creating that lack of opportunity. It is 
Social Security that is giving them a leg up, and we don't need 
to erode those protections for these vulnerable populations.
    When you look at children, you have to understand that 
Social Security is a vital benefit for children, with more than 
four million children who are drawing down on Social Security 
benefits currently. If you look at the populations within those 
children, you understand, for example, that African American 
and Hispanic children rely disproportionately on survivor 
benefits. So, it is key to understand that. Now, what will 
privatization mean for these vulnerable populations? Ladies and 
gentlemen, the President has indicated that Social Security is 
in crisis. I will have you know that it is privatization that 
is a crisis for these vulnerable populations in our country, 
and I will tell you why. Privatization erodes the value of 
Social Security over time, and it is not in 2041 when we talk 
about a 26-percent benefit cut. It is earlier than that. When 
you are talking about a mandatory sliding-scale benefit cut, 
you are talking about deep benefit cuts that will affect 
vulnerable populations across the board, anywhere from a 21- to 
66-percent benefit cut, and that is more immediate than the 
year 2041. This is to be done by a deliberate policy of benefit 
cuts called mandatory sliding-scale benefit cuts.
    Not only does it erode the value through these benefit 
cuts, when you select--when an individual worker selects a 
private individual retirement account, there is an added 
benefit cut on top of that. So, you are talking about twice the 
erosion that goes on when you add on the individual account. 
So, what does that mean? You have a situation where you have 
less security and more risk for people in the future, and this 
risk impacts survivors, poor children; it impacts disabled 
people. We need to be concerned.
    Just so that you know, when you combine the benefit cuts, 
the sliding-scale benefit cuts, also known as progressive price 
indexing, with the impact of private accounts, you understand 
that for a median earner, somebody that is only making $36,000 
a year--perhaps your own legislative assistant--it would have a 
benefit cut of 66 percent--66 percent--in the year 2055. This 
is unconscionable. We cannot go backward in this country. We 
have to truly protect Social Security. Thank you.
    [The prepared statement of Dr. Rockeymoore follows:]
  Statement of Maya Rockeymoore, Ph.D. Vice President of Research and 
   Programs, and Director, Center for Policy Analysis and Research, 
                 Congressional Black Caucus Foundation
    Chairman McCrery, Ranking Member Levin and Members of the 
Committee:
    Thank you for inviting me to appear before you today to talk about 
a program that is very important to me, my family, my community, and to 
Americans everywhere. I am especially pleased to bring testimony before 
the very Subcommittee I worked for in the late 1990s.
    Serving as professional staff on the Ways and Means Social Security 
Subcommittee, it was my job to understand and explain Social Security's 
vital importance to vulnerable populations such as children, women, the 
disabled, racial and ethnic minorities, senior citizens, and low to 
middle income families.
    At that time, like today, it was very apparent that Social Security 
has done a remarkable job of protecting these populations against the 
often devastating uncertainties of life that, were it not for the 
stable economic support provided by the program, would throw many 
families into economic chaos--shattering well-being, hopes, and dreams 
in the process.
    You see, Social Security is one of America's true family values 
programs. Through comprehensive old age, disability and survivor 
insurance benefits, Social Security binds families across generations 
by ensuring that no working American is left without the means to help 
feed, clothe, and shelter his or her family when faced with the 
unpredictability of death, old age, and/or a disabling condition.
    Additionally, Social Security weaves individuals and families 
together into a community of citizens reliant on its organizing 
principle of ``using the common wealth for the common good.'' This 
principle is evident in the program's efficient social insurance 
structure that provides valuable benefits that would be unaffordable 
for most working Americans and their families in the private market.
    Yet, despite clear evidence of Social Security's success in lifting 
millions of Americans out of poverty over its 70 years of operation, 
today the program is threatened by those who seek to undermine its 
family and community oriented benefit structure by introducing private 
individual retirement accounts that siphon funds away from the system 
while providing less security and more risk, less efficiency and more 
cost to American workers.
    Shockingly, these proposed changes come at a time when Americans--
especially vulnerable populations--need Social Security's steady, 
defined benefit structure more than ever. The globalization of U.S. 
corporate enterprise, the under-funding and disappearance of employer-
sponsored defined-benefit pensions, the prevalence of private savings 
vehicles exposed to an uncertain stock market, the weight of burgeoning 
federal budget deficits, and the vagaries of a volatile global economy 
are all factors that would expose America's working families to 
economic disaster should Social Security be privatized.
Social Security's Importance to Vulnerable Populations
    Social Security is important to the general U.S. population but its 
comprehensive benefits are extremely critical to the socioeconomic 
well-being of vulnerable populations such as women and children, senior 
citizens, the disabled, racial and ethnic minorities, and low, 
moderate, and middle income families.
    Social Security's progressive benefits provide favorable treatment 
for lower income workers by replacing a larger percentage of their pre-
retirement wages. Social Security comprehensive benefits make life, 
disability, and old age insurance affordable for working families when 
compared to the private market. Social Security retirement benefits 
provide an inflation-adjusted, monthly benefit that will not run out 
for as long as you live. And, Social Security benefits provide families 
with a steady source of income that is sure to be there during times of 
rain or sunshine.
    While the receipt of survivor, disability, and/or old-age benefits 
is often dependent on several interrelated factors such as workforce 
participation, income, health status, family composition, and life 
expectancy, it is the common condition of economic vulnerability that 
determines the heavier reliance of vulnerable populations on Social 
Security.
    Consider the specific impact these factors have on defined 
populations receiving Social Security:
Low, Moderate, and Middle Income Workers
    Low, moderate, and middle-income workers tend to face greater 
challenges across a variety of key socioeconomic indicators due to 
their status in the U.S. labor market. It is these workers who are more 
likely to work grueling hours for low wages, be unemployed, 
underemployed, and without health insurance and other economic 
supports. As a result, these workers face extenuating circumstances 
that greatly increase their reliance on Social Security's disability, 
survivor and retirement benefits.
The Elderly
    It is Social Security's positive impact on the socioeconomic 
condition of the aged population that has been the crowning achievement 
of Franklin Delano Roosevelt's New Deal vision. In 2000, the poverty 
rate among seniors was 10 percent, down from a rate of 35 percent in 
1959. Today, the vast majority (69 percent) of Social Security 
beneficiaries draw down on its retirement benefits.
     DISTRIBUTION OF SOCIAL SECURITY BENEFICIARIES BY BENEFIT TYPE
 (Computed from the Social Security Administration Annual Statistical 
                           Supplement, 2003)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Social Security is the only source of income upon retirement for 22 
percent of Americans (SSA 2004). Without Social Security, the poverty 
rate among the elderly would be 48 percent.
Racial and Ethnic Minorities
    Because of historical patterns of discrimination in the U.S. 
education system, immigration laws, and labor market, African Americans 
and Hispanics are more likely to earn a modest living during the course 
of their working lives, less likely to have family wealth upon which to 
build, more likely to have experienced spells of unemployment or 
underemployment, and more likely to retire with less income from 
private pensions, assets or personal savings. For African Americans, a 
disproportionate lack of access to quality, affordable healthcare--also 
rooted in education, employment and income inequities--contributes to 
their higher rates of disability and early death.
    Given these variable life circumstances, it is easy to understand 
why racial and ethnic minorities use Social Security in very different 
ways.
   Percent of Americans receiving OASDI, by type of benefit and race
              Figure 1 Blacks              Figure 2 Whites
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


                            Figure 3 Other*

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Social Security Administration, Annual Statistical Supplement 2003, 
Table 5.A1, ``Number and average monthly benefit, by type of benefit 
and race, December 2002.''
    * ``Other'' includes people of Hispanic Origin, Asian/Pacific 
Islanders, Alaskan Natives, and American Indians.

    While the vast majority of whites (73%) tend to rely on Social 
Security for its retirement benefits, African Americans and other 
people of color are more heavily dependent upon Social Security's 
disability and survivor benefits. Indeed, a full 46 percent of African 
American beneficiaries and 52 percent of other racial and ethnic 
minorities rely on Social Security for its non-retirement insurance 
features.
    Social Security's benefits are extremely important source of 
economic support for African American and Hispanic families who 
experience the crisis of disability or unexpected death. An estimated 
68 percent of disabled African Americans are kept out of poverty by 
Social Security's disability benefits.\1\ Additionally, a 1999 study by 
the National Urban League Institute for Opportunity and Equality 
estimated that African American children are almost four times more 
likely to be lifted out of poverty by Social Security survivor benefits 
than are white children.\2\
---------------------------------------------------------------------------
    \1\ Social Security Administration, Fast Facts & Figures About 
Social Security, 2001.
    \2\ Valerie Rawlston, ``The Impact of Social Security on Child 
Poverty,'' A special report issued by the National Urban League 
Research and Public Policy Department, May, 2000.
---------------------------------------------------------------------------
    And, even though a greater proportion of whites rely on Social 
Security's old age insurance, these benefits remain extremely important 
for African American and Hispanic retirees, who tend to have lower pre-
retirement earnings (a primary factor in benefit calculations) and less 
pension coverage than white Americans. As a result, Social Security is 
the only source of retirement income for 40 percent of older African 
Americans and 41 percent of elderly Hispanics.\3\ Without Social 
Security, the poverty rate for African American seniors would more than 
double from 22 percent to 57 percent.\4\ The poverty rate among 
Hispanic seniors would rise from 22 percent to 33 percent.\5\
---------------------------------------------------------------------------
    \3\ Social Security Administration, ``Press Office Fact Sheets: 
African Americans and Social Security,'' September, 2004.
    \4\ Laurel Beedon and Ke Bin Wu, ``Social Security and African 
Americans: Some Facts,'' AARP, September 2003.
    \5\ Laurel Beedon and Ke Bin Wu, ``Social Security and Hispanics: 
Some Facts,'' AARP, September 2003.
---------------------------------------------------------------------------
    African Americans and Hispanics, who are disproportionately lower 
income workers, also benefit from Social Security's progressive benefit 
structure, which replaces a larger percentage of low-income 
beneficiaries pre-retirement earnings as compared to higher income 
beneficiaries. Combined with an annual cost of living adjustment that 
keeps Social Security benefits on par with inflation, the value of 
Social Security's steady and stable benefits are great for people of 
color.
Women
    As the majority of beneficiaries, women have special circumstances 
that dictate their reliance on Social Security. Specifically, women 
live longer than men but earn lower lifetime wages and have the less 
access to private pensions and other assets. As a result, they are the 
most likely to be reliant on Social Security's benefits for all or most 
of their income upon retirement.

      Social Security comprises 52 percent of the total 
retirement income for unmarried women age 65 and older (compared to 38 
percent for elderly men) and is the only source of retirement income 
for 29 percent of unmarried elderly women.\6\
---------------------------------------------------------------------------
    \6\ www.ssa.gov/pressoffice/factsheets/women-alt.htm
---------------------------------------------------------------------------
      For nearly 6 in 10 women of color, Social Security 
provides 90% or more of retirement income (SSA, 2002).
      In comparison, SS provides 90% or more of retirement 
income for approximately 4 in 10 white women (SSA, 2002).

    Women of color have an even greater dependence on Social Security's 
retirement benefit. Indeed, the Social Security Administration reports 
that Social Security provides half or more of total retirement income 
for over 80 percent of Black and Hispanic women. The income provided by 
these retirement benefits are critical because these women are the 
least likely to have added income from private pensions, investments 
and savings.
Children
    Children currently benefit from Social Security either as the 
orphaned survivor of a worker who has passed away, the dependent of a 
caretaker who has a disability and is unable to work, or the dependent 
of a retired worker. According to the Social Security Administration's 
Master Beneficiary Record, there were almost 4 million children 
receiving total monthly benefits amounting to roughly $1.8 billion in 
November 2004. These children are the most vulnerable to economic 
calamity when faced with the loss of support from their caretakers, yet 
insurance benefits provided by Social Security step in to provide them 
with steady monthly benefits that help meet vital expenses such as the 
provision of clothes, food, and shelter.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    Due to the higher death rates of people of color, Social Security's 
survivor benefits are very important to these children.
The Macro and Micro Impacts of Social Security
    To fully comprehend the importance of Social Security to vulnerable 
populations, one must imagine how these groups and our country would 
fare if Social Security did not exist. If the U.S. did not have Social 
Security:

      Poverty rates among the elderly, disabled, and surviving 
dependents would more than double.
      Disabled workers would be unable to provide for 
themselves or their family members and would be less likely to 
rehabilitate sufficiently to return to work.
      Young orphaned children would be forced to work at 
earlier ages and/or rely on charity assistance to make ends meet. This 
would jeopardize their ability to seek and receive a marketable 
education.
      Elderly people who outlived their usefulness in the labor 
market and have no friends or family to take them in would be at the 
mercy of charity assistance. Many would fall through the cracks.
      Younger moderate and middle-income workers would 
experience a lower standard of living as they assumed the full 
responsibility for caring for their aging relatives.
      The economic situation of these younger workers would be 
stretched so thin, that if they themselves experienced unemployment, 
disability or some other unanticipated situation, they would be thrown 
into poverty.
      The homeless population would multiply.
      Crime, sickness and other social ills would fester.
      State and federal governments would cut essential 
services and be deeply in debt in an effort to meet the steep costs of 
paying for means tested economic relief programs.
      More taxpayer money would be on the hook for these 
welfare programs.
      The U.S. economy would suffer from a surfeit of under-
productive human capital and the absence of Social Security revenue as 
an economic stimulus.
      There would be wild swings in the living standards of 
working and middle income Americans without a buffer to protect them 
from changes in the stock market and U.S. economy.
      Most U.S. workers would lack a secure base from which to 
build wealth as they would be under-insured and over-exposed to life's 
various risks.
      Most able-bodied U.S. workers would be unable to retire.
    The full value of Social Security, in terms of its macro and micro 
economic impacts, are often misunderstood or under-appreciated by the 
public and policymakers alike. Nevertheless, the program has distinct 
advantages that continue to make it an invaluable resource for the 
nation.
The Privatization Crisis
    The steep benefit cuts and high costs of the President's preferred 
privatization proposal make one thing very clear: that it is 
privatization--not Social Security--that is the crisis for American 
families. If our Nation's policymakers are truly dedicated to 
supporting U.S. workers, they must commit to the principle of ``first, 
do no harm'' when it comes to finding ways to strengthen Social 
Security's solvency. Unfortunately, the President's recently introduced 
a sliding scale benefit reduction plan (also known as ``progressive 
price indexing'') and his proposal for private retirement accounts 
violate this principle as these initiatives would cause irreparable 
harm to Social Security and the populations that heavily rely on its 
benefits.
    At a time when the nation should be focused on shoring up Social 
Security's long-term ability to protect U.S. workers against growing 
risks that threaten to undermine the retirement security of all 
working, middle, and professional class Americans (e.g. insolvent 
private pension plans, unsteady global markets, and so forth.), the 
President introduces a mandatory sliding scale benefit reduction plan 
that offers less protection to these workers and has the following 
negative impacts:

      Cuts targeting those making $20,000 or more per year. 
Workers making at or near $20K per year are not ``middle class'' but 
the ``near poor.'' It is these workers who are least likely to have 
private assets to help mitigate the impact of reduced Social Security 
benefits. These workers are also more likely to experience hardships 
such as food insecurity, housing challenges, and inadequate health 
care. Adding benefit cuts to this list of travails would further 
imperil their living standards.
      Cuts that put the squeeze on the middle class. 
Ironically, real middle class workers get an even worse deal out of the 
President's plan. According to an analysis conducted by Christian 
Weller at the Center for American Progress, middle class families would 
face larger benefit cuts under the President's plan, even if nothing 
were done to shore up Social Security's long term shortfall.\7\ While 
there is a standard misconception that middle class families have more 
private resources to offset these cuts, the reality is that many are 
deeply in debt and only a paycheck or two away from poverty.\8\ Thus, 
benefit cuts would have a deep and lasting effect on the economic 
prospects of these families.
---------------------------------------------------------------------------
    \7\ Christian Weller, ``Comparing Apples to Apples: How President 
Bush's Middle-Class Benefit Cuts Compare to Social Security,'' Center 
for American Progress, May 10, 2005.
    \8\ The Drum Major Institute, ``The Middle Class Squeeze: An 
Overview,'' April 11, 2005.
---------------------------------------------------------------------------
      Cuts for orphaned children, widow(er)s, divorcees, and 
the disabled. The Center on Budget and Policy Priorities conducted an 
analyses showing that sliding scale benefit cuts would have an adverse 
impact on low-income orphaned children whose deceased parent(s) made 
above $20K, elderly low-income widows whose husbands made above $20K, 
and low-income divorced spouses whose husbands made in excess of $20K 
per year.\9\ While each of these population groups are vulnerable, 
perhaps the most devastating of all is the case of an orphaned child 
under the age 19 who is least able to fend for his or herself when a 
breadwinner dies. These children would have less income support needed 
to ensure that they receive proper support for their educational, food, 
clothing and shelter needs.
---------------------------------------------------------------------------
    \9\ Jason Furman, ``New White House Document Shows Many Low-Income 
Beneficiaries Would Face Social Security Benefit Cuts Under President's 
Plan,'' Center on Budget and Policy Priorities, May 10, 2005.

    The President's plan to introduce private retirement accounts on 
top of mandatory sliding scale benefit cuts further violates the 
principle of ``first, do no harm'' by introducing the inherent risks of 
the stock market into the Social Security equation. How does 
privatization harm the stability of Social Security and vulnerable 
---------------------------------------------------------------------------
populations?

      Diverting funds to private accounts worsens Social 
Security's long-term funding problem. After bringing national attention 
to the need to close Social Security's long term financing gap, the 
President's proposals fail to pass this critical test. Indeed, it is 
estimated that the combined effects of the President's sliding scale 
and private account plans would only serve to close 30 percent of 
Social Security's long-term shortfall while speeding up the date of the 
trust fund's ``exhaustion'' by eleven years.\10\
---------------------------------------------------------------------------
    \10\ Jason Furman, ``The Impact of the President's Proposal on 
Social Security Solvency and the Budget,'' Center on Budget and Policy 
Priorities, May 10, 2005.
---------------------------------------------------------------------------
      Places Retirement Security in Jeopardy. Financial 
planners have traditionally advised workers to invoke the classic 
``three-legged retirement stool'' (comprised of private pensions, 
private savings and Social Security) when planning for retirement. 
Because private pensions and private savings are increasingly exposed 
to the risks of the stock market through defined contribution plans, 
Social Security's stable defined benefit becomes even more important. 
Yet, if a portion of Social Security was to be turned into a defined 
contribution plan as the President desires, the retirement stool will 
likely collapse taking America's retirement savings with it. This 
collapse would have a profound impact on moderate to middle income 
workers who would be heavily reliant on their retirement income.
      Limits a worker's ability to plan for retirement. The 
uncertainty of the stock market compromises a worker's ability to plan 
for retirement. Without Social Security's adequate, guaranteed base of 
economic support around which to plan, worker's would be left without a 
guidepost to calculate their expected retirement income. This level of 
uncertainty would overwhelm those who face the possibility of outliving 
their retirement savings and/or not earning enough to cover their basic 
living expenses. These concerns are multiplied for women who are most 
likely to serve as care givers for family members even upon retirement.
      Penalizes Workers Vulnerable in the Labor Market. The 
anti-progressive nature of private accounts also poses a threat to low-
income workers, women, and racial and ethnic minorities. To the extent 
that these populations have higher unemployment rates (whether due to 
an inability to find work or deliberate time spent out of the labor 
force caring for family), their individual accounts (unlike Social 
Security) would fail to offset the negative financial implications of 
these labor market differences. Even in a healthy stock market 
environment, therefore, these populations would receive less from an 
individual account because they earn less and are more likely to have 
longer periods without making account contributions. Unfortunately, 
they would be further penalized because they will not have adequate 
Social Security benefits to rely upon as a fail-safe. Sliding scale 
benefit cuts would eliminate their economic security upon retirement, 
in the event of disability, and/or when faced with the loss of a 
breadwinner. Thus, the economic consequences of privatization would be 
especially horrific for these most vulnerable populations.
      Undermines child survivor and disability insurance 
benefits. Under a system of individual accounts, workers who die at a 
young age will be unlikely to have enough funds accumulated in their 
accounts to offset the deep reductions in Social Security's guaranteed 
benefits resulting from the mandatory sliding scale benefit cuts. As a 
result, young child survivors, who are the least able to fend for 
themselves, and disabled workers and their dependents are likely to 
face the possibility of extreme poverty under the President's plan.
      And, of course, the exorbitant cost of private retirement 
accounts means that vulnerable populations would be paying more for a 
privatized system that gives them less value than Social Security 
provides. All of the factors outlined above are unconscionable and 
provide a clear rationale for why American workers should reject the 
President's plan.
Real Proposals for Strengthening Social Security
    Perhaps one of the most misleading aspects of the entire Social 
Security debate is that neither private retirement accounts nor deep 
benefit cuts are necessary in order to bring Social Security's long 
term funding shortfall into balance. Another unfortunate aspect of the 
current debate is that we may be missing an opportunity to truly 
address some of the programmatic elements that would enhance Social 
Security's protections for current and future generations of American 
workers. What are some of these protections?

      Making modest adjustments in order to restore the 
program's solvency.
      Restoring Social Security's student benefit.
      Equalizing outcomes across populations in the disability 
insurance application process.
      Offsetting the negative impact of the Government Pension 
Offset.
      Strengthening Social Security benefits for low-income 
workers.
Conclusion
    In conclusion, it can be said that Franklin Delano Roosevelt's 
vision of a New Deal for American workers has withstood the test of 
time precisely because the philosophical underpinnings of the program 
remain as relevant today as in yesteryear. Created in the aftermath of 
the Great Depression, one of the primary reasons Roosevelt established 
the program was to protect American workers and the U.S. economy 
against the vagaries of an inherently unstable stock market.
    Then, as now, Social Security was seen by a majority of the 
American people as a vital benefit that would afford them a measure of 
dignity and respect should they face the risks of old age, disability, 
or death.
    As we meet at the current crossroads of U.S. politics, it is 
important that politics does not get in the way of formulating good and 
decent policy. Good and decent policy in this case is protecting and 
strengthening the Social Security system so that current and future 
generations of workers will be able to avail themselves of its 
important insurance benefits. The time has come for prudent 
policymakers to come together to address how responsible adjustments 
can be made to extend the solvency of Social Security.

                                 

    Chairman MCCRERY. Thank you, Dr. Rockeymoore. Ms. Campbell?

   STATEMENT OF NANCY DUFF CAMPBELL, CO-PRESIDENT, NATIONAL 
                       WOMEN'S LAW CENTER

    Ms. CAMPBELL. Hard act to follow. Thank you, Mr. Chairman. 
The Subcommittee has recognized in convening this hearing that 
women are even more reliant on Social Security than men, and 
are among the most vulnerable of its beneficiaries because they 
have lower earnings, spend more time out of the labor force for 
caregiving, and have smaller pensions and savings, but live 
longer than men. In fact, Social Security looks very different 
from a woman's perspective. For men, Social Security looks like 
a worker retirement program. Eighty percent of male 
beneficiaries get benefits solely as retired workers. For 
women, Social Security is a family insurance program. Only 33 
percent of women receive benefits solely as retired workers, 
but 55 percent of women receive benefits, at least in part, as 
a spouse or former spouse of a retired, disabled, or deceased 
worker. These women and the 8 percent of beneficiaries who are 
children receive Social Security benefits as family members.
    In the future, because more women are working in the paid 
labor force, more women will qualify for benefits on their own 
work records. In many ways, the future does not look that 
different from today. In fact, the Social Security actuaries 
project that 40 years from now, about 40 percent of women 65 
and older will still be receiving benefits as a spouse or a 
widow. My written testimony addresses the harmful impact of 
private account proposals on women workers. I want to focus 
here on the impact of these proposals on the family members, 
who are the other half of Social Security beneficiaries, who 
are too often overlooked in these discussions--although I 
should say not today--and are overwhelmingly women and 
children. The impact on these beneficiaries is less transparent 
but just as, if not more, harmful.
    For example, under the Administration's proposal, most 
beneficiaries will be subject to two benefit cuts--one to 
achieve partial solvency, and one to pay back with interest the 
payroll taxes shifted from Social Security into private 
accounts. The first sliding-scale benefit cut affects not only 
worker retirement benefits but benefits for family members--in 
total, 70 percent or more of future retirees. My written 
testimony details the particularly detrimental effect this cut 
has on surviving children and widows, even those with earnings 
under $20,000. These cuts apply whether or not a worker chooses 
to contribute to a private account and they grow deeper over 
time, so, today's young workers and their families face the 
deepest cuts.
    The effect of the second benefit cut on family benefits is 
less transparent. The concept is that a worker who opts for a 
private account would get that account in exchange for a 
reduction in traditional Social Security retirement benefits 
plus an interest charge set at some percent above inflation. My 
written testimony illustrates why accounts under the 
President's plan may not yield enough to offset even this 
particular benefit cut. If they do, the worker has at least 
made up that loss.
    Social Security benefits for spouses and widows are based 
on the worker's benefit, so, when the worker benefit is cut 
because the worker chooses a private account, benefits for 
spouses and survivors would derivatively be cut as well. The 
proposal does not guarantee that a spouse or a widow receive 
anything from the worker's private account.
    The President has said that workers could leave an account 
to anyone, so, a widow might not inherit the account. The 
President has said that workers would be required to purchase 
an annuity to assure they do not end up poor. He has not said 
that married workers would be required to purchase an annuity 
that provides a benefit to the surviving spouse. So, wives and 
widows may end up paying for a spouse's choice of an account 
with further reductions in their own Social Security benefits 
even though they get nothing from the account.
    Why is there so little discussion of these issues? Social 
Security can provide spousal and other family benefits in 
addition to worker's benefits. Private accounts represent a 
fixed pool of assets. It is extremely difficult to amass enough 
in that account, as my written testimony shows, to provide 
adequately for one worker, much less for a worker, a spouse, 
and any children. My testimony assumes an account that had not 
been divided by a prior divorce, in which case the account 
would be even lower. My written testimony also talks about the 
adverse impact of this double dose of benefit cuts on young 
widowed mothers and spouses caring for children of disabled or 
retired workers. These are especially important benefits, and 
any proposal must carefully evaluate them.
    Finally, as harsh as these benefit cuts are, they do not 
resolve the 75-year shortfall in Social Security, and they 
resolve none of the increase in that shortfall created by the 
private account portion of the Administration's proposal. Since 
the President has said any plan must address solvency and has 
ruled out tax increases to do so, it appears his fully 
developed plan is likely to include still more benefit cuts. I 
urge the Committee to reject this approach and to consider 
alternative ways that Social Security could be preserved and 
strengthened, especially for low-income women, and I describe 
some of these in my full testimony. Thank you.
    [The prepared statement of Ms. Campbell follows:]
 Statement of Nancy Duff Campbell, Co-President, National Women's Law 
                                 Center
    Chairman McCrery, Ranking Member Levin, and members of the 
Subcommittee, thank you for this opportunity to testify on behalf of 
the National Women's Law Center.
    As Co-President of the National Women's Law Center, I have worked 
for three decades to protect and strengthen Social Security for women. 
I organized the first Washington, D.C.-based coalition on women and 
Social Security in 1978, served on the technical Committee on Earnings 
Sharing in Social Security, and co-edited a landmark report on Social 
Security and women in 1988. I also served on the Social Security 
subgroup of the House Select Committee on Aging, which in 1992 
developed several incremental proposals to provide more adequate Social 
Security benefits for women, particularly low-income women. And I have 
been honored to have the opportunity to testify before Congress several 
times on Social Security issues.
    And from that perspective, I can say that the stakes for women in 
the Social Security debate have never been as high as they are today: 
not because Social Security itself faces a crisis--because it does 
not--but because the proposals to create private accounts out of Social 
Security would dismantle the safety net that Social Security provides, 
particularly for women and families of all generations. Social Security 
does face a long-term shortfall that should be addressed, and there are 
benefits that can be improved for women and other vulnerable 
beneficiaries. I discuss ways to strengthen and improve Social Security 
later in my testimony. But, in the context of the proposals currently 
on the table, the most important recommendation is to first do no harm 
to this critical program.
Social Security is Important to All Americans--but Especially Women
    Social Security is the largest source of income for most Americans 
in retirement; two-thirds of beneficiaries receive over half their 
income from Social Security. And, with lower earnings, more time out of 
the labor force for caregiving, smaller pensions and savings, but 
longer life spans, women are even more reliant on Social Security than 
men.
    For more than four out of ten nonmarried women 65 and older, 
including widows, Social Security is virtually all they have to live 
on, providing 90 percent or more of their income; nearly six out of ten 
single African American and Latina women 65 and older get 90 percent or 
more of their income from Social Security. Without Social Security 
benefits, more than half (53 percent) of all women 65 and older (and 42 
percent of men 65 and older) would be poor.
Social Security is More Than a Worker Retirement Program--Especially 
        for Women
    Social Security looks very different from a woman's perspective. 
For men, Social Security looks like a worker retirement program: 80 
percent of male beneficiaries get benefits solely as retired workers. 
For women, Social Security is a family insurance plan. Only 33 percent 
of women get benefits solely as retired workers. Another 10 percent 
receive benefits as disabled workers. But 55 percent of women receive 
Social Security benefits, at least in part, as a spouse, or former 
spouse of a retired, disabled, or deceased worker.
    Social Security assures the spouse of a retired worker a benefit 
equal to 50 percent of the worker's benefit; it assures the surviving 
spouse a benefit of 100 percent, assuming both spouses retire at full 
retirement age. Divorced spouses and divorced surviving spouses, if 
married to the worker for at least 10 years, are entitled to the same 
benefits as current spouses. Collectively, these benefits are referred 
to here as spousal benefits. Spousal benefits are paid in addition to 
benefits for the worker; they do not reduce the Social Security benefit 
the worker receives, or the benefit the current spouse (or ex-spouse) 
of the worker receives.
    Retired women receive spousal benefits for two reasons. There are 
millions of women who rely entirely on the spousal benefit, because 
they have not been in the paid labor force for the 10 years (forty 
quarters) necessary to earn Social Security retirement benefits on 
their own work record. For example, about 7.5 million women age 65 and 
older receive Social Security benefits as widows, and half of them do 
not qualify for any other benefit. There are also millions of women who 
have earned a benefit on their own work records, but--because their 
lifetime earnings are lower than their husband's, their worker benefit 
is increased to the level of a spouse's or widow's benefit.
    In the future, because more women are working in the paid labor 
force, more women will qualify for benefits on their own work record. 
But because women still earn less than men and still are more likely to 
take time out of the labor force for caregiving, their lifetime 
earnings well into the future are still likely to be lower than their 
husbands'--whom they are still likely to outlive. Thus, the Social 
Security actuaries project that forty years from now, about 40 percent 
of women age 65 and older will still be receiving benefits as a spouse 
or widow, not just on their own work records.
    And Social Security spousal benefits are not only important to 
women of retirement age. More than 182,000 young widowed mothers and 
150,000 wives of disabled or retired workers caring for children 
receive Social Security benefits, along with over three million 
children. The surviving spouse of a deceased worker or the spouse of a 
disabled worker caring for children is eligible to receive benefits 
until the children turn 16; the children of the worker receive benefits 
until they turn 18 (19 if in school).
    Though Social Security is rarely viewed as a children's program, it 
is one of our nation's largest and most successful safety net programs 
for children. Social Security provides family income to more children 
(5.3 million) than does Temporary Assistance for Needy Families (less 
than 4 million). And it does more to reduce child poverty overall than 
any other federal program, including TANF, the Earned Income Tax Credit 
and Food Stamps.
Relying on Benefit Cuts to Achieve Solvency Would Hurt Millions of 
        Americans
    While Social Security faces a long-term financing shortfall, it 
hardly qualifies as a crisis. Social Security can pay 100 percent of 
promised benefits for over 35 to 45 more years. At that point, Social 
Security is not flat bust; it can pay 70 to 80 percent of promised 
benefits from payroll taxes. In contrast, when Congress acted on the 
recommendations of the Greenspan Commission in 1983 to extend the 
solvency of Social Security and buildup the Trust Fund, Social Security 
was within months of exhausting the trust fund and being unable to pay 
full benefits. To put Social Security's financing challenges into 
perspective: the cost of eliminating the long-term shortfall is just 
one-fifth to one-third the cost of making the 2001 to 2003 tax cuts 
permanent. So, while it is better to deal with the shortfall sooner 
than later, Congress has the time to get this right.
    Improving Social Security's solvency is important--it assures 
current and future workers that they will get the benefits they have 
earned and are counting on for themselves and their families. But 
achieving solvency--making Social Security's books balance over an 
extended period--is not an end in itself. Solvency can be achieved 
simply by cutting benefits deeply enough. But restoring solvency to the 
Social Security program primarily by cutting the Social Security 
benefits Americans depend on is a cure that's worse than the disease.
``Sliding scale'' benefit cuts would harm the overwhelming majority of 
        Social Security beneficiaries--especially widows and surviving 
        children
    The White House has acknowledged that private accounts do nothing 
to restore solvency to Social Security (indeed, as discussed later in 
this testimony, they make the problem worse). At a press conference on 
April 28, 2005, President Bush outlined his proposal for partially 
addressing the solvency of Social Security. He proposed cutting 
benefits on a sliding scale for workers currently under age 55.
    These cuts occur because the proposal would change the current wage 
indexing of initial benefit levels to price indexing. Since prices 
generally increase slower than wages, benefits based on price indexing 
will be lower than current benefits based on wage indexing. The 
Administration's plan has sometimes been referred to as ``progressive 
price indexing'' because workers making less than $20,000 a year today 
are exempt from benefit cuts (at least as retired workers) and higher 
earners face progressively higher cuts. But this label is misleading, 
because the plan cuts benefits for 70% of retired workers, whose 
partially price-indexed benefits would no longer keep pace with wage 
growth and increases in the overall standard of living. Many middle-
income workers who rely heavily on Social Security benefits would face 
deep cuts. And many beneficiaries with incomes under $20,000--
especially widows and surviving children--would in fact have their 
benefits cut because their benefits are based on the record of a worker 
who earned over $20,000 a year.
    In testimony to the full Committee on Ways and Means on May 12, 
2005, economist Jason Furman illustrated the effects of the President's 
proposal. For a worker with medium earnings ($36,300 today) retiring in 
2055, the proposal would mean a 21 percent cut in scheduled benefits, 
from $22,097 to $17,545 (in 2005 dollars). For a worker with average 
earnings retiring in 2075, benefits would be cut 28 percent (from 
$27,344 to $19,715 in 2005 dollars).
    For a moderately high earner--$58,560 today--the benefit cut would 
be deeper. For such a worker retiring in 2055, benefits would be cut 31 
percent below scheduled levels (from $29,296 to $20,214 in 2005 
dollars); in 2075, benefits would be cut 42 percent (from $36,254 to 
$21,100 in 2005 dollars).
    There are several important points to note about the benefit cuts 
under this proposal:

      they apply whether or not a worker chose to contribute to 
a private account;
      they grow deeper over time, so younger workers face the 
deepest cuts; and
      they apply not just to worker retirement benefits, but to 
benefits for spouses, divorced spouses, surviving spouses and surviving 
children.\1\
---------------------------------------------------------------------------
    \1\ The Administration recently confirmed that its proposal would 
reduce benefits for surviving children and widows (Associated Press, 
Survivor Benefits Face Cut, Official Says, May 12, 2005), and it is 
therefore reasonable to assume it applies to spouses, divorced spouses, 
and surviving divorced spouses as well.

    To repeat, these are deep benefit cuts for 70% of retired workers 
and their families, especially given the significant reliance so many 
beneficiaries have on Social Security. But for widows and surviving 
children, whose reliance on Social Security is even greater, they are 
devastating.
    The risk of poverty for women 65 and older rises dramatically with 
widowhood. Just 3 percent of married women 65 and older receiving 
Social Security benefits are poor. The poverty rate is five times 
higher--15 percent--among widowed women, and 27 percent of widowed 
women have incomes below 125 percent of poverty. Widowhood makes women 
economically vulnerable--even if they were secure before. Under current 
law, although a widow is entitled to the higher of her own worker 
benefit or 100 percent of her husband's benefit, her Social Security 
income as an individual is at best one-half to two-thirds of what the 
couple had been receiving. Any pension benefits the husband was getting 
may end, or be cut in half (ERISA guarantees a 50 percent survivor 
benefit for spouses in defined benefit pension plans, but such plans 
are disappearing), and women are much less likely than men to have 
their own pension benefits. And the couple's assets may already have 
been depleted, especially by illness.
    When a worker dies before retirement age, the family can be just 
as, or even more economically vulnerable. The worker and spouse 
together may have been making a middle-income wage--but when part or 
all of that income disappears, a formerly middle-class family is at 
risk of becoming poor. Social Security benefits for surviving spouses 
and surviving children replace part of that lost income. Current 
benefit levels allow many, though not all, widows and children to stay 
out of poverty and maintain their dignity--if nothing like their former 
standard of living.
    Later, this testimony suggests ways that Congress could improve 
benefits for widows, the largest group of poor elderly women. But at 
the very least, Congress should reject plans to cut these benefits.
    The Administration has said that benefits for a disabled worker 
would be protected from these sliding scale benefit cuts, but not 
necessarily fully protected when the disabled worker retires 
(Associated Press, ``White House Leaves Disabled Benefits Open,'' May 
13, 2005). It has said that the details can be worked out through the 
legislative process. But these details are not easy to work out. And 
the Administration has been silent on whether these cuts apply to the 
spouses and children of disabled workers, as it has conceded they do to 
surviving spouses and surviving children.
    Social Security is an integrated social insurance program that uses 
the same basic formula to calculate benefits for retired workers, 
workers who become disabled, and family members who are eligible for 
benefits on a worker's record. So, for example, when a disabled worker 
reaches retirement age, the benefits continue seamlessly. If a worker's 
disability but not retirement benefits were protected from cuts, a 
disabled worker could face a steep cut in benefits upon reaching 
retirement age. On the other hand, maintaining the unreduced benefit 
for disabled workers throughout retirement, while benefits for retired 
workers who contributed to Social Security for a full working life are 
being cut, would raise new equity issues and create an incentive for 
workers to claim disability before retiring. Similar rules and 
considerations apply for the spouse and children of a disabled worker 
who receive benefits based on the worker's earnings record. If they are 
not protected, the disabled worker and his or her family suffers a 
reduction in income. But if they are protected, there is the anomalous 
result that benefits are reduced for a child whose parent dies, but not 
reduced for a child whose parent becomes disabled.
    Finally, as the White House has conceded, these sliding scale 
benefit cuts address only part of the current system's 75-year solvency 
shortfall and none of the increase in that shortfall created by the 
borrowing needed for his plan for private accounts. The White House 
originally said that the sliding scale reductions would close 70 
percent of the current system's shortfall. But that estimate was 
developed for the Pozen plan, which cuts disability benefits. With 
protections for disability benefits and a small improvement in the 
minimum benefit, which the White House has said are also components of 
its plan, the sliding scale benefit cuts would close only 59 percent of 
the current 75-year shortfall in Social Security (Testimony of Jason 
Furman to the Committee on Ways and Means, May 12, 2005).\2\ Because 
the creation of private accounts worsens Social Security's solvency 
over the next 75 years, the combination of sliding scale benefit cuts 
and private accounts would close just 30 percent of the shortfall 
(Furman testimony). Since the President has ruled out tax increases to 
address these shortfalls, it appears his plan will have to include more 
benefit cuts, compounding the impact of both these cuts and the cuts 
described below that are part of his private accounts plan. These deep 
and painful benefit cuts should be rejected.
---------------------------------------------------------------------------
    \2\ The White House has subsequently acknowledged that its 
statement that sliding scale reductions ``would solve 70 percent of the 
funding problems facing Social Security'' refers to the deficit in the 
75th year (2079), not to the cumulative deficit over the next 75 years.
---------------------------------------------------------------------------
Creating Private Accounts Within Social Security Would Worsen Social 
        Security's Financing and Unravel the Social Security Safety Net 
        That is Especially Critical to Women and Their Families
    Americans are counting on the benefits they earn through Social 
Security to protect themselves and their families. Trying to achieve 
solvency primarily by cutting benefits would deny them that protection. 
Adding private accounts financed by Social Security revenue and 
designed to substitute for Social Security benefits to such a proposal, 
far from being a ``sweetener,'' would actually make matters worse. 
Private accounts would hurt the solvency of Social Security--and the 
rest of the federal budget--and the economic security of Americans who 
depend on Social Security, especially women and their families.
Private accounts would hurt the solvency of Social Security and add 
        trillions to the national debt, forcing cuts to services vital 
        to women and their families
    As the Administration now acknowledges, private accounts do nothing 
to restore solvency to Social Security, even over the very long term. 
And over the shorter term--the next several decades, during the peak 
years of the baby boomers' retirement--they make the current shortfall 
in Social Security much worse. If payroll taxes are diverted from 
Social Security into private accounts, Social Security has less money 
to pay promised benefits to current and near retirees, disabled workers 
and their families, widows, and children. Creating private accounts out 
of Social Security would accelerate the date that the trust fund is 
depleted by 11 years (2030 instead of 2041), even with the sliding 
scale benefit cuts recently proposed by the President (Testimony of 
Jason Furman to the Committee on Ways and Means, May 12, 2005).
    To fill the hole that private accounts would create in the Trust 
Fund, and make good on promises to pay full benefits to those currently 
age 55 and older, the Administration's and most other private accounts 
plans would require the transfer of trillions of dollars from the rest 
of the budget to Social Security. Since the general budget is already 
running record deficits, that money will have to be borrowed. To make 
matters worse, the added burden of financing the costly and prolonged 
transition to private accounts would hit at the same time as the 
government faces growing health care costs and other pressing national 
needs.
    Americans of all ages--the young especially, because the debt will 
be with them for their whole lives, but also those who have already 
retired--will have to bear the burden of paying off the added debt to 
finance private accounts, in the form of higher taxes, cuts in vital 
services, and higher interest rates that make it harder to finance a 
home, a car, a college education. Women and their families will be 
particularly hard hit, because they disproportionately rely on supports 
such as Medicaid, child care, food stamps, housing--programs that 
already are facing cutbacks.
Private accounts would undermine retirement security for workers--
        especially working women
    There are many problems with expecting a private account to provide 
the kind of disability and family protections that Social Security 
provides, as the next section of this testimony explains. But trading 
the secure benefits that Social Security provides--benefits that do not 
fluctuate with the stock market, that cannot be outlived, and that keep 
pace with inflation--is also a bad deal for retired workers, especially 
women.
    A crucial--but often misunderstood--aspect of the Administration's 
plan for private accounts is that they would not provide income on top 
of Social Security, the way an Individual Retirement Account (IRA) or 
an account with the federal employees' Thrift Savings Plan would. Under 
the Administration's proposal, workers who choose to contribute to an 
account would pay back every dollar contributed--at an interest rate of 
three percent above inflation--out of their remaining Social Security 
benefit. This pay-back requirement--sometimes referred to as the 
``offset'' or ``privatization tax''--represents a second cut in the 
Social Security benefit, on top of the sliding scale benefit cut or any 
other benefit cut made to achieve solvency.
    In his testimony to the full Committee on Ways and Means on May 12, 
2005, economist Jason Furman illustrated what the President's plan 
(including the sliding scale benefit cut) would mean for a medium 
earner (average wage, or $36,000) retiring in 2075, whom I'll call 
Jamie. All dollar amounts are 2005 dollars.
    Under current law, Jamie's retirement benefit would be $27,344. 
This would be cut by $7,629 under the sliding-scale benefit reduction. 
If Jamie contributed to a private account, the offset would cut the 
benefit by an additional $12,414, leaving Jamie with a traditional 
Social Security benefit of $7,301--a 73-percent reduction in the 
scheduled benefit. The rest of Jamie's retirement benefit would depend 
on the private account--and the market.
    Relying on private investment accounts to replace Social Security 
benefits involves real risks--as anyone who has watched the stock 
market over the past few weeks or the past 5 years can attest. Thus, 
the Congressional Budget Office uses a risk-adjusted methodology to 
estimate the returns on private accounts (and on public pension 
investments by the Railroad Retirement Fund). CBO expects private 
accounts to earn an annual return of 3.0 percent above inflation, after 
adjusting for risk.\3\ So, assuming a return of 3.0 percent above 
inflation, and that Jamie converted the account to a single-life 
annuity, Jamie would get $12,414 a year from the account--enough to 
cover the benefit offset, but with nothing left to mitigate the 
sliding-scale benefit cut. The combination of the doubly reduced Social 
Security benefit and the private account would provide Jamie with 
$19,715 a year, a 28-percent reduction from the scheduled benefit.
---------------------------------------------------------------------------
    \3\ CBO assumes a risk-adjusted return on investment of 3.3 percent 
above inflation--CBO's projected return on Treasury bonds--minus 0.3 
percent for administrative expenses. Congressional Budget Office, Long-
Term Analysis of Plan 2 of the President's Commission to Strengthen 
Social Security (July 21, 2004, updated Sept. 30, 2004).
---------------------------------------------------------------------------
    Jamie might be a luckier investor than in this example. A group of 
leading financial economists surveyed by the Wall Street Journal 
estimated future rates of return at 3.4 percent above inflation. That 
would give Jamie $14,125 from the account--an extra $1,711 per year. 
But Jamie also could do worse. Financial economist Robert Schiller 
estimates that workers investing in life cycle accounts (which the 
Administration has said would be the investment option selected if 
accountholders did not designate otherwise, and would be required 
beginning at age 47) would lose money on the accounts 71 percent of the 
time, using returns he believes are a more realistic projection of 
future returns than historic returns.\4\ (Robert Shiller, ``The Life 
Cycle Personal Accounts Proposal for Social Security: An Evaluation'' 
(March 2005)). Or Jamie could earn a slightly better rate of return--
but find that all the gains were wiped out by investment costs that 
exceed the 0.3 percent assumed in these examples. (The Thrift Savings 
Plan has administrative costs of 0.6 percent.)
---------------------------------------------------------------------------
    \4\ He estimates a median return of 2.6 percent above inflation.
---------------------------------------------------------------------------
    If Jamie is a woman, she could face other problems relying on a 
private account to replace her Social Security benefits. With a private 
account, the timing and size of contributions, as well as overall 
investment returns, affect the size of the accumulation. If Jamie took 
several years out of the labor force early in her working life to raise 
children, she will likely have a smaller account, because of the loss 
of compounding on contributions in the early years. In contrast, Social 
Security helps counteract the lifetime earnings gap between men and 
women, caused by women's lower wages and more time out of the labor 
force for caregiving, because it has a progressive benefit formula that 
provides lower earners with a higher percentage of their pre-retirement 
income, counts only the 35 highest years of earnings toward the average 
used to determine benefits, and makes the timing of earnings 
irrelevant.
    In addition, unless Congress acts to overhaul the private annuity 
market as part of a private accounts plan, Jamie could face other 
problems when she tries to turn her account into an annuity that will 
provide income for life. Social Security pays monthly benefits on a 
gender-neutral basis; in the private annuity market, if a woman and man 
each buy an annuity with the same sum of money, the woman will get 
lower monthly benefits. Such gender discrimination must be prohibited 
in any private accounts plan in Social Security. Social Security 
provides annual cost of living adjustments; this is especially 
important for women, to prevent the value of benefits from being eroded 
by inflation over the cost of a long lifetime. No private annuities 
currently offer full protection against inflation, and experts believe 
they are unlikely to offer such a product without the involvement of 
the federal government, even if the market for annuities expanded under 
a private accounts plan (See National Academy of Social Insurance, 
Uncharted Waters: Paying Benefits from Individual Accounts in Federal 
Retirement Policy, Study Panel Final Report, Reno, Graetz, Apfel, 
Lavery, and Hill, eds., 2005) (hereafter NASI, Uncharted Waters). 
Moreover, there is a risk that a private annuity company might go out 
of business before all benefits are paid, as in the case of the 
Executive Life Insurance Company (see NASI, Uncharted Waters). Workers 
will need an assurance that the annuity they purchase from a private 
annuity company will be there for the rest of their lives--just like 
Social Security. This is especially important for women, who are likely 
to live longer than men but whose lower incomes mean they have less in 
savings for retirement. According to the Employee Benefits Research 
Institute, among those aged 21 to 64, the typical woman's 401(k) 
balance is 59 percent of the typical man's ($10,000 v. $17,000); the 
typical woman's IRA balance is two-thirds of his ($8,800 v. $13,000); 
and women are less likely than men to have either a 401(k)-type plan or 
IRA.
    In short, under a private accounts plan, it is likely that the 
federal government will have to play an active role in the annuities 
market, and probably act as a guarantor, to make sure that the 
annuities purchased with private accounts--which Americans would be 
counting on to provide their basic retirement security--are 
nondiscriminatory, adjusted for inflation, and secure for the rest of 
their lives. But Social Security does that already, and at much lower 
cost than could be achieved through a new system.
Private accounts would further jeopardize benefits for retired spouses 
        and widows
    As described above, workers under age 55 face two benefit cuts 
under the President's plan: a ``sliding scale'' benefit cut, except for 
the lowest-income workers, whether or not they participate in a private 
account, and a second benefit cut if they do.
    The Administration has recently confirmed that the first benefit 
cut would also apply to surviving spouses, and by analogy spouses. And 
it is very likely that the second benefit cut--the offset--will apply 
to the benefits of the spouses and surviving spouses of workers who 
contribute to a private account as well. Benefits for spouses and 
surviving spouses are based on the worker's benefit. And all the plans 
with offsets that have been developed so far would reduce the benefits 
for a retired spouse and surviving spouse, as well as the worker who 
chose an account. (See NASI, Uncharted Waters.)
    Workers subject to the offset would at least have a private account 
to try to make up for the additional cut in their Social Security 
benefits. But spouses and surviving spouses do not appear to be 
guaranteed any payments from a spouse's private account under the 
President's plan. The President has said that workers could leave an 
account ``to anyone'': so a widow might not inherit the account. The 
President has said that workers could be required to purchase an 
annuity for themselves to ensure that they do not spend their accounts 
too quickly and end up poor. But the President has never said that 
married workers would be required to purchase an annuity that provides 
a benefit to the surviving spouse. So wives and widows may end up 
paying for a spouse's choice of an account with further reductions in 
their Social Security benefits, even though they get nothing from the 
account.
    To illustrate what the combination of sliding-scale benefit cuts 
and private accounts for Social Security might mean for women when they 
are widowed, let's consider the situation of Michael and Sarah, a 
couple who retire in 2075. Michael's income puts him in the medium 
earner category. Sarah has less than 10 years in the paid labor force 
and is therefore not eligible for a Social Security benefit as a 
worker. Michael contributed to a private account.
    Michael's benefits would be the same as Jamie's in the previous 
example. After the sliding scale benefit cut and the offset, his 
traditional Social Security benefit would be reduced from $27,344 to 
$7,301 a year. If Sarah's widow's benefit is based on his traditional 
benefit, it also would be $7,301. If Michael bought a single life 
annuity for himself--to assure himself of a modest $19,715 a year 
income--there would be nothing in the account for Sarah to inherit and 
no payments from the account for Sarah. Sarah would have a benefit of 
just $7,301--a 73 percent cut.
    Michael could purchase an annuity with survivor benefits for Sarah. 
But to get an annuity with survivor benefits, he (and they) would have 
to accept lower payments during his lifetime.\5\ If Michael and Sarah 
are the same age, and Michael purchased a symmetrical two-thirds joint 
and survivor annuity (an annuity that pays two-thirds of the previous 
benefit to the survivor, whether or not the survivor is the primary 
annuitant), Michael's annuity payments would be 93 percent of what they 
would be with a single life annuity. The survivor--Michael or Sarah--
would get two-thirds of that, or 62 percent of the single-life annuity 
payment. So, the survivor would have a traditional Social Security 
benefit of $7,301 plus an annuity from the account of $7,697 (.62 x 
$12,414) or $14, 998: a 45 percent cut, even worse than the 28 percent 
benefit cut single average earners can anticipate.
---------------------------------------------------------------------------
    \5\ The annuity adjustment factors in the example below were 
developed by the Social Security actuaries. See National Academy of 
Social Insurance, Uncharted Waters: Paying Benefits from Individual 
Accounts in Federal Retirement Policy, chapter 3 (2005).
---------------------------------------------------------------------------
    If Sarah is a few years younger than Michael, rather than the same 
age, the payments will be lower still to account for her longer life 
expectancy. If he also has to make provision for a minor or disabled 
adult child, the account will provide even less income to him and 
Sarah.
    If Sarah were a career low earner (under $20,000), who qualified 
for a worker benefit, she would not be subject to the sliding scale 
benefit cut. Her Social Security benefit as a lifetime low earner would 
be $16,599, higher than she would get as the widow of a worker with 
medium earnings and a private account. However, if Sarah contributed to 
a private account for herself, her own worker benefit would be cut by 
the offset to $11,022. She would also have her private account which 
could provide her with an annuity of $5,577 a year, leaving her with 
$16,599, a 39-percent reduction from her scheduled widow's benefit. (If 
Sarah worked less than a full career at low wages, but enough to 
qualify for a Social Security benefit, her Social Security benefit and 
annuity would be lower than this example.)
    Given the importance of spousal benefits to women, now and in the 
future, it is disturbing that the effect of private accounts on these 
benefits has received so little attention. But there may be a reason 
for the silence on these issues. With private accounts--which represent 
a finite pool of assets--there are real and difficult tradeoffs 
involved. The Administration recently acknowledged that 15 percent of 
all retirees and 30 percent of lower earners would have to annuitize 
their entire account to assure themselves of a poverty level income, 
leaving no inheritance--or survivor's benefits. Social Security can 
provide supplementary benefits for surviving spouses and children, as 
well as other protections, because it is a broad-based social insurance 
plan. A private retirement account cannot.
Private accounts would further jeopardize benefits for young widowed 
        mothers and surviving children
    The Administration has confirmed that benefits for young widowed 
mothers and child survivors would be subject to the sliding scale 
benefit cut under the President's plan. And private accounts are likely 
to provide little if any assistance to these women and children. The 
account of a worker who dies at a young age would be small. It would 
provide little additional support for a woman raising young children, 
even if she had access to the funds in the account when disaster 
struck--and she might not. The Administration has said that accounts 
could be left to anyone, so a young widow might not inherit. Even if 
she did inherit, the administration has said that accounts must be 
saved until retirement, so a young widow might not have access to the 
funds until she retired. It also is unclear whether a widow would 
inherit the account free and clear, or if she would also inherit the 
offset that goes with it.
Private accounts would further jeopardize the benefits of divorced 
        spouses and divorced surviving spouses
    The Administration has confirmed that surviving spouses are subject 
to the sliding scale benefit cut and by analogy divorced spouses and 
divorced surviving spouses. As described above, Social Security 
provides benefits to divorced spouses and divorced surviving spouses 
who have been married for at least 10 years. Benefits for divorced 
spouses are calculated in the same way as benefits for spouses and 
surviving spouses, based on the full work history of the higher-earning 
spouse, not just the earnings during the period of the marriage. As 
with other spousal benefits, they can be as much as 50 percent of the 
higher-earning spouse's benefit while the higher earner is alive, and 
100 percent when the divorced spouse is widowed. About a million women 
receive benefits, at least in part, as a divorced spouse or widow, and 
these benefits are a crucial source of income for this economically 
vulnerable group of women.
    Among the many unanswered questions about private accounts is how 
they would be affected by divorce. The Administration has said that 
accounts could be divided at divorce, but it is unclear whether that 
division would be automatic or whether a spouse would have to get the 
court to divide the account(s) during the divorce. Many women already 
lose out on a share of their spouse's retirement plan, either because 
they had no lawyer and didn't know to ask, or because their lawyer was 
not knowledgeable about dealing with pensions. It is also unclear 
whether accounts would be divided in half or in some other manner. And 
it is unclear what would happen at divorce if only one spouse had 
chosen to contribute to a private account--especially if the spouse 
with the account was the lower earner.
    If the divorced spouse gets a share of an account at divorce, there 
are likely to be other consequences. If a divorced wife gets a share of 
her husband's private account, she is likely to get the offset that 
goes with it--which she would have to repay out of her own, probably 
smaller, Social Security benefits.
    Social Security's current system of spousal benefits has reduced 
conflicts and administrative costs. To receive benefits as a divorced 
spouse, an applicant provides documentation of the marriage and divorce 
to the Social Security Administration when she applies for Social 
Security benefits. There is no need to seek these benefits during the 
divorce, and no need for the Social Security Administration to track 
changes in marital status across the lifespan. Moreover, the payment of 
Social Security benefits to a divorced spouse does not affect the 
benefits paid to the worker or his or her current spouse or surviving 
spouse, eliminating tension and disputes.
    Issues of spousal rights in private accounts raise many new and 
complex questions. If the accounts are property, are they subject to 
state laws concerning marital property--leading to different rights for 
spouses in community property and common law states--and for couples 
that move from state to state? What happens when one member of a couple 
chooses to participate in an account, but the other does not? These 
questions, too, must be answered.\6\
---------------------------------------------------------------------------
    \6\ See Uncharted Waters, supra note 4.
---------------------------------------------------------------------------
Options for Strengthening and Improving Social Security
    The first and most important element of any plan to strengthen 
Social Security must be to avoid weakening it by shifting trillions of 
dollars from Social Security into private accounts. If Congress decides 
not to create private accounts out of Social Security, the long-term 
shortfall is manageable, and there are various options for 
strengthening Social Security's finances that would not require deep 
benefit cuts for the vast majority of Americans. For example\7\:
---------------------------------------------------------------------------
    \7\ The options that follow are discussed in Reno and Lavery, 
National Academy of Social Insurance Issue Brief No. 18, Options to 
Balance Social Security Funds Over the Next 75 Years (2005).
---------------------------------------------------------------------------
    Only earnings up to $90,000 are subject to Social Security taxes. A 
clerical worker earning $25,000 a year pays Social Security taxes on 
100 percent of her wages; a manager earning a salary of $270,000 pays 
Social Security taxes on only a third of his. Raising the tax cap would 
raise revenue and improve the progressivity of Social Security.
    According to the Office of the Chief Actuary of Social Security, if 
all wages were taxed and counted toward benefits using the current 
formula, 93 percent of the long-term shortfall would be eliminated. 
With an adjustment in the benefit formula for the very highest earners, 
this approach could eliminate 100 percent of the shortfall. If the tax 
cap was raised gradually, over the next decade, so that 90 percent of 
wages were subject to tax as they have been historically, 40 percent of 
the shortfall would be eliminated. If this change were made effective 
immediately, or the tax cap were raised above 90 percent, more than 40 
percent of the shortfall could be closed.
    Alternatively, or in addition, other revenue could be dedicated to 
Social Security. (Note that the financing of plans for private accounts 
relies heavily on general revenue transfers, without specifying the 
source of funds.) For example, retaining the estate tax at the 2009 
level--when it will apply only to estates worth over $3.5 million for 
an individual, $7 million for a couple, exempting all but about 0.5 
percent of estates--and dedicating the revenue to Social Security would 
close about 27 percent of the long-term shortfall. The cost of not 
making the recent tax cuts permanent for the wealthiest 1 percent of 
Americans (income above $300,000 a year) would generate about enough 
revenue to close the long-term shortfall.
    While Social Security is running surpluses, and assets in the Trust 
Fund will continue to grow for another two decades, the rest of the 
federal budget is running huge deficits, primarily as a result of large 
recent tax cuts. Getting the rest of the government's fiscal house in 
order by restoring the revenue base will make it easier on the rest of 
the budget when the time comes to redeem the Treasury bonds held by the 
Social Security Trust Fund.
    Precisely because Social Security is so important to women and 
their families, and because Social Security, as a broad social 
insurance program, can provide family insurance benefits that private 
accounts cannot match, a true reform plan should strengthen and improve 
Social Security benefits. The National Women's Law Center and many 
other women's organizations have proposed various ways to improve 
Social Security benefits for women over the years. This testimony 
highlights two: improved benefits for people with low-lifetime 
earnings--including women who have taken time out of the labor force 
for caregiving and for widows and widowers.
    President Bush's Social Security plan includes an adjustment to 
benefits for low-earners. The details of this proposal have not been 
released by the Administration, but during his press conference on 
April 28, 2005, the President stated, ``If you work hard and pay into 
Social Security your entire life, you will not retire into poverty.''
    The President's recognition of the need to improve Social Security 
benefits for low earners is an important contribution to the debate. 
But if ``paying into Social Security your entire life'' means that a 
worker must have 40 years in the labor force--or even 35--to qualify 
for a poverty-level benefit, few low-wage men and even fewer women 
would be protected.
    The low-wage labor market, for men and women, is characterized by 
instability: high turnover, temporary and seasonal employment, and 
part-time work that lead to gaps in employment. And many women take 
time out of the labor force for caregiving, some by choice and some 
because they cannot afford quality child care or caregiving help for an 
elderly family member.
    Congress created a Special Minimum Benefit in 1972 to ``provide 
long-term workers with an income that would free them from dependency 
on welfare.'' \8\ But a career of 30 years--the length of time required 
to get the maximum from the Special Minimum Benefit--is relatively rare 
among low earners. On average, the 25 percent of workers with the 
lowest lifetime earnings had only 17 years with any earnings.\9\ In 
large part because increases in the initial benefit because of the 
Special Minimum Benefit are price-indexed--while determination of the 
initial benefit under the regular Social Security benefit formula is 
wage-indexed--the value of the Special Minimum Benefit as an 
alternative to the regular benefit for lifetime low earners has also 
been steadily diminishing. Fewer people are being helped by the Special 
Minimum Benefit, and the added benefit it provides is shrinking; by 
2013, the Special Minimum Benefit is expected to phase out 
entirely.\10\
---------------------------------------------------------------------------
    \8\ See Olsen and Hoffmeyer, Social Security's Special Minimum 
Benefit, Social Security Bulletin 64(2) (2001-2002).
    \9\ Analysis was for workers born between 1926 and 1960. See 
FitzPatrick, Hill and Muller, National Women's Law Center, Increasing 
Social Security Benefits for Women and Men with Long Careers and Low 
Earnings (2003).
    \10\ Id.
---------------------------------------------------------------------------
    There are various ways to improve the Special Minimum Benefit. The 
National Women's Law Center co-authored a paper that explores various 
options, including lowering the number of years required to receive the 
maximum from 30 years to 25; lowering the earnings requirement to get 
credit for a year of service; and/or counting partial years of 
coverage.\11\ Caregiving years could be counted toward the Special 
Minimum Benefit.\12\ There are ways to adjust the regular benefit 
formula to increase benefits for low-income workers and their 
families--not just shield some of them from benefit cuts.\13\
---------------------------------------------------------------------------
    \11\ See FitzPatrick et al., supra note 7.
    \12\ See Campbell, Report of the Social Security Subgroup of the 
Women and Retirement Study Group of the House Select Committee on Aging 
on Social Security Structural Issues (1992).
    \13\ For a discussion of various options, see Hartmann and Hill, 
Strengthening Social Security for Women: A Report from the Working 
Conference on Women and Social Security (1999).
---------------------------------------------------------------------------
    The economic security of widows, the largest group of poor, elderly 
women, could be improved by adjusting the Social Security survivor 
benefit to allow survivors to keep a larger fraction of the couple's 
benefit.\14\ As previously described, the amount of the Social Security 
survivor benefit currently ranges from 50 to 67 percent of the combined 
benefits received by the couple. The proportion of the couple's 
benefits received by the survivor depends on the relative earnings of 
the husband and wife. The closer their earnings levels, the larger the 
drop in Social Security income at widowhood. Increasing the survivor 
benefit to 75 percent of the couple's benefit would--other things being 
equal--increase benefits for surviving spouses. The survivor of a two-
equal-earner-couple would get the greatest increase under this 
proposal, reducing the disparity in survivor benefits between one- and 
two-earner couples with similar combined lifetime earnings. This 
proposal could be targeted to those with lower earnings by capping the 
amount that anyone could receive from the proposed alternative 
calculation of the survivor benefit.
---------------------------------------------------------------------------
    \14\ See FitzPatrick and Entmacher, National Academy of Social 
Insurance Issue Brief No. 9 Widows, Poverty, and Social Security 
Poverty Options (Aug. 2000).
---------------------------------------------------------------------------
    However, increasing the survivor benefit to 75 percent of the 
couple's benefit will not necessarily mean higher benefits for widows 
if the higher percentage is applied to reduced benefits, as it was 
under Model 2 of the President's Commission to Strengthen Social 
Security. For example, suppose a couple is scheduled to receive $3,000 
a month in combined Social Security benefits, and the plan reduces 
benefits for average earners by 28 percent. Seventy-five percent of the 
new combined benefit would be less than two-thirds of the original 
benefit ($3,000 x 2/3 = $2,000 v. $3,000 x 82% x 75% = $1,845 a month).
    I urge this Subcommittee to consider benefit improvements for women 
and other vulnerable beneficiaries. But the improvements must be real, 
not window-dressing. If a plan purports to improve traditional Social 
Security benefits for women--but simultaneously destroys the foundation 
of the traditional program by draining Social Security to create 
private accounts--the improvements are a sham. If benefit adjustments 
fail to increase scheduled benefits--if they merely keep the cuts in 
the plan from being as deep for some beneficiaries--they are not real 
improvements.
Conclusion
    Through Social Security, Americans contribute while they are 
working to earn protections for themselves and their families when 
income is lost due to retirement, disability, or death. Risks are 
shared, across the country and the generations. This system--especially 
vital to millions of women and families--should not be dismantled by 
shifting to a system of private accounts that would leave individuals 
to face life's risks on their own.

                                 

    Chairman MCCRERY. Thank you, Ms. Campbell. I thank all of 
you for your testimony today. You have clearly pointed out some 
things that the Subcommittee should be concerned about and must 
consider as we go forward in this discussion of reforming 
Social Security. I want to thank the Members of the 
Subcommittee for staying so long today through a long hearing. 
Unfortunately, we have a series of votes on the floor which 
would take us, I estimate, 35 to 40 minutes to conclude. Rather 
than have you all sit here for another 35 or 40 minutes while 
we vote and then come back, if it is all right with you, we 
would like to submit some questions to you in writing and ask 
you to respond likewise. Would that be okay? Thank you very, 
very, much.
    [Whereupon, at 5:04 p.m., the hearing was adjourned.]
    [Questions submitted from Chairman McCrery to Commissioner 
Barnhart, Ms. Bovbjerg, Ms. Lukas, Ms. Ford, Mr. Tanner, Ms. 
Rockeymoore, and Ms. Duff Campbell, and their responses 
follow:]
Questions from Chairman Jim McCrery to the Honorable Joanne B. Barnhart 
               (Answers not received at time of printing)
    Question: In your testimony, you discuss the changes enacted in 
1983 to achieve solvency over 75 years, which included raising the 
retirement age, taxing Social Security benefits, and other 
modifications. By design, it achieved ``solvency'' by building up the 
Social Security Trust Funds, with full knowledge that the program would 
start running deficits much sooner. In the end, the 1983 amendments 
simply kicked the can down the road rather than providing a lasting 
solution. Would you agree that a durable solution must do more than 
buildup bigger balances of Treasury IOUs in the trust funds, it must 
bring Social Security's income and costs in line with each other in the 
long run?
    Question: You mentioned that the cap on earnings subject to Social 
Security taxes at the time Social Security was enacted was $3,000. The 
history of the program's evolution and the decision to raise that wage 
cap in 1950 indicates that the cap represented the belief that Social 
Security should provide a base of protection, upon which employer 
pensions and private saving would build. In other words, Social 
Security was intended to provide a floor of retirement income, not an 
overly generous benefit. Do you agree? Tell us your views regarding 
whether raising the cap substantially or eliminating it entirely would 
be consistent with the historical intent of Social Security? What are 
the tradeoffs Congress would need to consider as we examine such an 
approach?
    Question: The history you describe is one of expanding benefits, 
with tax increases to keep paying for it. That worked for several 
decades. However, today, 96 percent of workers are in jobs covered by 
Social Security, the tax rate has increased sixfold, and the percent of 
workers who have their entire earnings subject to Social Security taxes 
is near the historic high. Do you believe that increasing taxes as we 
have done in the past will be a lasting solution, or will simply 
lengthen the fuse on this demographic time bomb?
    Question: You mentioned the Social Security amendments 1977. At the 
time, benefits were growing too fast, and retirees would have 
ultimately received benefits that replaced more than their previous 
earnings. There was considerable debate about how fast Social Security 
benefits should grow in the future. Ultimately, Congress decided to 
have initial benefits grow at the same rate as wages, and post-
retirement benefits grow at the same rate as prices. The objective, as 
you stated, was to provide benefit levels that replaced a constant 
percentage of career average earnings. However, as you said, even this 
rate of benefit growth is sustainable at current payroll tax rates when 
the number of workers per retiree is falling. Could you elaborate on 
why this is so?
    Question: Testimony in the third panel of this hearing will suggest 
using income taxes or estate taxes to help finance Social Security on a 
permanent basis. As we learned last week, President Roosevelt believed 
it was very important that Social Security be financed by payroll 
taxes, rather than general revenues. When President Roosevelt was 
reviewing the final package that would be sent to the Congress, he 
learned that as written, the package would require government subsidies 
in the future. He was quoted to have said, ``This is the same old dole 
under another name. It is almost dishonest to build up an accumulated 
deficit for the Congress of the United States to meet in 1980. We can't 
do that. We can't sell the United States short in 1980 any more than in 
1935.'' Would you tell us why President Roosevelt believed so strongly 
that Social Security should be self-financed? What are the risks if 
general revenues are permanently used to finance Social Security?
    Question: The workers and families of today are very different than 
they were when Social Security was enacted. Women's workforce 
participation has doubled. The percent of female-headed families has 
increased by two-thirds. You described the benefits that have been 
added to Social Security over time, but can you describe some ways in 
which Social Security has failed to keep up with changes in our 
society?
    Question: Social Security has been described as ``social 
insurance.'' What this means exactly is important--while some of our 
upcoming panelists agree that personal accounts are effective at 
helping to finance the ``insurance'' aspect of the program, there is 
particular disagreement regarding the extent to which personal accounts 
are effective in financing the ``social'' aspect of the program. For 
example, when the program was enacted, a worker paid a ``premium'' 
(payroll taxes) and received a retired worker benefit for him or 
herself. This is the ``insurance'' aspect of Social Security, which was 
later expanded to include disabled workers. In contrast, workers also 
receive benefits for their spouses, children, and other family members, 
even though an individual worker does not pay extra into the system to 
cover his or her family members--and this is part of the ``social'' 
aspect of Social Security. Would you agree that Social Security as it 
currently stands represents a co-mingling of benefits, some of which 
are ``insurance'' as originally envisioned in 1935, and some of which 
were added over time to achieve social goals beyond what pure 
``insurance'' would provide?
    Question: In your testimony you describe the many protections 
Social Security provides to vulnerable populations. Would you discuss 
which protections you believe are essential to maintain, and which 
should be enhanced?
    Question: During the 107\th\ Congress, this Subcommittee originated 
legislation (H.R. 4069) that would have enabled more disabled widows 
and divorced spouses to become eligible for benefits. This legislation 
would have helped an estimated 120,000 people--primarily women--and it 
was approved by the House of Representatives. One of the provisions in 
that legislation would have repealed a time limit that applied to 
disabled widow(er)s applying for benefits. Under current law, a 
disabled widow(er) may only collect benefits if she or he is at least 
age 50, and the disability began within 7 years of the worker's death. 
Are there particular policy reasons for these restrictions, and do you 
believe these restrictions should be repealed? Another provision in 
that legislation would have enabled certain divorced spouses to qualify 
for benefits sooner. Under current law, a divorced spouse may collect 
benefits based on her ex-husband's record, even if he is not yet 
collecting benefits, if the divorce has been in place for at least 2 
years. This is intended to prevent people from seeking a divorce simply 
to gain access to spouse benefits. However, in some cases, the 2-year 
waiting period may cause hardship on divorced spouses. Would you agree 
the 2-year waiting period should be eliminated in cases where the 
worker remarries and it is clear the divorce was not a ruse simply to 
get spouse benefits? Under current law, there is what is called a 
``special minimum benefit.'' This benefit is granted to workers with at 
least 30 years of earnings at a minimum level ($10,035 in 2005). The 
maximum benefit equals about 85 percent of the poverty threshold. Since 
this minimum benefit is indexed to the CPI (prices) while the regular 
benefit formula is indexed to wage growth--and wages generally grow 
faster than prices--fewer and fewer workers are qualifying for the 
special minimum benefit. Today, about 120,000 beneficiaries receive the 
special minimum benefit. Do you believe Congress should improve the 
minimum benefit that applies to long-time low-wage workers?
    Question: Under current law, one-earner couples are treated more 
generously than two-earner couples with the same total earnings. Do you 
believe Congress should make changes to equalize the treatment of one-
earner and two-earner couples, particular with respect to benefits for 
widows, as widows have a higher than average poverty rate? Several 
proposals would provide widows with benefits that equal 75 percent of 
what the couple received, subject to a cap based on an average retired 
worker's benefit. Do you believe this would be a step in the right 
direction?
    Question: In 2000, Congress enacted the Senior Citizens Right to 
Work Act (P.L. 106-182), which eliminated the senior earnings penalty 
for individuals who reached full retirement age. Would you discuss the 
pros and cons of eliminating the senior earnings penalty for early 
retirees?
       Questions from Chairman Jim McCrery to Barbara D. Bovbjerg
    Question: In your testimony, you highlighted Social Security's 
importance in helping to reduce poverty among seniors. What would you 
suggest as options to enhance Social Security's role in providing a 
basic floor of protection for low-income seniors. For example, would 
maintaining or increasing the progressivity of the current benefit 
formula, or enhancing the minimum benefit offered under Social 
Security, help prevent poverty among seniors?
    Answer: Social Security's benefit formula is designed to be 
progressive; that is, it provides disproportionately larger benefits, 
as a percentage of earnings, to low-wage earners than to high-wage 
earners. By replacing a larger percentage of low-wage workers' pre-
retirement income in this way, the benefit helps ensure adequate 
retirement incomes for these workers. There are various proposals to 
improve the progressivity of the Social Security system, including (1) 
increasing the benefit for widow(er)s by paying the individual 75 
percent of the benefit they received previously as a couple, and (2) 
providing minimum benefit amounts, such as 100 or 120 percent of the 
poverty level, for qualifying workers.
    While the proposed changes will not necessarily prevent poverty 
among the elderly, they do ensure a minimum level of protection. If 
such proposals are considered, it may be helpful to examine their 
interactions with other programs, such as the Supplemental Security 
Income (SSI) program, which also provides financial assistance to the 
elderly. Additionally, any proposed changes to one part of Social 
Security should be considered with respect to the other elements of the 
program, including disability and survivors. Ideally, Social Security 
reform proposals will be considered as comprehensive packages, as some 
options that improve progressivity could be offset by others that 
reduce it.
    Question: Would you explain the differences between the 
Supplemental Security Income (SSI) program and the Social Security 
program? What population does each serve? Describe the population that 
receives both benefits? What options are there for improving the 
coordination of protection between these two programs?
    Answer: The Social Security program provides cash benefits to 
retired and disabled workers and their dependents and survivors. 
Workers become eligible when they have enough years of earnings covered 
under Social Security, (i.e., earnings from which Social Security taxes 
are deducted); they and their employers pay payroll taxes on those 
covered earnings to finance benefits. The Supplemental Security Income 
(SSI) program is a means tested program that provides cash benefits to 
meet basic needs for food, clothing, and shelter. It is the nations' 
largest cash assistance program for the poor, and although SSI is 
administered by the Social Security Administration (SSA), it is funded 
by general tax revenues and not the Social Security Trust Fund.\1\
---------------------------------------------------------------------------
    \1\ States have the option of supplementing their residents' SSI 
payments. This state-supplemented SSI payment may be administered by 
the state, or states may choose to have the additional payments 
administered by the federal government.
---------------------------------------------------------------------------
    Current beneficiaries of Social Security include insured workers 
who are eligible for retirement or who cannot work due to a disability, 
these workers' dependents, and certain survivors of deceased insured 
workers. Current beneficiaries of SSI include persons who are age 65 
and older, blind, or disabled, and who have limited income and 
resources. Unlike Social Security beneficiaries, the benefits that SSI 
recipients receive are not based on an earnings history.
    In December 2002, more than 780,000 individuals aged 65 and older 
received both Old Age Survivors and Disability Insurance (OASDI) and 
SSI benefits, representing about 3 percent of all OASDI recipients. Of 
these concurrent beneficiaries, approximately 35 percent were receiving 
SSI benefits because they were blind or disabled, while 65 percent were 
receiving SSI benefits because they were aged 65 and older. Moreover, 
about 60 percent of the concurrent aged and SSI beneficiaries were 
female. Additionally, for the concurrent Disability Insurance (DI) and 
SSI beneficiaries, more than half were female and about 60 percent had 
mental impairments.
    To improve service and coordination between the DI and SSI 
Programs, GAO \2\ recommended that SSA:
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    \2\ See SSA Disability: Enhanced Procedures and Guidance Could 
Improve Service and Reduce Overpayments to Concurrent Beneficiaries. 
GAO-02-802. (Washington, DC: Sept. 5, 2002).

      develop procedures and integrated guidance to ensure 
information about work activity is collected and shared between DI and 
SSI Programs;
      develop comprehensive systems to monitor the progress of 
DI cases as they move between SSA components and set timeliness goals 
for the entire process for each action and component; and
      develop public information materials targeted to 
concurrent beneficiaries that explain the complex interaction of the 
two programs in language that beneficiaries can understand.

    Question: You discussed how workers do not make any additional 
contributions to Social Security to provide benefits for eligible 
family members--spouses, children, and parents. As a result, families 
receive higher returns from Social Security than single workers. Would 
you also agree that in some cases, family benefits make Social Security 
less progressive than the benefit formula alone would indicate? For 
example, a low-earning male (earning about $16,500 in 2005) reaching 
age 62 this year can expect an inflation-adjusted rate of return 
equaling 2.87 percent from Social Security. In contrast, a one-earner 
couple with high earnings (earning $59,000 in 2005) reaching age 62 
this year receives an inflation-adjusted rate of return equaling 3.73 
percent. Do you believe this is something Congress should examine as 
part of strengthening Social Security for vulnerable populations? What 
options are there to improve equity in benefits, and what are the 
tradeoffs?
    Answer: By design, Social Security distributes benefits and 
contributions across workers and their families in a variety of ways. 
These distributional effects illustrate how the program balances the 
goal of helping ensure adequate incomes with the goal of giving all 
workers a fair deal on their contributions. While this redistribution 
typically works well, there are some cases when this may not be true. 
In particular, recent societal changes suggest that the Social Security 
system as it is currently designed may not be as effective as it could 
be in addressing the needs of our society, for example, in the area of 
spousal and survivor benefits. As noted in my testimony, the increase 
in women in the workforce and two-earner couples raises questions about 
the equity of the current design of the spousal benefit for working 
women. Under the current program, non-working spouses can receive a 
spousal benefit even though they had no covered earnings of their own. 
Working spouses can be entitled to a benefit based on their own 
earnings record that is equal to or less than the benefit they are 
entitled to on their spouses' earnings records. So the household 
benefit in such cases could be no greater than if such spouses had 
never worked. When a woman who had worked becomes widowed, her total 
household income could potentially be cut much more deeply if she were 
receiving a retirement benefit based on her own earnings while her 
spouse was alive, compared to a widow whose benefit was based only on 
her spouse's earnings. Thus two-earner couples may question whether 
they are receiving an adequate return on their contributions.
    Options for improving equity include enhancing benefits for 
specific groups, such as low earners. While such enhancements could 
improve equity, they could also increase cost and administrative 
complexity.
    In light of the program's long-term solvency problems, it is 
important to take remedial action sooner rather than later, but it is 
also important to consider all aspects and elements of the program. The 
solvency and sustainability of Social Security should be addressed 
within the context of the program's role of protecting vulnerable 
populations, while at the same time considering how carrying out that 
role may need to change to better address changing societal needs.
    Question: You mentioned the potential for slower economic growth in 
the future, due to slower labor force growth. Could you elaborate on 
this trend, and options for modifying Social Security to encourage work 
among seniors who want to continue working? What are the tradeoffs 
involved with those options?
    Answer: The aging of the baby boom generation (those born between 
1946 and 1964), increased life expectancy, and falling fertility rates 
pose serious challenges. These trends will affect the size and 
productivity of the U.S. labor force and its output and will have real 
and important impacts on employers and the economy. Without a major 
increase in productivity or higher than projected immigration, slow 
labor force growth will lead to slower growth in the economy and to 
slower growth of federal revenue. This in turn will intensify the 
overall pressure on the federal budget. Continued economic growth is 
critical to addressing the challenge of an aging society. One of the 
potential policy changes that could address both the demographic shift 
and the need for robust economic growth is assisting older workers who 
want to stay in the workforce past retirement age.
    Many factors influence workers' retirement and employment 
decisions.\1\ Although some people can benefit by remaining in the 
labor force at later ages, others may be unable or unwilling to do so. 
For those who are able, there are many factors that influence their 
choices, including eligibility rules of both employer pension plans and 
Social Security, their health status, the need for health insurance, 
the employment status of their spouses, and personal preferences.
---------------------------------------------------------------------------
    \1\ See Redefining Retirement: Options for Older Americans. GAO-05-
620T. (Washington, DC: April 27, 2005).
---------------------------------------------------------------------------
    Strategies to extend the careers of older workers include rehiring 
retirees, providing reduced work schedules, flexible work arrangements, 
and job-sharing. However, these strategies are not yet widespread even 
though the majority of older workers are interested in them. Evidence 
suggests that once workers retire, it might be difficult to entice them 
back into the labor force. Additionally, flexible work arrangements--
including reduced work schedules and job-sharing--are often provided on 
an ad hoc basis and to limited groups of employees. The employees 
involved in these arrangements tend to be skilled workers with an 
expertise for which an employer has a special need. Thus, employers may 
not wish to offer these arrangements to all workers. Congress has 
already provided an incentive for older workers to continue working by 
repealing the earnings test for individuals at or above the full 
retirement age. This change allows older workers to continue working 
without any reduction in their Social Security benefits. However, 
workers still have to pay taxes on their earnings, which could be a 
disincentive to continued employment.
    Another consideration is employer demand for older workers. 
Employers' perceptions or biases against older workers may form 
potential barriers to older workers' retaining their current jobs, 
finding new jobs, or reentering the workforce after retiring. For 
example, employers may feel that it is more difficult to recoup the 
costs of hiring and training older workers. All other things being 
equal, older workers can also raise an employer's cost of providing 
health insurance. Further, older workers may face obstacles because of 
perceptions among employers about their reduced productivity.
    Question: The GAO has published many reports about issues relating 
to pensions. As we think about strengthening Social Security, what do 
we need to keep in mind in terms of how changes to Social Security may 
affect pensions and other retirement saving?
    Answer: In seeking to strengthen Social Security, policymakers will 
need to consider how any changes to the system will affect overall 
economic security in retirement, which requires adequate retirement 
income--Social Security, pensions, personal savings, and earnings from 
continued employment. With respect to employer-sponsored pensions 
plans, the question is how best to encourage wider pension coverage and 
adequate and secure pension benefits. Currently, only about 50 percent 
of workers have an employer-sponsored pension plan to supplement their 
Social Security benefit. For those workers who do have pensions, 
however, the structure of those plans has changed over time. More and 
more employers are switching from defined benefit (DB) to defined 
contribution (DC) plans. In doing so, they are shifting an increasing 
share of the responsibility for providing retirement income from the 
employer to the employee. DC plans have lower participation rates than 
DB plans because many DC plans require the employee to opt for 
coverage, whereas most DB plans enroll participants automatically. 
Additionally, increasing costs of other benefits, such as health care, 
are making employers less willing or able to increase other forms of 
compensation packages, including pensions. As a result, employer-
sponsored pensions may provide workers with a smaller share of 
retirement income than they have in the past.
    GAO's work on pensions and pension reform has noted that efforts to 
reform Social Security are occurring as our Nation's private pension 
system is also facing serious challenges. A number of large underfunded 
traditional defined benefit plans--plans where the employer bears the 
risk of investment--have been terminated by bankrupt firms, including 
household names like Bethlehem Steel, US Airways, and Polaroid. These 
terminations have resulted in thousands of workers losing promised 
benefits and have saddled the Pension Benefit Guaranty Corporation, the 
government corporation that partially insures certain defined benefit 
pension benefits, with billions of dollars in liabilities that threaten 
its long-term solvency. Meanwhile, the number of traditional defined 
benefit pension plans continues to decline as employers increasingly 
offer workers defined contribution plans like 401(k) plans where, like 
individual accounts, workers face the potential of both greater return 
and greater risk.
    A common feature of many Social Security reform proposals is the 
creation of a system with individual accounts. The choice to include 
individual accounts as part of broader reform could fundamentally alter 
the defined benefit aspect of current Social Security benefits and 
shift responsibility for at least some portion of Social Security 
benefits to the worker. In light of the current challenges facing the 
private pension system, it may be important in restoring financial 
solvency and stability to Social Security to consider the extent to 
which retirement income risk and responsibility are spread across 
government, employers, and workers.
         Questions from Chairman Jim McCrery to Carrie L. Lukas
    Question: Social Security's tax revenue is expected to fall short 
of promised benefits starting 2017, according to Social Security's 
trustees. Social Security is authorized to continue paying full 
benefits by cashing in the Treasury IOUs in the trust funds. However, 
this will require the government to either raise taxes, cut other 
spending (a large and growing portion of which is devoted to Medicare, 
Medicaid, and other programs important to seniors), or borrow at 
record-breaking levels. The longer we wait, the larger the changes that 
will be required to achieve solvency. Given these facts, do you believe 
Congress should wait, or should act as soon as possible?
    Answer: Congress should act as soon as possible to address Social 
Security's financial shortfall. Not only will timely action make 
achieving solvency more feasible, but every day that we wait is a day 
that young men and women are not able to use a portion of their payroll 
tax to accrue real savings.
    Question: Under current law, one-earner couples are treated more 
generously than two-earner couples with the same total earnings. Do you 
believe Congress should make changes to equalize the treatment of one-
earner and two-earner couples/ If yes, what changes would you 
recommend?
    Answer: In reforming Social Security, Congress should strive to 
create a greater link between what you pay into the system and what you 
will receive out in benefits. The best way to accomplish this is by 
creating a system of personal retirement accounts so that workers 
actually own the money that they are putting into the system and would 
be able to watch their contributions grow and accumulate during their 
lifetime.
    This would be particularly important for two-earner couples, since 
often times the payroll taxes paid by the second-earner--typically a 
working wife--end up resulting in no additional benefits at retirement. 
Incorporating personal accounts into Social Security would begin to 
address this problem and allow working women to know that their 
contributions will improve their lifestyle at retirement.
    Question: You have discussed many ways in which control and 
ownership of personal accounts would help equalize treatment of women 
in Social Security. The President has advocated voluntary personal 
accounts. Therefore, some women may choose to remain entirely in the 
traditional program. What changes to the traditional program would you 
recommend to increase fairness for women?
    Answer: First and foremost the most important change that can be 
made to protect women is to address Social Security's solvency issue. 
Progressive indexing is important for that reason, since it will help 
put Social Security on the road to solvency while protecting the 
benefits of the worse off, who are disproportionately women.
    We also need to find a way to more fairly treat divorces so that 
those who divorce before 10 years still have some right to their 
husband's Social Security benefits. However, I hesitate to recommend 
any other tactics that would tinker with the defined benefit system. It 
is tempting to want to increase benefits for specific groups, but we 
must remember that these benefit increases require tax increases on 
another group. We need to think carefully before increasing Social 
Security's implicit liability. We already have promised away a 
significant portion of our children's future earnings to pay for these 
entitlement programs. Do we really want to make these entitlement more 
generous if that only increases the amount of future earnings being 
transferred from the young to the old? I don't think so.
    Also, the existence of voluntary personal accounts will help create 
a fairer system since women who feel they are being unfairly treated by 
the old system will have new options.
    Question: You mentioned that one advantage of personal accounts is 
that they would continue earning returns on investment even during 
times when women leave the workforce or reduce their work to care for 
children or other family members. However, the contributions they could 
have been making during that time would be lost, leaving them with 
lower account balances than they would have had otherwise. Do you have 
any recommendations to help women make up the difference (allow women 
to make ``catch-up'' contributions)?
    Answer: Congress could consider giving women the opportunity to 
make ``catch up'' contributions once they return to the workforce so 
that they would be able to put a larger portion of their payroll taxes 
or additional pre-tax money into the account to compensate for time 
spent out of the workforce. Alternatively, Congress could allow another 
party, such as a husband, to make pre-tax contributions to his spouse's 
account while she is staying at home so that she can continue to accrue 
retirement savings at the same rate that she was before leaving the 
workforce.
    Question: In your testimony, you raised the issue of how women may 
be left to start from square one in saving for retirement if they were 
married, stayed home to raise children, and then were divorced before 
10 years of marriage (note: a marriage must last at least 10 years in 
order for a divorced spouse to collect benefits on an ex-spouse's 
record). What do you think is the best way to help women in such 
situations?
    Answer: Creating a system of personal accounts is the best way to 
ensure that the stay-at-home mom is protected in the event of divorce. 
Personal accounts would be owned by the individual. In the event of 
divorce, the assets in this account would be considered joint property 
divisible upon divorce. This would be an important protection for the 
stay-at-home mom.
    Question: Your fellow panelist, Ms. Campbell, cited concerns that 
women would get smaller annuities in the private market than men, due 
to their longer life expectancy. She also cited concern about the 
financial stability of companies providing annuities. However, many 
plans that have been introduced in legislation so far would have the 
government provide the annuity, or would have an independent board 
contract for annuity providers similar to how they are contracted for 
Federal workers and Members of Congress participating in the Federal 
Thrift Savings Plan. Do you believe this should address these issues, 
or do you have addition recommendations in this area?
    Answer: I believe this proposal should address this problem. By 
allowing the government to either provide the annuity or regulate the 
annuity market, policymakers can create a system so that annuities do 
not take the gender of the annuity purchaser into account.
    Question: Ms. Campbell raised concerns about how personal accounts 
would be divided at divorce. For example, should the law require the 
accounts to be divided equally at divorce, or should it be left to the 
discretion of the courts? If personal accounts are associated with a 
benefit offset, should that change how accounts are treated at divorce? 
What are your recommendations?
    Answer: In order to ensure fairness and that all women have assets 
necessary for retirement, the government could require that the assets 
in the account be divided equally upon divorce. Therefore, if the woman 
is going to receive a defined benefit based on her former spouses 
reduced benefit, she will be compensate for that offset through the 
personal retirement account.
           Questions from Chairman Jim McCrery to Marty Ford
    Question: Social Security's tax revenue is expected to fall short 
of promised benefits starting 2017, according to Social Security's 
trustees. Social Security is authorized to continue paying full 
benefits by cashing in the Treasury IOUs in the trust funds. However, 
this will require the government to either raise taxes, cut other 
spending (a large and growing portion of which is devoted to Medicare, 
Medicaid, and other programs important to seniors), or borrow at 
record-breaking levels. The longer we wait, the larger the changes that 
will be required to achieve solvency. Given these facts, do you believe 
Congress should wait, or should act as soon as possible?
    Answer: Congress should move slowly and cautiously in this area. 
Social Security is too important to the people who need it now or will 
need it in the future, to rush to any resolution that undermines the 
long-term viability of Social Security and the important benefits that 
it provides. This is not a ``now or never'' proposition. Some modest 
changes will be needed to ensure long-term solvency. However, the 
changes needed must not undermine the social insurance nature of Social 
Security or increase risks or shift the burden of risk to those who 
will need to rely upon Social Security in the future. And, it is 
essential that any changes, regardless of how modest, protect the 
intergenerational nature of Social Security, a characteristic that is 
so important to people with disabilities and their families, including 
workers with disabilities, disabled widows, and disabled adult 
children. Getting the right modest changes is worth the extra time that 
will be needed to resolve the issue. These are steps that Congress can 
take long before the solvency issues become a reality.
    Question: Social Security's benefit formula is designed to be 
relatively more generous to low-wage workers than high-wage workers. Do 
you believe this principle should be maintained? Do you believe the 
progressivity of the benefit formula should be enhanced?
    Answer: The current progressive nature of Social Security's benefit 
formula should be maintained. It has served to provide lower income 
earners with a higher replacement rate on their lifetime earnings than 
higher income earners receive. Yet it has ensured that higher income 
earners are suitably rewarded for their higher lifetime earnings with 
higher retirement benefits.
    Great care must be taken not to disturb this balance and the broad 
support that Social Security enjoys throughout our society. In 
addition, care must be taken not to disturb the dependents' benefits 
that flow from the work records of higher income earners. While some 
might argue that higher income earners can afford to receive an even 
lower replacement rate on their lifetime earnings, such claims do not 
necessarily hold true for their dependents, including disabled adult 
children, disabled widow(er)s, and spouses.
    Question: During the 107\th\ Congress, this Subcommittee originated 
legislation (H.R. 4069) that would have enabled more disabled widows 
and divorced spouses to become eligible for benefits. This legislation 
would have helped an estimated 120,000 people--primarily women--and it 
was approved by the House of Representatives. One of the provisions in 
that legislation would have repealed a time limit that applied to 
disabled widow(er)s applying for benefits. Under current law, a 
disabled widow(er) may only collect benefits if she or he is at least 
age 50, and the disability began within 7 years of the worker's death. 
Are there particular policy reasons for these restrictions, and do you 
believe these restrictions should be repealed?
    Answer: We believe that Congress imposed these restrictions in 
order to provide disability benefits to a limited number of widow(er)s 
who would not be eligible for worker's disability benefits because of 
their limited work histories, often as a result of working inside the 
home to raise children, rather than working outside the home in Social 
Security covered employment. The 7 year period runs from the worker's 
death or from the last time the widow(er) received Social Security 
mother's/father's benefits on the same wage earner's record while 
caring for the worker's minor children after the worker's death.
    We support steps to modify or eliminate these restrictions. If a 
person stayed home and cared for the couple's children (during the 
marriage and/or after the worker's death), it is likely that the 
benefit s/he could receive as a disabled worker would be low due to the 
many ``zero'' years in the work record. If s/he does have a substantial 
work record because she also worked outside the home while raising 
children, then it is much more likely that she would receive Social 
Security disabled worker's benefits on her own record, rather than a 
benefit on her deceased spouse's record, unless she is unable to meet 
the recency of work test.
    We believe that the cost to improve the rules for qualifying for 
disabled widow(er)'s benefits would be modest. As a practical matter, 
more women now have work records of their own and are likely to receive 
payment on their own accounts. It also would have no effect in most 
households in which the couple had fairly equal earnings. Meanwhile, 
for those who do not have a significant work record of their own--most 
likely as a result of caring for children or inability to work as a 
result of the disability which is the basis for the application (or 
both), improving the rules would provide them with much-needed cash 
assistance and access to Medicare (which they would not otherwise have 
until they turn 65).
    Question: Under current law, there is what is called a ``special 
minimum benefit.'' This benefit is granted to workers with at least 30 
years of earnings at a minimum level ($10,035 in 2005). The maximum 
benefit equals about 85 percent of the poverty threshold. Since this 
minimum benefit is indexed to the CPI (prices) while the regular 
benefit formula is indexed to wage growth--and wages generally grow 
faster than prices--fewer and fewer workers are qualifying for the 
special minimum benefit. Today, about 120,000 beneficiaries receive the 
special minimum benefit. Do you believe Congress should improve the 
minimum benefit that applies to long-time low-wage workers? If so, what 
changes would you recommend?
    Answer: Social Security is a very effective anti-poverty program. 
But 10 percent of seniors still live in poverty and the poverty rate is 
even higher for some groups, like widows. A few simple, inexpensive 
changes would make Social Security substantially more effective.
    One of these changes is the creation of a genuine minimum benefit. 
This minimum benefit should ensure that no American who works hard for 
an entire career has to retire in poverty. The benefit should be set at 
something like 120 percent of poverty for retirees who worked for 40 
years and phased down for people who worked fewer years (the work 
requirement should be shorter for people with disabilities). In 
addition, this benefit should grow with wages--like the other parts of 
the Social Security system--to ensure that it remains a robust and 
dignified source of income into the indefinite future.
    In addition, Social Security benefits should be expanded for widows 
and widowers. Under current law, a widow gets a 33 to 50 percent lower 
benefit than was previously enjoyed by the married couple. Although a 
single person can afford to live on a somewhat lower monthly check than 
a married couple, these reductions are too large and plunge many widows 
into poverty. A sensible reform would ensure that lower income widows 
get 75 percent of the couple's benefit.
    Finally, any Social Security reform should also strengthen the 
Supplemental Security Income program that is so vital to many seniors 
and people with disabilities. One important change related to 
strengthening the minimum benefit and the widow(er)'s benefit in Social 
Security would be to increase the $20 unearned income disregard in SSI. 
Right now, one-third of SSI recipients also receive a small Social 
Security benefit. By increasing the unearned income disregard, Congress 
would be giving greater value to the Social Security benefit (and other 
benefits, such as veteran's benefits) that some SSI recipients receive, 
effectively allowing them to retain more of the value of their Social 
Security benefit.
    To the extent that the unearned income disregard in SSI is not 
increased as part of a package increasing the minimum benefit and the 
widow(er)'s benefit--or, if such an increase in the unearned income 
disregard is less than the amount of the increase in the minimum 
benefit or widow(er)'s benefit--it will be important to protect the 
Medicaid eligibility of those who will lose SSI as a result of the 
increased Social Security benefit, by deeming them eligible for SSI 
(see discussion below in #10).
    Question: Under current law, an individual newly entitled to Social 
Security disability benefits must wait 5 months before checks may 
begin, and must wait 2 years to become eligible for Medicare. Could you 
explain why these waiting periods were made part of the law? You 
mentioned reducing or eliminating these waiting periods. In order for 
Congress to consider the full range of options, would you also say 
eliminating these waiting periods only for the terminally ill is a step 
in the right direction?
    Answer: When Congress extended Medicare to Social Security 
disability beneficiaries in 1972, the Ways and Means Committee and the 
Finance Committee both stated that the reason for including the waiting 
period was to ``help to keep program costs within reasonable bounds, 
avoid overlapping private insurance protection, particularly in cases 
where a disabled worker may continue his membership in a group 
insurance plan for a period of time following the onset of his 
disability, and--provide assurance that the protection will be 
available to those whose disabilities have proven to be severe and 
long-lasting.'' \1\
---------------------------------------------------------------------------
    \1\ Social Security amendments 1971, House Rpt. No. 92-231, U.S. 
House of Representatives, Committee on Ways and Means, May 26, 1971, 
page 67. The same language appeared in the Finance Committee's report, 
Senate Rpt. No.92-1230, page 178. CCD is indebted to the Commonwealth 
Fund's report for this legislative history. See Stacy Berg Dale, James 
M. Verder, Elimination of Medicare's Waiting Period for Seriously 
Disabled Adults: Impact on Coverage and Costs, The Commonwealth Fund, 
Issue Brief, July 2003, page 2 and footnote 3, available at http://
www.cmwf.org/usr_doc/660_Dale_elimination.pdf.
---------------------------------------------------------------------------
    There are strong arguments that the circumstances surrounding 
access to health insurance have changed so dramatically that this set 
of justifications are no longer applicable. For example, in its report 
for the Commonwealth Fund, Mathematica Policy Research suggests that 
the concerns about cost are mitigated by the fact that Medicaid is 
picking up about half of the cost that Medicare would incur if the 
waiting period were eliminated. In other words, in addition to 
providing health coverage for a large group of people with disabilities 
who have no health insurance, eliminating the waiting period would also 
benefit states because their Medicaid costs would decline as Medicare 
covered some of the costs states now incur.\2\ In addition, because 
many people with disabilities tend to apply for Social Security as a 
last resort, they most often are unlikely to have any ongoing access to 
private insurance. Further, while COBRA continuation of benefits can 
help for awhile after a person leaves work, those benefits are 
contingent on the person being able to pay not only the employee's 
share of the insurance cost, but also the employer's share. For most 
people with disabilities, loss of their job means a dramatic decrease 
of income--a serious obstacle to paying high COBRA costs.
---------------------------------------------------------------------------
    \2\ Id., page 5.
---------------------------------------------------------------------------
    For many years now, there has been a significant national focus on 
encouraging people with disabilities who receive Social Security or SSI 
to attempt to return to work. Stabilizing one's health requires health 
care. Good health is key to a successful return to work. Failure to 
have access to health coverage undermines the person's ability to 
stabilize his or her condition and to attempt to return to work, where 
that is appropriate. A recent study for the Commonwealth Fund and 
Christopher Reeve Paralysis Foundation supports this position. Through 
interviews and focus groups with people with disabilities caught in the 
Medicare waiting period, the researchers reported that ``most 
participants suffer irrevocable physical and mental deterioration 
during the waiting period.'' Further, ``[w]hile many want to return to 
work, they are unable to do so.'' The vast majority of participants 
``see Medicare's 2-year waiting period as a barrier to work.'' \3\
---------------------------------------------------------------------------
    \3\ See Bob Williams, Adrianne Dulio, Henry Claypool, et al., 
Waiting for Medicare: Experiences of Uninsured People with Disabilities 
in the Two-Year Waiting Period for Medicare, The Commonwealth Fund and 
Christopher Reeve Paralysis Foundation, October 2004, available at 
http://www.cmwf.org/usr_doc/786_Williams_waiting_for_Medicare.pdf.
---------------------------------------------------------------------------
    It is important to reconsider the concerns of the 1971 Ways and 
Means Committee and the 1972 Finance Committee through this lens. If 
their main concern had been to create a system in which people with 
disabilities can get the health care they need and possibly have a 
better chance of returning to work and leaving the beneficiary rolls, 
would they have included the waiting period?
    The Subcommittee also asks our opinion on extending the waiting 
period only to those who are terminally ill. We do not think that this 
is the right next step for the following reasons:

      Congress already has created two exceptions to the 
Medicare waiting period--there is no waiting period for those who have 
amyothropic lateral sclerosis (ALS), also known as Lou Gehrig's 
disease, and individuals with end-stage renal disease have a 3-month 
waiting period. These were important improvements--and reflect 
Congressional understanding that getting health care in a timely manner 
matters--but they leave most people with severe disabilities who are in 
the Medicare waiting period without access to the care they need.
      Defining who is terminally ill and thus qualified will 
result in arbitrary line-drawing--is a person with cancer terminally 
ill? Must a person with cancer wait until the cancer has metastasized 
to get needed care when it is likely to be more costly and less 
effective and when earlier treatment might have ended the cancer and 
allowed the person to return to work? Are people with HIV considered to 
be terminally ill? Where is the line between conditions that are 
eventually terminal but now, because of advances in treatment, also are 
viewed as being chronic conditions for some people with the condition?
      What if a person is considered terminally ill, treatment 
is provided and successful, but the person is still in the 2-year 
waiting period? Will Medicare coverage for the life-saving treatment 
end, possibly triggering a relapse and death?

    It is absolutely essential to provide Medicare as soon as possible 
for people with terminal illnesses. It is equally important to provide 
Medicare so that individuals who may be able to return to work with 
appropriate medical care and other supports are able to move back to 
work as soon as that is possible. The current 2-year wait for access to 
medical care means that far too many individuals find that their 
medical conditions deteriorate further, just at the time when access to 
good care could assist the person to attempt to return to work.
    We enthusiastically support eliminating the Medicare waiting period 
for all individuals who have been determined to be eligible for Social 
Security benefits based upon disability. In addition, we urge the 
Subcommittee to consider eliminating or shortening the 5-month waiting 
period for receipt of Social Security cash benefits. Too often we learn 
of individuals who have exhausted their limited savings while awaiting 
a decision from SSA. Imposing an additional 5 month wait simply means 
that individuals and their families, already stressed by their health 
problems, their lack of health insurance, and their inability to meet 
basic expenses, are forced into destitution and/or bankruptcy while 
awaiting their benefits.
    Question: In your testimony, you mentioned the balance that must be 
achieved between protecting benefits for individuals with disabilities 
while not creating pressure on the disability program by creating 
incentives to file for disability over retirement benefits. The 
disability program faces serious financial challenges--cash flow 
deficits that are expected to start this year, with the trust fund 
estimated to be exhausted by 2027. What are your recommendations for 
achieving this balance between the disability and retirement programs 
as we address Social Security's overall financial shortfall?
    Answer: We recommend that the two trust funds, OASI and DI, 
continue to be addressed together as they have been so often in the 
past. While technically the Disability Insurance Trust Fund is separate 
and has a different timeline for solvency, in reality, Congress and the 
Administration have treated the two trust funds as one for many 
purposes. At times, Congress has authorized interfund borrowing to 
shore up one of the trust funds. For example, in 1982, the OASI Trust 
Fund borrowed assets from the DI and Health Insurance (HI) Trust Funds. 
Congress also has authorized different allocations of the Social 
Security tax rate, shifting the share between OASI and DI.
    In addition, as we have stated in testimony, the programs are very 
closely related and people with disabilities move between them 
depending on their life circumstances. Treating the programs separately 
would result ultimately in more confusion and barriers for 
beneficiaries.
    Question: You expressed concern that raising the retirement age 
would increase the number of workers applying for disability benefits. 
Could you elaborate on your concerns? Did you mean that if the 
retirement age is increased, then some individuals will be forced to 
accept lower retirement benefits if they cannot qualify for disability 
benefits? If so, do you have any recommendations for helping 
individuals who find themselves in that difficult position?
    Answer: We are concerned that as the retirement age is increased, 
people in poor health with limited ability to continue working will be 
forced to apply for disability benefits rather than applying for 
retirement benefits. If that should occur in sufficient numbers, it 
could cause a fiscal strain on the disability program and create 
substantial future ``unexpected growth'' in the disability program with 
corresponding political pressure to ``do something about the growth'' 
in the program. These pressures could be damaging to the perception of 
integrity of the program and, consequently, to the beneficiaries who 
depend on disability benefits.
    On the other hand, there are a considerable number of older workers 
in poor health who do not qualify for disability benefits, either 
because of the special disability insured status requirements or 
because of the stringent disability eligibility rules. These 
individuals are at risk for jeopardizing their health further by 
continuing to work or by their lack of access to medical services.
    The impact of changes in the retirement age on disability benefits 
has been the subject of discussion by policymakers. In September 2000, 
the Social Security Administration and the National Academy of Social 
Insurance cosponsored a research symposium on this issue, Disability, 
Health and Retirement Age: Challenges for Social Security Policy. A 
study presented at the symposium showed that a substantial number of 
individuals use Social Security early retirement benefits as a 
replacement for disability benefits, for which they are not eligible. A 
majority of these individuals are women who do not qualify for 
disability benefits because of their work history. To address this 
group of older individuals who are severely impaired, options were 
presented for discussion by policymakers, including: (1) liberalize the 
``recency of work'' (``20/40'') rule for disability insured status; and 
(2) modify the disability eligibility rules for those age 62 to 64. 
Also discussed were policy changes affecting Medicare eligibility. We 
have not taken a position in this area but note that this merits 
further consideration.
    Question: We appreciate your suggestions on closely examining 
administrative issues related to personal accounts. Also, you made an 
important point that Congress should obtain a ``beneficiary impact 
statement'' on proposals to strengthen Social Security. Could you 
elaborate on what information you think Congress should request in such 
a statement?
    Answer: A beneficiary impact statement should analyze the impact of 
any proposed changes for each type of beneficiary:

      Disabled workers/their dependents
      Retirees/their dependents
      Disabled adult children--dependents of parents who 
retired, died, or became disabled
      Disabled widows and widowers

    So many people are affected by Social Security that it is essential 
for policymakers to look beyond only the financial implications of 
making changes. They must understand the actual impact of a proposal on 
people's lives and the important role that Social Security benefits 
serve in paying for housing, food, clothing and other necessities. The 
Government Accountability Office, in testimony before this Subcommittee 
on June 23, 2005, recommended a similar analysis.\1\
    We view the beneficiary impact statement in a similar way as the 
budgetary impact statements from the Congressional Budget Office (CBO). 
Congress does not act on legislation without an estimate of the 
budgetary impact of the bill provided by the CBO. Likewise, we believe 
Congress must also require a beneficiary impact statement so that the 
impact on people is known before Congress takes any action in Social 
Security.
---------------------------------------------------------------------------
    \1\ Social Security Reform: Considerations for Individual Account 
Design, GAO-05-847T (June 23, 2005), p. 13.
---------------------------------------------------------------------------
    Question: In your testimony, you mentioned that there are 
significant opportunities to improve rules in Social Security, 
Supplemental Security Income, and Medicaid to encourage young 
individuals with disability to work. You also mentioned current law 
discourages individuals receiving benefits as ``disabled adult 
children'' from working. Could you elaborate on some of the 
disincentives under current law and your recommendations?
    Answer: We are attaching two documents. The first document is a 
summary of recommended changes to the Ticket to Work and Work 
Incentives Improvement Act that was previously submitted to 
Subcommittee staff by the CCD Work Incentives Implementation Task 
Force. Most, if not all, of those proposals would make many of the 
changes needed to encourage young people with disabilities to work. For 
example, changing the rules for impairment-related work expenses to 
include health insurance premiums would recognize the higher medical 
costs incurred by working individuals with disabilities who must pay 
premiums to participate in the Medicaid buy-in or continued Medicare 
after the termination of free part A benefits. In addition, the 
resource limits in SSI pose a threat to workers with disabilities who 
would like to earn their way off of cash benefits but fear losing 
access to Medicaid's supports and services. Encouraging individuals to 
work again as soon as possible after reinstatement to the benefit rolls 
would be facilitated by eliminating the 24-month waiting period before 
certain work incentives are available. The second document includes a 
short list of recommended changes in Social Security, SSI and Medicaid 
targeted specifically at youth with disabilities.
    The Social Security Administration is conducting several 
demonstration projects that could have a bearing on this issue. SSA's 
examination of early intervention strategies is intended to identify 
supports that will keep people in the workforce rather than enter the 
benefit rolls. In addition, SSA's study of a gradual reduction of SSDI 
benefits as earnings rise--the so-called 1-for-2 offset demonstration--
is intended to address the current ``cash cliff'' as a work barrier in 
that program. If these demonstration projects keep people with 
disabilities in the workforce and reduce their reliance on benefits, 
Congress should act promptly on those positive results.
    Work Subsidies. There is another work disincentive for disabled 
beneficiaries that could be resolved through regulatory change, 
although statutory clarification could be helpful. We understand that 
SSA's interpretation regarding the value to be placed on a worker's 
work effort (regarding whether it exceeds SGA or not) is different for 
people in supported employment depending upon whether the individual is 
supported directly by an employer or whether the individual is 
supported by services from an outside source, such as a state-funded 
supported employment agency. As a result, an individual's work effort 
could be found to exceed SGA when the support is from a third party 
while that same work effort could be found not to exceed SGA when the 
support is from the employer. From the perspective of the individual, 
this is an arbitrary distinction. However, the result could be 
critical, for instance, if the individual is found not to be eligible 
for Disabled Adult Child benefits because s/he exceeded the SGA level 
in the past. Further, there may be additional complications in that the 
nature and scope of the support provided to the individual may be 
misunderstood when making the valuation of work effort. For instance, 
while the individual may be performing the actual task (bagging 
groceries, assembling a package, and so forth.), it may be that the 
individual would be unable to perform the task without the help of the 
job coach in ensuring that the individual arrives at work on time 
properly attired, that he/she interacts appropriately with customers 
and co-workers, and that he/she remains focused on the assigned job 
tasks, among other things. SSA appears to make a distinction between 
subsidies/non-subsidies depending on whether the job coach does actual 
``hands-on'' work or coaches from the side. We believe that this is an 
area that also needs clarification if disabled beneficiaries are to use 
work incentives in Title II to their full capacity.
    Congress should extend benefits pending appeal protection to those 
disability beneficiaries terminated due to earnings. In Mathews v. 
Eldridge, 424 U.S. 319 (1976), the United States Supreme Court held 
that a Title II beneficiary had no constitutional right to an 
evidentiary hearing before disability benefits were terminated. In 
contrast, Goldberg v. Kelly, 397 U.S. 254 (1970), established such a 
right for welfare benefits, such as SSI. During the termination crisis 
in the early 1980's, the need for a hearing before Title II disability 
benefits could be terminated became very apparent. As part of the 
legislation passed in 1984, Congress included the right to receive 
benefits pending appeal of a termination based on disability cessation. 
This is the protection provided in 42 U.S.C. Sec. 423(g).\1\ 
Unfortunately, the protection does not extend to situations where 
benefits are terminated due to earnings above the substantial gainful 
activity level. At the time, this made sense as the continuing reviews 
that were the focus of Congressional concern did not affect people 
whose earnings might make them ineligible for benefits. But, with the 
increased emphasis on return to work and the increased risk that 
disability and work issues become muddled in some cases, benefits 
pending appeal itself becomes an important work incentive protection. A 
person with a disability who may want to attempt to work will be 
assured to know that, should SSA determine that s/he is no longer 
eligible for benefits, regardless of the reason, s/he can request 
benefit continuation through the ALJ level.
---------------------------------------------------------------------------
    \1\ Congress first enacted this protection with a short sunset in 
1982 (P.L. 97-455, 96 Stat. 2497, signed January 12, 1983). The 1984 
law made this a permanent provision in the statute.
---------------------------------------------------------------------------
    In the Ticket to Work and Work Incentives Improvement Act 1999, 
Congress passed some new protections for individuals who work. For 
example, effective January 1, 2002, SSA will not conduct a continuing 
disability review of a disabled beneficiary based on work activity 
alone. This provision applies to beneficiaries who have received Social 
Security disability benefits for at least 24 months. SSA will still 
conduct regularly scheduled CDRs, unless the beneficiary is using a 
Ticket to Work. These provisions do not preclude termination of 
benefits where earnings are above the SGA level, after the trial work 
period and extended period of eligibility have been met. The 1999 
legislation did not include extension of the benefits pending appeal 
provision in 42 U.S.C. Sec. 423(g) to terminations based on earnings. 
We urge Congress to add this extension at this time.
    Disabled Adult Child Issues. We have recommended that Congress 
consider addressing the situation of people who receive SSI and who are 
likely to receive DAC benefits in the future when their parents retire, 
die, or become disabled. If the individual with disabilities earns 
above the SGA level at any time before applying for DAC benefits, 
access to DAC benefits may be permanently barred. This is a substantial 
work disincentive for people who are severely disabled during childhood 
and who may need the benefits earned for them by their parents. But for 
the fact that their parents have not yet retired, died, or become 
disabled, they stand in the same position as those for whom a work 
incentive was included in the Social Security Protection Act of 2004, 
P.L. 108-203. This provision allows re-entitlement to DAC benefits 
after the existing 7-year re-entitlement period if the beneficiary's 
previous entitlement had terminated because disability ceased due to 
the performance of substantial gainful activity. We would be happy to 
work with the Subcommittee to explore possible solutions to the problem 
for individuals who work above the SGA level before applying for DAC 
benefits.
    Disabled Adult Child and the Family Maximum . A related DAC issue, 
although not a work disincentive, should also be addressed. Where a 
disabled adult child is drawing benefits, the retired worker's spouse's 
benefits are adjusted to address the family maximum. In some cases, 
where the disabled adult child is not living in the same household with 
the retiree and spouse, the family maximum creates a hardship for the 
retired worker and spouse. This is because the retired worker and 
spouse receive lower combined benefits than they would have received if 
the disabled adult child were not also drawing benefits on the retired 
worker's account.
    If the three (or more) beneficiaries were living in the same 
household, expenses and income could be shared as a family. However, 
increasingly, people with disabilities are being supported to live more 
independently and often a person drawing disabled adult child benefits 
is not living with his/her parents. Therefore, expenses are not shared, 
yet the retiree and spouse experience reduced monthly income.
    To resolve the situation for the retiree and spouse (or widow(er)), 
Congress should consider exempting the disabled adult child's amount 
from the family maximum calculation when the disabled adult child is 
not living in the same household with the retiree and spouse (or 
widow(er)). This would follow somewhat the precedent established by 
treatment of a divorced spouse: even though the divorced spouse draws 
from the retiree's record, the divorced spouse's benefit does not 
affect the family maximum and the benefits of other family members.
    Question: Several plans that have been introduced in legislation so 
far would enhance benefits for low-wage workers and widow(er)s. 
However, increases in monthly benefits relative to those paid under 
current law could result in some individuals not qualifying for 
Medicaid or other need-based programs where they would have before. Do 
you have any recommendations on this issue?
    Answer: It is important that the Subcommittee is considering this 
question at this stage in the legislative process. Adding the needed 
protection at the time of enactment of the benefit improvement 
eliminates the harm that can result when a person loses Medicaid and 
gains only a small increase in income. There is substantial precedent 
for protecting those individuals who, but for a change in the amount of 
their Social Security benefit, would remain eligible for Medicaid. We 
urge the Subcommittee to consider creating a similar rule in this case 
as well, with one important modification that will ensure that the 
provision is compatible with and encourages return-to-work efforts.\1\
---------------------------------------------------------------------------
    \1\ While we oppose changing the Social Security program to include 
private accounts, if such a proposal were to become law, it would be 
very important that it include a blanket provision excluding the 
private accounts from being considered as a countable resource in any 
federal benefit program that includes a means test. Similarly, funds 
(including interest) that accumulate in the private account should not 
be counted as income in any means tested determination. Otherwise, 
people who are now eligible for SSI and Medicaid could easily find 
themselves ineligible for these much-needed benefits.
---------------------------------------------------------------------------
    We also urge the Subcommittee and Committee to consider increasing 
the SSI unearned income disregard. Fixed at $20 since the inception of 
the SSI Program in 1974, the unearned income disregard is worth only 
about $5 today. Increasing the disregard would help to protect the 
Medicaid of some individuals who otherwise might lose it due to an 
increase in Social Security while also restoring value to the Social 
Security benefits that SSI beneficiaries receive. If the unearned 
income disregard were to be increased, that could reduce or eliminate 
the number of beneficiaries who would lose SSI and jeopardize 
eligibility for Medicaid. If the amount of such an increase did not 
fully protect this population, it would be important to including a 
provision deeming any remaining individuals to be eligible for SSI so 
that they can continue to receive Medicaid.
    Existing precedent for deeming SSI eligibility. Currently, there 
are four groups who are deemed to be receiving SSI so that they can 
continue to receive Medicaid after becoming eligible for either a new 
Social Security benefit or an increased benefit.\2\
---------------------------------------------------------------------------
    \2\ For a more detailed discussion of these groups, see Groups 
Deemed to be Receiving SSI for Medicaid Purpose: Technical Assistance 
Series for Medicaid Services to Elderly or People with Disabilities, 
Center for Medicare and Medicaid Services, HHS, June 2002, available at 
http://www.cms.hhs.gov/Medicaid/eligibility/ssideem.pdf.

      People who would continue to be eligible for SSI (and/or 
a state supplement) if the total amount of their Title II cost-of-
living adjustments received since losing SSI while also receiving Title 
II is deducted from their income. This group, known as the ``Pickle 
People,'' has existed since the late 1970s.
      In 1983, Congress improved the formula for benefits for 
disabled widow(er)s. As a result, in 1984, a number of widows who 
previously received both Social Security and SSI suddenly lost their 
SSI and their connection to Medicaid. Congress changed the law to 
protect these widows, providing that they are deemed eligible for SSI 
(and therefore Medicaid) so long as the only reason they are ineligible 
for SSI is that change in the formula enacted in 1983. These 
individuals have been known as the ``Kennelly widows.''
      Known as ``COBRA'' widow(er)s, individuals in this group 
receive SSI disability benefits but then become eligible for a Social 
Security early widow(er)'s benefit, prior to age 65. (They are required 
to apply for this benefit as a condition of the SSI Program.) Upon 
receipt of the Social Security benefit, if it is over the SSI level, 
they would lose their SSI and, as a result, their Medicaid. And, 
because they are not receiving a Social Security disability benefit and 
are under age 65, they do not have Medicare. Congress changed this so 
that people who find themselves in this predicament are now deemed 
eligible for SSI and can continue to receive Medicaid until they reach 
age 65 and become eligible for Medicare.
      Medicaid is an essential component of being able to live 
in the community for many people with disabilities. This is often the 
case for young people whose disabilities began at birth or developed 
prior to their 22nd birthday. Prior to 1987, such a person would be 
receiving SSI, living in the community and receiving help from 
Medicaid. Then, when their parent died, retired or became disabled, the 
young person would suddenly become eligible for a Social Security 
benefit on the worker's record. Under SSI rules, the person must apply 
for and receive that benefit. They would receive a slightly higher cash 
benefit but would lose SSI and Medicaid--their connection to the 
services and supports they need to live in the community. In 1987, 
Congress provided that individuals who lose their SSI because they 
receive DAC benefits are to be deemed to be SSI eligible so that they 
can continue to receive Medicaid.

    It is important to deem SSI eligibility for the remainder of the 
person's life. A key feature of three of the four provisions discussed 
above is that the person's Medicaid will continue as long as the person 
has SSI deemed status and, assuming that the person's income and 
resources otherwise do not change, the person can receive Medicaid for 
the remainder of the person's life. This is not the case in one of the 
precedents there, once the person begins to receive Medicare, the SSI 
deeming stops and Medicaid could end. Because Medicaid is essential to 
securing home-and community-based care, it is important that the 
protection created by the Subcommittee parallel those for the Pickle 
people, the DACs, and the Kennelly widows and allow for SSI deeming 
(and Medicaid coverage) so long as the person otherwise meets the 
eligibility rules for SSI.
    One important work-friendly modification should be included: While 
these provisions have been essential to the individuals who benefit 
from them, particularly for younger individuals, like many DACs, the 
provision creates a constraint against attempting to work. Because the 
statute only provides protection when the sole reason the person's 
income exceeds the SSI level is the Title II benefit increase, working 
and having any earnings will automatically make the person ineligible 
for the deemed SSI status that protects his or her Medicaid. This is 
especially ironic, because if s/he had been solely an SSI recipient, 
the person would be able to benefit from the 1619(a) and (b) work 
incentives. This can be fixed by providing that SSI deemed status will 
continue so long as the person's only other reason for ineligibility is 
earnings from work.
    Question: You raised the issue of how many different benefits are 
paid from the old-age and survivors' insurance trust fund--retired 
worker benefits, disabled adult child benefits, and survivor benefits. 
While several plans that have been introduced would hold harmless 
benefits paid to disabled workers, it has not been made clear how this 
applies to disabled adult children being paid based on the record of a 
retired or deceased worker. Would you agree we need to make these 
distinctions clear in order to ensure all individuals with disabilities 
are protected, regardless of which trust fund pays the benefits?
    Answer: We agree that it must be made clear that protecting 
disabled workers alone does not address the issues for other 
beneficiaries with disabilities. Other beneficiaries with disabilities 
include disabled adult children of retirees, disabled adult children 
who are survivors, and disabled adult children of disabled workers. 
Other beneficiaries with disabilities also include disabled widows and 
widowers and retirees who were once disabled workers. These dependent 
beneficiaries (and the workers who age into retirement benefits from 
the disability program) must be considered in any changes to the Social 
Security programs. They are among the most vulnerable Social Security 
beneficiaries.
  Questions from Chairman Jim McCrery to Michael Tanner (Answers not 
                     received at time of printing)
    Question: Under current law, one-earner couples are treated more 
generously than two-earner couples with the same total earnings. Do you 
believe Congress should make changes to equalize the treatment of one-
earner and two-earner couples, particularly with respect to benefits 
for widows, as widows have a higher than average poverty rate?
    Question: In 2000, Congress enacted the Senior Citizens Right to 
Work Act (P.L. 106-182), which eliminated the senior earnings penalty 
for individuals who reached full retirement age. Do you believe the 
remainder of the senior earnings penalty should be repealed? Would you 
discuss the pros and cons of eliminating the senior earnings penalty 
for early retirees?
    Question: Some of your fellow panelists have said that establishing 
personal accounts would worsen Social Security's long-term funding 
problem. Do you agree?
    Question: Your fellow panelist, Ms. Rockeymoore's testimony 
describes what the world would look like without Social Security. Could 
you outline what the world would look like with a Social Security 
program that includes personal accounts?
    Question: Some of your fellow panelists have said that low-income 
workers, women, and racial and ethnic minorities would fare worse under 
personal accounts than they do under current law. Do you agree or 
disagree, and why?
    Question: Some of your fellow panelists have said that personal 
accounts would undermine child survivor and disability insurance 
benefits provided under Social Security. How are these benefits treated 
under the Cato plan? What recommendations would you make to Congress 
with respect to those benefits?
    Question: Some of your fellow panelists suggest raising taxes on 
high-wage workers, on high-income families, and on estates to bolster 
Social Security. Do you think such suggestions would leave unaffected 
low-wage workers, minorities, women, and other vulnerable populations?
    Question: The Cato plan, which served as the basis for Rep. 
Johnson's legislation to strengthen Social Security, includes an 
enhanced minimum benefit. Could you describe how that minimum benefit 
would work and why you believe it is so important?
    Question: Your fellow panelist, Ms. Campbell, mentioned a study 
that showed workers would most likely fare worse under personal 
accounts. However, that result was based on a portfolio of assets that 
has not been specified by President Bush or any other plan. It also 
assumed returns on stocks that are far below what is assumed by the 
non-partisan Social Security actuaries or the Congressional Budget 
Office. Would you agree that such a study is not a good indication of 
how individuals would fare under personal accounts?
 Questions from Chairman Jim McCrery to Dr. Maya Rockeymoore (Answers 
                   not received at time of printing)
    Question: Social Security's tax revenue is expected to fall short 
of promised benefits starting 2017, according to Social Security's 
trustees. Social Security is authorized to continue paying full 
benefits by cashing in the Treasury IOUs in the trust funds. However, 
this will require the government to either raise taxes, cut other 
spending (a large and growing portion of which is devoted to Medicare, 
Medicaid, and other programs important to seniors), or borrow at 
record-breaking levels. The longer we wait, the larger the changes that 
will be required to achieve solvency. Given these facts, do you believe 
Congress should wait, or should act as soon as possible?
    Question: Social Security's benefit formula is designed to be 
relatively more generous to low-wage workers than high-wage workers. Do 
you believe this principle should be maintained? Do you believe the 
progressivity of the benefit formula should be enhanced?
    Question: During the 107\th\ Congress, this Subcommittee originated 
legislation (H.R. 4069) that would have enabled more disabled widows 
and divorced spouses to become eligible for benefits. This legislation 
would have helped an estimated 120,000 people--primarily women--and it 
was approved by the House of Representatives.

      One of the provisions in that legislation would have 
repealed a time limit that applied to disabled widow(er)s applying for 
benefits. Under current law, a disabled widow(er) may only collect 
benefits if she or he is at least age 50, and the disability began 
within 7 years of the worker's death. Are there particular policy 
reasons for these restrictions, and do you believe these restrictions 
should be repealed?
      Another provision in that legislation would have enabled 
certain divorced spouses to qualify for benefits sooner. Under current 
law, a divorced spouse may collect benefits based on her ex-husband's 
record, even if he is not yet collecting benefits, if the divorced has 
been in place for at least 2 years. This was intended to prevent people 
from seeking a divorce simply to gain access to spouse benefits. 
However, in some cases, the 2-year waiting period may cause hardship on 
divorced spouses. Would you agree the 2-year waiting period should be 
eliminated in cases where the worker remarries and it is clear the 
divorce was not a ruse simply to get spouse benefits?

    Question: Under current law, there is what is called a ``special 
minimum benefit.'' This benefit is granted to workers with at least 30 
years of earnings at a minimum level ($10,035 in 2005). The maximum 
benefit equals about 85 percent of the poverty threshold. Since this 
minimum benefit is indexed to the CPI (prices) while the regular 
benefit formula is indexed to wage growth--and wages generally grow 
faster than prices--fewer and fewer workers are qualifying for the 
special minimum benefit. Today, about 120,000 beneficiaries receive the 
special minimum benefit. Do you believe Congress should improve the 
minimum benefit that applies to long-time low-wage workers? If so, what 
changes would you recommend?
    Question: Under current law, one-earner couples are treated more 
generously than two-earner couples with the same total earnings. Do you 
believe Congress should make changes to equalize the treatment of one-
earner and two-earner couples, particularly with respect to benefits 
for widows, as widows have a higher than average poverty rate? Several 
legislative proposals would provide widows with benefits that equal 75 
percent of what the couple received, subject to a cap based on an 
average retired worker's benefit. Do you believe this would be a step 
in the right direction?
    Question: Congress enacted the Senior Citizens Right to Work Act 
(P.L. 106-182), which eliminated the senior earnings penalty for 
individuals who reached full retirement age. Do you believe the 
remainder of the senior earnings penalty should be repealed? Would you 
discuss the pros and cons of eliminating the senior earnings penalty 
for early retirees?
    Question: Many women are concerned about receiving reduced retired 
worker benefits due to time spent away from the workforce taking care 
of children. Would you recommend providing a credit toward worker 
benefits for those years? If yes, how would you recommend designing 
such a credit?
       Questions from Chairman Jim McCrery to Nancy Duff Campbell
    Question: Social Security's tax revenue is expected to fall short 
of promised benefits starting 2017, according to Social Security's 
trustees. Social Security is authorized to continue paying full 
benefits by cashing in the Treasury IOUs in the trust funds. However, 
this will require the government to either raise taxes, cut other 
spending (a large and growing portion of which is devoted to Medicare, 
Medicaid, and other programs important to seniors), or borrow at 
record-breaking levels. The longer we wait, the larger the changes that 
will be required to achieve solvency. Given these facts, do you believe 
Congress should wait, or should act as soon as possible?
    Answer: While Social Security is running surpluses, and assets in 
the trust fund will continue to grow for another two decades, the rest 
of the federal budget is currently running huge deficits, and is 
projected to do so for years to come. And, after 2017, Social Security 
will no longer be generating the surplus tax revenues that currently 
help reduce the combined budget deficit. As I discussed in my May 17 
testimony, Congress should act as soon as possible to restore the 
revenue base to get the rest of the government's fiscal house in order; 
this will make it easier on the rest of the budget when the time comes 
to redeem the Treasury bonds held by the Social Security Trust Fund.
    Over the longer term, Social Security faces a financing shortfall. 
Social Security can pay 100 percent of scheduled benefits until 2041, 
according to the Social Security trustees, and until 2052, according to 
the Congressional Budget Office. After that, payroll taxes will cover 
70-80 percent of scheduled benefits. This hardly qualifies as a crisis; 
in contrast, when Congress acted on recommendations of the Greenspan 
Commission in 1983 to extend the solvency of Social Security and 
buildup the trust fund, Social Security was within months of exhausting 
the trust fund and being unable to pay full benefits. While it is 
better to deal with the shortfall in Social Security sooner than later, 
to allow adjustments to be made more gradually, Congress has the time 
to get this right. The problem is manageable: indeed, the cost of 
eliminating the entire long-term (75-year) shortfall in Social Security 
is about the same as the cost of the tax cuts for just the wealthiest 1 
percent of Americans, if those tax cuts were made permanent.\1\
---------------------------------------------------------------------------
    \1\ The long-term cost of the tax cuts for the top 1 percent is 
greater than the long-term Social Security shortfall as measured by the 
Congressional Budget Office; the long-term cost of the tax cuts for the 
top 1 percent is more than three-quarters of the Social Security 
shortfall as measured by the Social Security trustees. See Kogan and 
Greenstein, Center on Budget and Policy Priorities, ``President 
Portrays Social Security Shortfall as Enormous, but His Tax Cuts and 
Drug Benefit Will Cost at Least Five Times as Much'' (February 2005).
---------------------------------------------------------------------------
    Question: Social Security's benefit formula is designed to be 
relatively more generous to low-wage workers than high-wage workers. Do 
you believe this principle should be maintained? Do you believe the 
progressivity of the benefit formula should be enhanced?
    The National Women's Law Center strongly supports the principle 
that the Social Security benefit formula should be relatively more 
generous to low-wage workers than high-wage workers. A progressive 
benefit formula is especially important for women, who tend to have 
lower lifetime earnings than men because of lower wages and more time 
out of the workforce for care giving. It is important to recognize, 
however, that progressivity is not the same as adequacy. For example, 
the benefit formula could be made more progressive--but less adequate 
for the vast majority of Americans--by cutting benefits for all but the 
very lowest earners. However, it is possible to enhance both adequacy 
and progressivity by targeting benefit improvements to the most 
economically vulnerable beneficiaries, and this is the approach the 
Center supports.
    Question: During the 107th Congress, this Subcommittee originated 
legislation (H.R. 4069) that would have enabled more disabled widows 
and divorced spouses to become eligible for benefits. This legislation 
would have helped an estimated 120,000 people--primarily women--and it 
was approved by the House of Representatives.

      One of the provisions in that legislation would have 
repealed a time limit that applied to disabled widow(er)s applying for 
benefits. Under current law, a disabled widow(er) may only collect 
benefits if she or he is at least age 50, and the disability began 
within 7 years of the worker's death. Are there particular policy 
reasons for these restrictions, and do you believe these restrictions 
should be repealed?
      Another provision in that legislation would have enabled 
certain divorced spouses to qualify for benefits sooner. Under current 
law, a divorced spouse may collect benefits based on her ex-husband's 
record, even if he is not yet collecting benefits, if the divorced has 
been in place for at least 2 years. This was intended to prevent people 
from seeking a divorce simply to gain access to spouse benefits. 
However, in some cases, the 2-year waiting period may cause hardship on 
divorced spouses. Would you agree the 2-year waiting period should be 
eliminated in cases where the worker remarries and it is clear the 
divorce was not a ruse simply to get spouse benefits?

    Answer: Current law requires that disabled widow(er)s be age 50 to 
apply for benefits, and have a disability that began within 7 years of 
the worker's death. On their face, the main rationales for these 
restrictions appear to be the general goal of limiting the eligible 
population and the cost of providing such benefits. Originally, 
benefits for disabled workers were limited to workers ages 50 to 64, 
but although Congress eliminated the age 50 limitation for workers, it 
has not done so for disabled widow(er)s. Limiting benefits to disabled 
widower(s) whose disability began within 7 years of the worker's death 
prevents some of those who failed to qualify for disability benefits on 
their own work record--perhaps because they were out of the labor force 
raising children, were beginning to be affected by a disability, or 
both--from receiving benefits. Disabled widow(er) are, by definition, 
unable to work, and represent a small but economically vulnerable 
population. The National Women's Law Center would support removing the 
age 50 limitation (I note that H.R. 4069, passed by the House in the 
107th Congress, did not include this provision) and the 7-year 
restriction (the elimination of the 7-year restriction was part of H.R. 
4069).
    As you note in your question, the policy rationale for the 2-year 
waiting period before a divorced spouse can collect benefits on the 
record of a worker who is not collecting benefits was to prevent sham 
divorces designed to permit the collection of spousal benefits. The 
Center supports the elimination of the waiting period in cases where 
the worker has remarried, as provided by H.R. 4069.
    Question: Under current law, there is what is called a ``special 
minimum benefit.'' This benefit is granted to workers with at least 30 
years of earnings at a minimum level ($10,035 in 2005). The maximum 
benefit equals about 85 percent of the poverty threshold. Since this 
minimum benefit is indexed to the CPI (prices) while the regular 
benefit formula is indexed to wage growth--and wages generally grow 
faster than prices--fewer and fewer workers are qualifying for the 
special minimum benefit. Today, about 120,000 beneficiaries receive the 
special minimum benefit. Do you believe Congress should improve the 
minimum benefit that applies to long-time low-wage workers? If so, what 
changes would you recommend?
    Answer: As your question recognizes, the special minimum benefit 
created by Congress in 1972 is diminishing in value; indeed, by 2013, 
it is expected to phase out entirely. The Center supports an increase 
in the minimum benefit for low-wage workers, as I testified on May 17. 
There are various options for improving the minimum benefit, including 
lowering the number of years required to receive the maximum benefit 
from 30 years to 25, lowering the earnings requirement to get credit 
for a year of service, counting partial years of service, counting 
caregiving years toward the special minimum, and increasing the amount 
credited for a period of service. There also are ways to adjust the 
regular benefit formula to increase benefits for low-income workers and 
their families. My written testimony discusses these options and 
provides citations to papers where they are analyzed in more detail; 
however, it would be helpful to have analyses modeling the effects of 
specific proposals on the overall economic security of low earners, 
considering both their individual work histories and whether they 
qualify for auxiliary benefits.
    Improving the Social Security special minimum benefit could provide 
additional, much-needed income for low-income beneficiaries. But there 
could also be some unintended adverse consequences. Many low-income 
elders receive both a small Social Security benefit and Supplemental 
Security Income (SSI). Eligibility for SSI means automatic eligibility 
for Medicaid in most states. Increasing Social Security benefits could 
render some people ineligible for SSI--and thus for Medicaid. This 
could be avoided by increasing the $20 ``unearned income'' disregard in 
SSI, allowing SSI recipients who receive Social Security or veterans' 
benefits to retain more than $20 per month of the value of those 
benefits, and their SSI and Medicaid eligibility. Another approach that 
Congress has used is to deem certain groups to be receiving SSI for 
purposes of Medicaid eligibility, when individuals in those groups 
would otherwise lose SSI and Medicaid due to an increase in their 
Social Security benefits.\1\
---------------------------------------------------------------------------
    \1\ See, Center for Medicare and Medicaid Services, U.S. Department 
of Health and Human Services, Groups Deemed to Be Receiving SSI for 
Medicaid Purposes (June 2002).
---------------------------------------------------------------------------
    Question: Under current law, one-earner couples are treated more 
generously than two-earner couples with the same total earnings. Do you 
believe Congress should make changes to equalize the treatment of one-
earner and two-earner couples? Several legislative proposals would 
provide widows with benefits that equal 75 percent of what the couple 
received, subject to a cap based on an average retired worker's 
benefit. Do you believe this would be a step in the right direction?
    Answer: The Center supports adjusting the benefit formula to 
increase benefits for surviving spouses to 75 percent of the couple's 
benefit. As I discussed in my May 17 testimony, such a change could 
help both to reduce the disparity in benefits between one- and two-
earner couples with similar lifetime earnings, and improve the adequacy 
of benefits for widows, the largest group of poor, elderly women. 
However, not all of the proposals that create a 75 percent benefit for 
a surviving spouse would increase widow(er)s' benefits. Several 
proposals cut the underlying benefits, so that 75 percent of the 
couple's combined reduced benefits would amount to less than two-thirds 
of the couple's original benefit: this would not represent a real 
increase in the widow's benefit.
    To reduce the overall cost of a proposal raising the widow(er)s' 
benefit to 75 percent of the spouses' combined benefits and to target 
the increases to those with lower earnings, the amount that a person 
could receive from the new alternative calculation of the survivor 
benefit could be capped. The cap could be set at different levels; 
setting the cap at the average retired worker's benefit, as suggested 
in the question, would provide less of an improvement to the adequacy 
and equity of benefits than setting the cap at a higher level (for 
example, at the level of the benefit for a retired worker with average 
lifetime earnings), although a lower cap reduces the overall cost.
    As discussed above in response to question 4 concerning 
improvements to the special minimum benefit, Congress should avoid 
unintended adverse consequences from improving the widow(er)s' benefit 
by increasing the ``unearned income'' disregard in SSI and/or 
considering other steps to protect individuals from losing Medicaid 
eligibility.
    Question: In 2000, Congress enacted the Senior Citizens Right to 
Work Act (P.L. 106-182), which eliminated the senior earnings penalty 
for individuals who reached full retirement age. Do you believe the 
remainder of the senior earnings penalty should be repealed? Would you 
discuss the pros and cons of eliminating the senior earnings penalty 
for early retirees?
    Answer: Eliminating the earnings test for early retirees presents 
different issues than did the elimination of the earnings test for 
those who have reached full retirement age. Indeed, several studies 
have concluded that eliminating the earnings test for early retirees is 
likely to lead to increased poverty among the very old, especially 
women. This is because the elimination of the earnings test would 
encourage more workers to claim Social Security early--reducing Social 
Security benefits for themselves and surviving spouses later in life, 
when they have fewer other sources of income.
    The earnings test reduces the Social Security benefits received by 
beneficiaries below the full retirement age (now slightly over age 65, 
increasing gradually to age 67) who have earnings above a given 
threshold. Although the earnings test is sometimes perceived as a 
``penalty'' or ``tax'' on earnings, the benefits withheld under the 
earnings test are refunded after the worker reaches full retirement 
age, through an increase in benefits for the worker and spouse or 
surviving spouse, so that on average, lifetime benefits are not 
affected.\1\ Separate from the earnings test, there is an early 
retirement reduction in monthly Social Security benefits for those who 
claim benefits before the full retirement age. This early retirement 
reduction is permanent; unlike the reduction due to the current 
earnings test, it continues after the individual reaches full 
retirement age, and reduces monthly benefits throughout the life of the 
retiree and the retiree's spouse and surviving spouse.
---------------------------------------------------------------------------
    \1\ The higher benefits are actuarially adjusted, so that a worker 
whose lifespan is longer than expected will get back somewhat more than 
was lost through the earnings test; a worker whose lifespan is shorter 
than expected will get back somewhat less. The later increase in 
benefits under the earnings test for early retirees applies to benefits 
for both the worker and spouse; in contrast, under the now-eliminated 
earnings test for retirees above full retirement age, the later 
increase in benefits applied only to benefits for the worker, not the 
spouse.
---------------------------------------------------------------------------
    Several studies have concluded that eliminating the earnings test 
for early retirees is likely to encourage even more workers to claim 
Social Security benefits early.\2\ Eliminating the earnings test would 
enable workers between age 62 and full retirement age to combine a 
paycheck and a Social Security check unaffected by the earnings test: 
an understandably appealing prospect. However, the cost of this 
increase in income for some retirees, when they are younger and have 
significant income from employment, is a reduction in Social Security 
income later in life, when they and their surviving spouse may have no 
paycheck or assets left to supplement it, and an increase in poverty 
among the very old.\3\
---------------------------------------------------------------------------
    \2\ See, e.g., Gruber and Orszag, `` Does the Social Security 
Earnings Test Affect Labor Supply and Benefits Receipt,'' paper 
presented at the Third Annual Conference of the Retirement Research 
Consortium (2001); Ratcliffe, Berk, Perese, and Toder, AARP Public 
Policy Institute #2003-15, Impact of the Social Security Retirement 
Earnings Test on 62-64-Year-Olds (December 2003).
    \3\ See Social Security Administration, Office of Policy, ``The 
Impact of Repealing the Retirement Earnings Test on Rates of Poverty'' 
(2000); Gruber and Orszag and Ratcliffe, Berk, Perese, and Toder, 
supra.
---------------------------------------------------------------------------
    One argument that has been made for eliminating the earnings test 
for early retirees is that doing so would encourage more workers 
between age 62 and full retirement age to increase their labor supply. 
However, research indicates the elimination of the earnings test for 
early retirees would result in little if any overall increase in labor 
supply; while some workers would increase their work effort because 
they could retain more of their income, others would cut back, because 
they could cut back their work and still maintain their income 
level.\4\
---------------------------------------------------------------------------
    \4\ See Gruber and Orszag and Ratcliffe, Berk, Perese, and Toder, 
supra. There is some information suggesting that eliminating the 
earnings test may have more of an impact on the labor supply decisions 
of women than men.
---------------------------------------------------------------------------
    There are other arguments for eliminating the earnings test: it is 
a source of confusion and irritation among some members of the public, 
who may--incorrectly--view it as a ``penalty,'' and a source of added 
complexity and cost in the administration of the Social Security 
program. Better informational materials about the operation of the 
earnings test could reduce these impacts.
    Question: Many women are concerned about receiving reduced retired 
worker benefits due to time spent away from the workforce taking care 
of children. Would you recommend providing a credit toward worker 
benefits for those years? If yes, how would you recommend designing 
such a credit?
    Answer: Providing care giving credits in Social Security would 
recognize the value of unpaid care giving work and promote the economic 
security of those who provide this service. There are various 
approaches to providing care giving credits.\1\ Given the diversity of 
work and family life patterns, it is important to fully analyze the 
effect of different approaches to providing care giving credits on the 
overall economic security of women, especially low earners.
---------------------------------------------------------------------------
    \1\ For a discussion of care credits, see Hartmann and Hill, 
Institute for Women's Policy Research, Strengthening Social Security 
for Women: A Report from the Working Conference on Women and Social 
Security (2000).
---------------------------------------------------------------------------
    For example, a majority of mothers today work in the paid labor 
force, at least part-time, including while their children are very 
young. Thus, proposals to allow ``child care drop-out'' years--
excluding from the benefit computation formula up to 5 years of zero 
earnings when the worker was caring for a child below a certain age--
would not help many low- and moderate-income women who cannot afford to 
leave the workforce entirely when their children are young. This 
approach also tends to benefit higher-earning women because the value 
of each ``drop-out'' year is equal to average earnings during the time 
spent in the paid labor force. Another approach to recognizing care 
giving would grant an earnings credit up to a certain amount--for 
example, up to half the median earnings for full-time workers--for 
years when a worker is providing eligible care giving. Providing a care 
giving credit would help those with low earnings (below the level of 
the credit) as well as those with zero earnings. Another way to target 
care giving credits to low-income workers would be to give care giving 
credits only in connection with a reformed special minimum benefit.\2\ 
Other design issues to consider include the type of care giving that 
would be eligible for a credit (care provided only when a child was 
very young; care giving by a parent until a child turned 18; care for a 
disabled or elderly relative); number of years of possible credits; 
whether only a single parent or the lower-earning parent in a two-
parent family would be eligible for a credit, or whether two parents 
could be eligible; and how these credits would be administered. In 
general, it would be easier to implement care giving credits in the 
context of the special minimum benefit, which affects only a limited 
population; but, for that reason, the number of potential beneficiaries 
would be limited as well. Additional research on these issues would be 
helpful.
---------------------------------------------------------------------------
    \2\ Ibid. For a proposal to provide child care credits with the 
special minimum benefit, see Fierst and Campbell, eds., Earnings 
Sharing in Social Security: A Model for Reform, Report of the Technical 
Committee on Earnings Sharing (1988).
---------------------------------------------------------------------------
    Question: Your fellow panelist, Ms. Lukas raised the issue of 
unequal treatment of women in Social Security, depending on their 
marital status and the length of marriage. Under current law, the wife 
of a high-wage worker will get a higher monthly benefit than the wife 
of a low-wage worker, even though neither worker paid higher payroll 
taxes than unmarried workers of the same earnings level in order to 
provide extra coverage for their spouses. Do you believe this is fair, 
and would you recommend any changes to spousal benefits to better 
target them to individuals with the greatest need?
    Answer: Social Security is a family insurance plan that replaces 
lost income for workers, and their spouses and children, when income is 
lost at retirement, disability, or death. The spousal benefits ensure 
that spouses--overwhelmingly women--who have devoted much of their 
lives to unpaid caregiving and have low, or no, Social Security 
benefits on their own work record are eligible for a benefit based on 
the earnings record of a spouse, whose earning capacity they 
contributed to through the marital partnership. Benefits for spouses 
are calculated as a percentage of the worker's benefit, and thus 
reflect the progressivity of the Social Security benefit formula; while 
the benefits for the wife of a higher-wage worker will be higher than 
the benefits for the wife of a lower-wage worker, the benefits for the 
wife of the lower earner will represent a higher percentage of the 
husband's pre-retirement income. The spousal benefits provided by 
Social Security are vital to women's economic security; as I noted in 
my testimony, about 55 percent of all women receiving Social Security 
get benefits at least in part as a spouse, surviving spouse, or 
divorced spouse.
    There are various ways to improve the adequacy and equity of Social 
Security for women with different work histories and marital status. As 
discussed in response to question 5, providing a surviving spouse with 
a benefit equal to 75 percent of the couple's combined benefits, rather 
than 100 percent of the higher-earner's benefit, could increase 
benefits for widows and reduce the disparity in benefits for the 
survivor of single- and dual-earner couples; capping the increase would 
target the improvement to survivors of low-earning couples. Improving 
the minimum benefit, as discussed in response to question 4, would help 
women with low earnings who are ineligible for spousal benefits (and 
raise benefits for women whose husbands are low earners). To provide 
some benefit to women who divorce after a marriage of less than 10 
years, the duration-of-marriage requirement could be lowered or the 
benefits for a divorced spouse could be pro-rated for marriages of less 
than 10 years.
    The system of spousal benefits in Social Security could be 
redesigned entirely by instituting a system of ``earnings sharing'': 
dividing the credits accrued during marriage equally between husbands 
and wives. This would embody the concept of marriage as an economic 
partnership; however, the earnings sharing approach would produce 
winners and losers as compared to the current system, requiring a long 
transition period with benefit protections; special treatment would be 
required for benefits for children, disabled workers and their spouses, 
and spouses and surviving spouses with a child-in-care; and there would 
be new administrative demands.\1\
---------------------------------------------------------------------------
    \1\ See Fierst and Campbell, supra.
---------------------------------------------------------------------------
    Question: Social Security's trustees have stated that Social 
Security faces significant long-tern financial challenges. If Congress 
fails to act, it would lead to a 25 percent across-the-board benefit 
reduction, with nobody held harmless, and would double the poverty 
level among senior women according to an analysis by the Social 
Security Administration. You suggested raising taxes. Do you have any 
recommendations on reducing the growth of benefits, particularly in a 
targeted way?
    Answer: Benefit levels in Social Security are already modest; the 
maximum benefit for a worker retiring in January 2005 is less than 
$2,000 per month or $24,000 annually; the average benefit is less than 
$1,000 per month or $12,000 annually. Future retirees are already 
scheduled to get slightly lower replacement rates than current 
retirees, as a result of the benefit reductions legislated in 1983 that 
are now being phased in; rising Medicare premiums will take a greater 
portion of retirees' Social Security income. Social Security is the 
largest source of income in retirement for 80 percent of Americans--all 
but the highest-income 20 percent. For these reasons, relying heavily 
on benefit reductions to close the solvency gap could produce serious 
hardship. If benefit reductions are part of the overall approach, the 
reductions should be targeted to those at the highest income levels who 
are least reliant on Social Security. However, the cuts must not be so 
deep as to virtually eliminate the relationship between Social Security 
taxes paid and benefits received; moreover, the impact of such cuts 
should be considered across the full lifespan of both a worker and 
surviving spouse, including the impact on disability and survivor 
benefits.
    Question: You suggested that we raise taxes to strengthen Social 
Security, as has been done numerous times in the past. You recommended 
raising or eliminating the limit on wages subject to Social Security 
taxes, raising income taxes on high-income individuals, or using 
revenues from estate taxes. The first suggestion would buildup Social 
Security's trust funds so that it has a larger claim on the Treasury 
and the rest of government in the future. The last two would require 
direct transfers of general revenues to the trust funds. All of these 
suggestions would put a significant portion of Social Security's 
finances in direct competition for revenues with other budget 
priorities not just temporarily, but on an ongoing basis. Considering 
the importance of some of the largest of those other budget 
priorities--such as Medicaid and Medicare--to women and low-wage 
workers, do you think it is wise to create such a dynamic? Have you 
considered the effect on economic growth of such suggestions?
    Answer: As the question notes, this nation faces a number of 
growing and unmet needs. Protecting Social Security should not, and 
need not, come at the expense of funding for Medicaid, Medicare, and 
other vital programs such as education and child care--if we strengthen 
the revenue base for Social Security and the broader federal budget. 
Social Security payroll taxes are imposed on a smaller fraction of all 
wages than they have been in recent decades, as wages for the very 
highest earners have grown much faster than average wages. This year, 
largely as a result of recent tax cuts, federal revenues will make up a 
smaller share of the economy than at any time since the 1950s. Recent 
tax cuts have particularly benefited the highest-income households, who 
have gained the largest increase in aftertax income of all income 
groups.\1\ Corporate tax revenues are at historically low levels.
    I am not an economist, but I believe that it would be feasible to 
raise revenues in ways that would not damage the economy, especially 
given the current low effective tax rates on the very wealthy and 
corporations, and the fact that history demonstrates that raising taxes 
does not necessarily harm economic growth (some tax increases have 
coincided with periods of strong economic expansion, and some tax cuts 
have provided little or no economic stimulus). Indeed, failing to raise 
adequate revenues poses risks to the economy that must be weighed 
against the perceived risk of raising revenues. We currently are 
bridging the gap between our 1950s revenues and our 21st century needs 
and expectations by borrowing, but this cannot go on forever. The 
growing national debt could lead to rising interest rates, or a more 
serious economic crisis if foreign creditors become reluctant to 
continue lending. But controlling the deficit by simply cutting 
domestic spending would hurt the economy, as well as millions of 
people. For example, cutting Social Security benefits by 20 percent or 
more for average Americans, as some proposals would do, would reduce 
purchasing power for tens of millions of Americans, affecting them, 
their families, and their communities; cutting back on other federal 
spending--and the services that contribute to building a healthy, 
educated, productive workforce that can compete effectively in the 
global economy--could jeopardize America's economy for generations to 
come. A solution to Social Security's long-term financial challenges, 
and the immediate fiscal challenges faced by the rest of the federal 
budget, must include increased revenues.
---------------------------------------------------------------------------
    \1\ Friedman, Shapiro and Greenstein, Center on Budget and Policy 
Priorities, Recent Tax and Income Trends Among High-Income Taxpayers 
(April 12, 2005).
---------------------------------------------------------------------------
    Question: You mentioned concern about reductions in benefit growth 
for high-wage workers, due to the effect it would have on spousal and 
children's benefits paid on the records of those workers. However, you 
suggested raising payroll taxes on some of those same workers. Have you 
considered the economic effect of your proposed tax increases on those 
workers' families and their ability to save for retirement, to educate 
their children, and so forth.? If so, what were your findings?
    Answer: Workers who earn less than $90,000 per year pay payroll 
taxes on 100 percent of their wages, and have to pay current expenses 
and save for their retirement and their children's education out of 
their aftertax income. Higher earners pay zero payroll tax on wages 
above $90,000, and higher earners are also more likely to receive 
compensation in forms other than wages that are not affected by the 
payroll tax at all. In addition, the highest-income Americans have 
received the largest tax cuts and seen the greatest increases in their 
aftertax income in recent years. For all these reasons, those with 
earnings above $90,000 a year would be better able than lower income 
Americans to handle a tax increase.
    Cutting Social Security benefits for high earners and their 
families would have a different impact than raising payroll taxes on 
high earners because of the different economic circumstances under 
which these events would occur. The increase in payroll taxes, by 
definition, would affect families when the worker is earning in excess 
of $90,000. In contrast, Social Security benefits are received when 
income is lost due to death, retirement, or disability. Social Security 
benefits replace only a fraction of lost earnings, and the loss of 
employment may also mean the loss of affordable health care coverage 
for the family. So a benefit cut for the family of a former high earner 
that now relies on Social Security benefits is likely to be far more 
painful than an increase in payroll taxes would be for the family of a 
current higher earner.
    [Submissions for the record follow:]
            Statement of Donald L. Anderson, Harpswell, Main
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 William and Jane Blair, Irvine, California
    Gentlemen,
    Both my wife and I have spent many, many years working for various 
employers and have contributed significantly to social security during 
these years. Also, I have spent many years working for a county agency 
where I could not contribute to social security. My wife is now working 
for a school district where she can not contribute to social security.
    Consequently, we will probably be ineligible to receive a pension 
check from social security. We are requesting that you repeal the 
Windfall Elimination Provision which is unfair to us and will adversely 
affect our lives.

                                 
Statement of William Hickman, Houston Young Republicans, Houston, Texas
    HYR would like to thank the Subcommittee on Social Security for the 
opportunity to submit our comments regarding this critical subject. We 
are now at the point in the process where everyone agrees that Social 
Security has serious long term financing problems, and those in the 
legislative process are beginning to craft solutions.
    We feel that possible approaches could be to:
    1. Deny there is a problem and do nothing. This approach would lead 
to bankruptcy of the system in the near future and serious benefit cuts 
starting in 2041.
    2. Kick the can down the road. Such an approach would postpone the 
problem, and allow a future generation in Congress to have this debate 
again.
    3. Fix the problem. A permanent solution to the problem seems like 
the only common sense alternative. While each of the proposed solutions 
has costs and drawbacks, we need to make short term sacrifices so that 
the system can survive.
    We will first make comments regarding each of the proposals that we 
have heard about, and then suggest some slight changes.
    Pozen has suggested, and the President has embraced, a progressive 
indexing approach for wage indexing for those whose average career 
earnings are $25,000 or less, price indexing for those whose average 
career earnings are $113,000 or more, and a combined approach for those 
in the middle.
    Pozen has stated that a personal account is intimately intertwined 
with solvency, as a retiree's burden on the system is reduced as the 
size of her personal account grows.
    Pozen's progressive indexing strategy alone would take the second 
approach of kicking the can. While such an approach is politically 
appealing, it merely shifts the burden to the backs of future laborers 
and does not fix the problem. However, a combined progressive indexing 
strategy with a ``carve-out'' PRA does solve the solvency problem.
    Mr. Michael Tanner, Director, Project on Social Security Choice, 
Cato Institute has recognized the problem and stated that the ``do 
nothing'' approach is the same as a 27% benefit cut. He has stated that 
PRA's provide ownership, control, inheritability, and choice, providing 
workers a nest egg of real, inheritable wealth.
    Tanner's proposal is an option of diverting half of taxes (6.2%) to 
a PRA, and the remaining employer's portion (6.2%) going to the Social 
Security ``trust fund'' to pay benefits for survivor's, retirees, and 
the disabled.
    Tanner set forth a new minimum Social Security benefit, realizing 
that younger workers who chose an individual account option would be 
able to realize higher benefits than under traditional Social Security.
    Others have also recognized that the solvency problem can be solved 
with large personal retirement accounts, which at the same time allow 
all workers to accumulate personal savings and large investments. These 
proposals would shift from a pay as you go system to an individual 
worker ownership system. All this could be achieved with no benefit 
cuts or tax increases.
    The basic premise is to shift the retirement obligations of the 
system from the current trust fund to private accounts, with a minimum 
benefit guaranteed by the trust fund if the individual accounts are not 
large enough. This can be accomplished through a large investment into 
a personal account. Over time, as existing obligations of the trust 
fund are reduced, payroll taxes are reduced.
    There are a number of proposals on how to finance the transition: a 
national spending limitation measure; additional taxes resulting from 
increased business activities financed by the personal account 
investments; and borrowing a portion of the personal accounts in the 
form of government bonds, to name a few.
    Others have proposed to solve the financing problem by increasing 
the estate tax. This is actually the opposite of other proposals with 
personal accounts which create ownership, as the death tax destroys 
ownership between generations. Others have proposed increasing payroll 
taxes for those making over $90,000 and increasing income taxes (ie--
rolling back the President's tax cuts). These approaches of punishing 
successful workers are actually the opposite of the reward provided by 
a personal account.
HYR's Proposal
    Rather than reinventing the wheel, HYR proposes taking pieces of 
the above proposals to achieve a workable solution to the current 
problems faced by Social Security.
    Some parameters we applied to our analysis are to maintain existing 
benefit levels for current retirees and those soon to retire, have no 
increase in payroll taxes, provide a minimum benefit for younger 
workers and future generations of at least the current benefit levels, 
and investigate the use of personal retirement accounts.
    We found that Social Security has a ratio problem, where the ratio 
of workers to beneficiaries is bad and getting worse. The ratio was 
above 40 in 1945, is currently 3.3 in 2005, and will drop to less than 
2 in 2060. This decreasing ratio causes costs to increase faster than 
income, such that by 2017, costs will exceed income and Social Security 
will be heading for a deficit, and by 2041, the trust fund will be 
exhausted, and benefits will have to be substantially reduced.
    Several approaches are available to fix the ratio problem: Increase 
payroll taxes; decrease benefits; or ``fix'' the ratio by increasing 
the number of workers--or--decreasing the number of beneficiaries.
    We think the best approach is to decrease the number of 
beneficiaries by replacing young worker's traditional benefits with a 
self-funded personal account. These workers' Social Security benefits 
will be self-funded, and they will not need benefits paid from the 
trust fund. We propose that all workers be allowed the option to 
participate in the personal account option.
    A minimum benefit level for survivors, disabled, and retirees would 
remain, based on the current benefit amounts adjusted by wage and not 
price indexing, although the proposal could easily be adjusted by 
incorporating Pozen's progressive indexing to the minimum benefit 
level.
    The proposal is very similar to Tanner's and other proposals 
discussed above, with slight modifications. We propose keeping taxes at 
12.4% of payroll, while gradually increasing the portion going into a 
personal account over the next 50 years, such that during the years:
    2005-2015--workers invest 3% into a personal account;
    2015-2025--workers invest 4% into a personal account;
    2025-2035--workers invest 5% into a personal account;
    2035-2045--workers invest 6% into a personal account;
    2045-2055--workers invest 7% into a personal account;
    2055 and on--workers invest 8% into a personal account, with the 
remaining portions of payroll taxes paid into the Social Security trust 
fund.
    Our preliminary analysis suggests that, starting in 2030, as 
workers born after 1965 start to retire, benefit costs begin to 
decrease to a manageable level. Social Security retirement benefits are 
eventually entirely self-funded out of personal accounts, with a 
minimum benefit remaining for disability, survivor, and low-income 
beneficiaries.
    In the personal accounts, each worker will invest a minimum of 10% 
into each of the five funds government bond, private bond, large cap 
equities, small cap equities, and foreign equities (based on Thrift 
Savings Plan). A default allocation of 60% Government bond, and 10% 
each in private bond, large cap equities, small cap equities, and 
foreign equities will be created for each work. Workers will have an 
annual opportunity to readjust their personal account portfolio.
    By 2040 over $20 trillion will have been invested in personal 
accounts, with over $12 trillion in government bonds (based on the 
default portfolio), which is more than enough to finance the transition 
from traditional trust fund benefits to personal accounts.
    We agree with Tanner that large personal accounts can solve the 
solvency problem by replacing traditional benefits with self-funded 
accounts. We prefer a gradual phase in of the personal accounts, and in 
lieu of a tax reduction, prefer increasing the size of the personal 
accounts after the baby boomers have retired.
    Pozen's progressive indexing strategy could be incorporated into 
our proposal, by creating a smaller minimum benefit for higher income 
individuals.
    We disagree with proposals to increase the estate tax, and the 
assertions that personal accounts would actually worsen Social 
Security's solvency. We feel proposals for an automatic 401(k), such as 
enrollment, escalation, investment, and rollover, would be beneficial 
to apply to the Social Security system.
    Similarly, we disagree with proposals to increase payroll taxes for 
those making over $90,000, increase income taxes, and increase the 
estate tax.
    In order to address concerns about security, we have proposed a 
minimum benefit level based on current benefits as a safety net for all 
retirees, disabled, and survivors.
    In addition, some have recognized that more women are now working. 
Under the current system, they could receive either their own benefits 
or survivor benefits if their spouse died. With personal accounts, 
these women could receive their own benefits and inherit their spouse's 
personal account.

                                 
         Statement of Thor Anton Larsen, Sacramento, California
    I am concerned at how the current and previous administration has 
administered our social security deposits. I have deposited about 6.2% 
of my salary for 20 years. My employer has also deposited 6.2% of this 
same salary. The total deposited is now a lot more than $100,000.
    Recently, I saw our president, George Bush, picking up some files 
from a West Virginia government storage area, and stating the bonds he 
is holding are worthless pieces of paper.
    To me, these are the bonds I have acquired over time. And I find it 
offensive that the U.S. government will now say these are worthless. 
These should have been increasing in value to a degree of say 0.5% 
below the Treasury lending rate since 1981. That may average to say 
2.5%???
    Anyway, since I have definite records of depositing about $50,000 
to Social Security, and my equal employer has done the same, this 
should be worth well over $150,000 at this time.
    Why is our President now saying they are worthless stocks/bonds?
    Obviously, the capital has been spent. And we are not accrueing 
interest on our investment.
    The repairs for this situation seem numerous. I notice one repair 
is to lower the benefits for the middle class. I eliminate the upper 
class, as they are not a contributor (contributions end at $90K salary 
this year).
    This solution will put the fullest burden on our middle class. Is 
that the USA intent?
    I also noticed that the chairman, Bill Thomas, had proposed that 
raising the limit of Social Security taxes, from the current $90K to 
$150K will totally solve this dilemma, and keep Social Security 
reimbursements at the desired levels.
    This would keep the same levels, without raiseing taxes at all, nor 
reducing benefits!
    How about it?? Let's just raise the Social Security limit to $150K 
or more. There will not be threat of lower benefits, and a minimal 
amount of citizens are affected.
    In fact, the ones affected will only be affected in that they must 
continue to pay tax at a 6.2% rate after they have achieved $90K.
    Amazingly, many people do not realize that the wealthy quit paying 
Social Security after a $90K wage!
    Let's promote that!

                                 
  Statement of Martha A. Marshall, National Association of Disability 
                      Examiners, Lansing, Michigan
    The National Association of Disability Examiners (NADE) wishes to 
thank Chairman McCrey, Mr. Levin and members of the Subcommittee for 
providing this opportunity to highlight the importance of Social 
Security's safety net to vulnerable populations, and the need to 
consider the impact of any Social Security reform initiatives on the 
Social Security Disability Insurance (DI) program and the citizens it 
serves. Although we believe that members of this Subcommittee are aware 
of the need to address the impact of any changes to Social Security on 
the DI program, this issue has received very little attention in the 
media or in the public discussions. We appreciate the Subcommittee 
addressing this issue.
    NADE is a professional association whose mission is to advance the 
art and science of disability evaluation. Our membership includes 
Social Security Central Office and Regional Office personnel, 
attorneys, claimant advocates, physicians and others interested in the 
Social Security and Supplemental Security Income (SSI) disability 
programs. However, the majority of our members are employed in the 
state Disability Determination Service (DDS) offices and are directly 
involved in processing claims for Social Security and Supplemental 
Security Income disability benefits. The diversity of our membership, 
combined with our ``hands on'' experience, provides us with a unique 
understanding of the anticipated, and unanticipated, impact which 
changes to Social Security's funding or benefit structure will have on 
the Social Security disability program.
    While it is possible for an individual and his or her family to 
prepare for retirement, it is rarely possible to prepare for 
disability. It is logical to assume that for the majority of disabled 
workers Social Security benefits constitute a larger percentage of 
their family's income than they do for retirees. It is essential, then, 
that any changes to the Social Security program, or initiatives to 
achieve solvency, do not adversely affect the disability benefits paid 
to these beneficiaries and their families.
    Since 1956, when the Social Security Act was amended to provide 
benefits to disabled workers and disabled adult children, the 
disability program has become increasingly complex. Eligibility for 
disability benefits is an administrative decision that integrates 
medical, legal, vocational and functional elements. Individuals 
responsible for adjudicating these claims must possess a unique 
combination of knowledge and skills. The Government Accountability 
Office (GAO) acknowledged this in their January 2004 report, Strategic 
Workforce Planning Needed to Address Human Capital Challenges Facing 
the Disability Determination Services: ``The critical task of making 
disability decisions is complex, requiring strong analytical skills and 
considerable expertise, and it will become even more demanding with the 
implementation of the Commissioner's new long-term improvement strategy 
and the projected growth in workload.''
    While NADE recognizes the need for, and supports, SSA's commitment 
to move to an electronic disability claims process this tool will not 
replace the highly skilled and trained adjudicator who evaluates the 
claim and determines an individual's eligibility for disability 
benefits in accordance with Social Security's rules and regulations. 
The need for adequate resources of time and funds to provide for both 
the initial training of disability adjudicators and for their ongoing 
training is critical. The well trained and highly knowledgeable 
disability examiner is not only SSA's primary tool in delivering 
effective and efficient customer service, he/she is also the Agency's 
first line of defense against fraud and abuse. In fact, in previous 
testimony before this Subcommittee, SSA's Inspector General declared 
that, ``. . . the well trained disability examiner is SSA's most 
effective tool in combating fraud and abuse, thereby strengthening the 
solvency of the trust funds.'' We will not take the time in this 
testimony to address the many recent examples of fraudulent claims that 
have received so much media exposure as we are sure that the Members of 
the Subcommittee have had their attention directed to these incidents. 
However, we do want to caution the Subcommittee that for every 
fraudulent claim that receives media exposure there are hundreds of 
such claims that do not. It is our strong belief that it will remain of 
critical importance for SSA's ability to maintain public confidence in 
the disability program that the individuals who process the claims have 
the technical expertise and knowledge to do so effectively and 
efficiently, and also have the requisite training and skills to enable 
them to remain alert and cognizant to the potential for fraud.
    NADE recognizes and supports the need to improve the disability 
decision making process. We are concerned, however, that the 
Commissioner's new ``Approach'' to disability case processing, as 
described in her September 25, 2003 testimony before this Subcommittee, 
with its increased reliance on medical specialists and attorneys and 
its elimination of the triage approach currently being used in 20 DDSs, 
could potentially increase both the administrative costs and the 
program costs of the disability program. If, as has been envisioned, 
the first level of appeal following a denial by the DDS is handled by 
an attorney, rather than by a trained disability examiner, and if 
medical specialists replace programmatically trained DDS medical 
consultants, the disability program's administrative costs will almost 
certainly increase and, we suspect, so will program costs as more 
claims are allowed on appeal by individuals who lack the requisite 
training and background to view such claims from the perspective of 
SSA's definition of disability. We also suspect that less involvement 
in the decision making process by well trained disability examiners 
will lead to higher incidences of fraud and abuse.
    The disability program is already under intense pressure and 
experiencing significant strain as trained disability examiners   
retire and Baby Boomers reach their most disability prone years. This 
unfortunate combination of declining institutional knowledge, frequent 
turnover in staff at both SSA and in the DDSs, and the potential 
increase in the number of disability claims will leave little room for 
ongoing training, especially since adjudicators will be required to 
spend the precious little time they have for training to learn the 
changes necessary to process claims under SSA's new electronic process. 
Again, we caution the Members of the Subcommittee that any legislation 
which would result in an increase in the number of initial claims 
filed, or an increase in the number of appeals to the Administrative 
Law Judge (ALJ) level will seriously jeopardize SSA's ability to 
process these claims. It is essential that the time and funds necessary 
for ongoing training for all adjudicators be provided as a commitment 
to ensuring effective and efficient customer service.
    Currently when a disability beneficiary reaches retirement age his 
or her benefits are converted to retirement benefits. This move from 
disability benefits to retirement benefits is currently--and should 
remain--seamless. Disability benefits should not be lower than the 
individual's projected retirement benefits, nor should they be higher. 
In view of the fact that retirees, unlike disability beneficiaries, 
have had time to accrue additional retirement resources it could be 
argued that it is reasonable for disability benefits to be higher than 
retirement benefits. However, maintaining higher benefits for disabled 
workers than for retired workers who have contributed to Social 
Security for a full working life would create an incentive for workers 
to claim disability before retiring. This has the potential to create 
an administrative nightmare of increased claims, thereby reducing the 
time and resources available to process the normal caseload.
    Many of those individuals filing for disability benefits rather 
than retirement benefits would, by virtue of their age, education and 
past work experience, be found eligible for disability benefits. These 
decisions, which are made at Steps 4 and 5 of the Social Security 
disability program's sequential evaluation process, are the most labor 
intensive claims to adjudicate. Determining whether or not a claimant 
is ``disabled'' at these steps in the sequential evaluation process 
requires the adjudicator to first assess the individual's current 
ability to perform work related activities and then determine whether, 
considering his or her age, education and past work experience, he or 
she can return either to past work (Step 4) or other work available in 
the national economy (Step 5).
    The Social Security Advisory Board, in their October 2003 report, 
The Social Security Definition of Disability, described the 
difficulties inherent in making these medical/vocational decisions: 
``In the early years of the program, over 90 percent of cases were 
decided on the basis that the claimant's medical condition was 
specifically included in the listings or was of equal medical severity 
. . . but the degree of subjectivity clearly is more substantial where 
the decision moves from entirely medical standards to an assessment of 
the individual's vocational capacity.'' Thus, the applications of those 
individuals filing for the higher disability benefits, rather than 
retirement benefits, are both more labor intensive and more subjective.
    In previous testimony before this Subcommittee (July 24, 2003), we 
urged that adequate funding be provided for SSA's Continuing Disability 
Review, or CDR, process. We noted then that the CDR process, for every 
$1 expended, produced $9 in savings to the disability program. We 
continue to urge that adequate resources be allocated to keep the CDR 
process current. We further believe that it may be time for Congress to 
revisit the issue of the Medical Improvement Review Standard (MIRS), a 
congressionally mandated requirement, adopted twenty years ago in the 
wake of a significant increase in the number of disability reviews that 
resulted in recommendations for termination of benefits. MIRS requires 
that adjudicators first establish that there has been improvement in a 
claimant's medical condition before recommending that an individual's 
benefits be ceased. We will not argue this point at this time but we do 
wish to point out that claimants who are awarded disability benefits 
may have little financial incentive to seek medical improvement in 
their condition. In addition, claims that are allowed for impairments 
that, in hindsight, may not be viewed as truly disabling under SSA's 
definition of disability, cannot be reviewed and benefits terminated 
because it is nearly impossible to show medical improvement in such 
cases. NADE believes that this is an important issue, deserving of 
fresh dialogue, and we encourage this Subcommittee to examine this 
issue in the near future and to conduct hearings on this matter to 
ascertain if the MIRS remains relevant in the 21st century.
    In our testimony before this Subcommittee and the Subcommittee on 
Human Resources on May 2, 2002, we highlighted many issues facing SSA's 
ability to provide effective public service while maintaining solvency. 
Those issues are still relevant today. We will not discuss them in 
length at this time; however, we believe they remain as critical today 
as they did three years ago:

      Solvency of Social Security trust funds
      The need to develop a more efficient disability claims 
process that is affordable
      SSA's inefficient and ineffective quality assurance 
process for its disability programs
      The need to eliminate the five (5) month waiting period 
for Social Security disability benefits
      The impact of technology on claimant service
      The need to prepare for the impending wave of retirements 
that face both SSA and the DDSs
      The need for bold leadership to provide direction for a 
program that has been managed, in large part, by short sighted 
responses to court decisions and other external pressures
      The need to truly implement the ``One SSA'' concept 
throughout the Agency
      The need for adequate resources to deal with the Agency's 
caseloads
      The need to meet other challenges, including the impact 
fraud has on the disability program, the need to resolve critical 
systems issues, and the challenge of ensuring that only the truly 
disabled are awarded benefit payments and that only those who remain 
disabled continue to receive these payments

    In that same testimony, we highlighted other concerns we felt 
impacted on the Agency's ability to provide effective public service:

      The challenge to examine the current relevance of SSA's 
definition of disability.
      The challenge to revise the medical listings with 
attention as to how new and/or revised listings will impact on 
administrative and program costs.
      The challenge to find a replacement for the Dictionary of 
Occupational Titles.
      The challenge of dealing with increased instances of 
fraud.
      The challenge of providing effective service to non-
English speaking claimants.
      The challenge surrounding the medical improvement review 
standard (MIRS) and its impact on program costs.

    It is unfortunate that little progress has been made in many of 
these areas since we presented this testimony three years ago. The 
luxury of time is not something that can be taken for granted and we 
believe positive action is needed immediately to address these issues.
    In conclusion, we again commend this Subcommittee for its positive 
action to hold this hearing to examine ways to protect and strengthen 
Social Security. We remind the Members of the Subcommittee, during your 
deliberations on this matter, to keep in mind the mission of Social 
Security, ``To promote the economic security of the nation's people 
through compassionate and vigilant leadership in shaping and managing 
America's social security programs.''
    Thank you.

                                 
             Statement of Alfred Lee Nelson, Olathe, Kansas
    ELIMINATE THE GPO/WEP in this 109th congress. Raise the retirement 
age, because with today's medical technology people are
    Eliminate the GPO/WEP in the 109th Congress. Raise the retirement 
age because people are naturally living longer. Make sure that everyone 
is contributing their FAIR SHARE into the program if they plan on 
reaping the benefits. With today's salaries, that should not be a 
problem. When I was working and paying into the program, the deduction 
from my ``basic pay'' in the ARMY, which I thought was overwhelming and 
really could not afford, the government was actually making me ``save'' 
for my future. Now the government which was making me save is now 
``STEALING'' my EARNED BENEFITS through the unfair legislature of the 
GOVERNMENT PENSION OFFSET (1977) and the WINDFALL ELIMINATION PROVISION 
(1983) I understand that the Social Security Shortfall, in a report 
from the SS trustees released last March, forecasts that the trust fund 
will run out of money in 2041 and that SS would be able to pay only 74% 
of benefits. For an average retiree, that would mean losing nearly 
$500.00 per month. Well duh,-- if you keep paying out of ANY fund and 
applying the necessary COLA's, and the INPUT is NOT INCREASED, 
naturally the output is going to deplete itself in a relatively short 
period. It really doesn't take a rocket scientist to figure that out. 
While I really feel sorry for the future retirees, my kids included, I 
am a helluva lot more concerned about the current retirees. Because of 
the WEP, I am personally losing in excess of $300.00 EACH MONTH (that's 
over $3,700.00 per year). I am also a military retiree and my 
``Promised FREE MEDICAL BENEFITS; for LIFE cost me $78.20 EACH MONTH 
for Medicare Part B so that I can be eligible for TRICARE FOR LIFE. If 
the 109th congress does not repeal these unjust legislatures, I will be 
losing in excess of $400.00 EACH MONTH of my EARNED BENEFITS for 
another year. ELIMINATE THE G! PO/WEP (HR 147--S 619) in this 109th 
congress--AND--KEEP OUR PROMISE to AMERICA'S MILITARY RETIREES ACT (HR 
602--S 407). If the 109th congress can solve this immediate problem for 
thousands of military, civil service and public retirees, I may have a 
little more respect for my government. Right now, I am really 
disgusted!!!!!!!!!! I laid my life on line for over 20 years and then 
delivered mail to the American public for another 20+ years and this is 
the thanks I receive from government. Something is WRONG with that 
picture. Thank for listening to ``one of many'' American Citizens that 
feel the same as I feel.

                                 
  Statement of John Clements, Political Research, Inc., Dallas, Texas
    For several months, I have written about the current crisis facing 
Social Security. I would like to present two articles for submission 
for the record for the Committee on Ways and Means. First in a Series 
of Subcommittee Hearings on Protecting and Strengthening Social 
Security. The articles appeared in the February 2005 and May 2005 World 
of Politics. Thank you.
(February 2005)
                        Among Other Things . . .
    The Republic of the United States of America is a government of the 
people, by the people and for the people. This relationship means that 
we are a country of the people, by the people and for the people. 
Charity begins at home, and now is the time for our idea--person equals 
executive--and all shall be protected in retirement with and by the 
richest country in the world.
    The employer-employee relationship is the backbone of business in 
the United States. Without employers, no company could exist; without 
employees, no company could earn profits for its officers and 
stockholders. The smartest corporate executive in the world would find 
himself or herself at a loss if confronted with a workforce of zero. 
Conversely, without viable companies, people would be unable to support 
themselves and their families. In reality, companies and employees are 
dependent on each other. They need each other to exist. Has the time 
come for ``Corporate America'' to face this almost symbiotic 
relationship between business and labor?
    According to the president, the United States faces a crisis in how 
it deals with employees once they retire. Many Americans are dependent 
on Social Security. Corporations, however, have no need to fear 
retirement since the labor pool generally replenishes itself. Corporate 
officers also lack such a fear knowing that they have their bonuses and 
stock options to keep them comfortable in their ``golden years.'' 
Although some companies have tried to help their employees in 
retirement, they have discovered that the task has become more 
difficult.
    The market value of goods and services produced by labor and 
property supplied by U.S. residents, regardless of where they reside 
(the classic definition of gross national product), in 2003 was $11.004 
trillion. The current needs of Social Security, which, as everyone 
knows, is a pay-as-you-go program, are large. In 2003, the federal 
government paid total Social Security benefits, including survivors and 
disability insurance, of $471 billion. As a percentage of the gross 
national product in 2003, total Social Security benefits paid were only 
4.28 percent. If Corporate America were to shoulder this burden, say a 
five-percent annual tax on gross income, the retirement problem facing 
the United States would be solved, and the Social Security payroll tax 
would become a thing of the past.
(May 2005)
                        Among Other Things . . .
    People must accept the inevitable about Social Security. The 
butcher, the baker and the candlestick maker create the gross national 
product (GNP), not just the executive, who thinks he pulls the strings 
of political puppets in Washington, D.C. Together, all four people form 
a team, a company, that produces a product or service. The executive 
cannot be without the worker; the worker cannot be without the 
executive. It is not an ``US'' versus ``THEM'' situation; it is a 
``WE'' situation. Each needs the other. With dire predictions abounding 
for Social Security, it is time that everyone confronts the reality of 
the situation.
    In 2004, the gross national product was $11.735 trillion. This 
figure, in the classic definition, represents the market value of goods 
and services produced by labor and property supplied by U.S. residents, 
regardless of where they reside. In 2004, the federal government paid 
total Social Security benefits, including survivors and disability 
insurance, of $493 billion. Thus, as a percentage of GNP in 2004, total 
Social Security benefits paid were 4.2 percent. (For 2003, it was 4.28 
percent.) If Corporate America were willing to pay an annual tax on 
gross income, the retirement problem facing the United States would be 
solved.
    Under this plan, businesses could still divide profits as they saw 
fit; however, the retirement money would be deducted before the 
awarding of ``golden parachutes'' for executives. Rather than as 
government pillaging profits, companies should consider such action as 
a necessary corollary to doing business. Companies do not operate in a 
vacuum. They pay taxes for roads to haul their products to market, 
schools to educate their employees, police to protect their workers and 
property, sanitation systems to protect the health of workers and their 
families, promotional consideration for their products overseas and at 
home, security for their employees on trips, and myriad federal, state 
and local programs that benefit them. Retirement security for their 
employees should be viewed no differently, for the employee is the key 
machine that makes the tangible and intangible product or service.
    It is time that the People show Corporate American who really pulls 
the strings of politicians in Washington and demand that they adopt a 
``solution'' that is truly a solution!

                                 
  Statement of Linda Fullerton, Social Security Disability Coalition, 
                          Rochester, New York
    My name is Linda Fullerton and I am President and co-founder of the 
Social Security Disability Coalition, a national, all volunteer 
organization that provides support and information to disabled people 
to help them collect Social Security Disability Insurance benefits. As 
you begin this hearing on protecting and strengthening Social Security, 
I ask that you please include in this discussion the issues facing 
disabled Americans and the promise of Social Security Disability 
benefits to them. When debating Social Security changes, Congress and 
the American people need to understand that Social Security is an 
insurance program not a pension plan strictly for retirees. Social 
Security is the widely used term for Title II of the Social Security 
Act which in technical terms is called Federal Old-Age, Survivors and 
Disability (SSDI) Insurance. I must remind you that the key word in 
that title is INSURANCE. How is privatization going to effect those 
citizens who are under 55 or retirement age? SSDI, and survivors 
benefits are accessible at any age and part of the same plan. Your 
Social Security statement, which is sent each year to every worker age 
25 or older, gives an estimate of retirement, disability and survivors 
benefits that could be paid, as well as other important information. 
All 3 programs use the same benefit formula so changes in one affect 
them all. As of December 2004, 69% of all Social Security beneficiaries 
were retired workers, 17% were disabled workers and 14% were survivors 
of deceased workers. You often hear as the reason for the SS 
``crisis'', is that baby boomers due to retire will drain the trust 
fund, and there aren't enough workers to cover them since people are 
having fewer children. When addressing this issue you must also raise 
concerns about the tax cuts to wealthy Americans, the unemployment 
rate, lack of decent wage jobs and the millions of jobs shipped 
overseas as additional major reasons the SS trust fund is lacking.
    I have been permanently disabled since 2001 and unable to work due 
to several incurable health conditions, and currently receiving Social 
Security Disability benefits after fighting for a year and a half to 
receive them. During the wait time to process my claim for benefits, my 
debts accumulated, I used up all my life savings, and was on the verge 
of bankruptcy. After being awarded SSDI benefits and retroactive pay, I 
had to use the retroactive money to pay off debts incurred while 
waiting to get my benefits. Furthermore, before being awarded my 
Medicare benefits in June 2004, because of the two year mandatory 
waiting period for Medicare for the disabled, I had to spend over half 
of my SSD check each month on health insurance premiums and 
prescriptions, in addition to co-pay fees. To help others avoid similar 
a situation, I co-founded the Social Security Disability Coalition 
(SSDC), a national volunteer organization based out of Rochester, NY of 
which I am also the president. This group offers support and 
information to disabled Americans, that will help them file for their 
SSDI benefits and it is focused on reform of the Social Security 
Disability program which is in serious need of immediate attention.
    The Social Security Disability Coalition was formed in January of 
2003 and currently has over 1400 members from all over the USA:
    In regards to the possibility of benefit cuts or changes to the 
COLA, which have also been discussed, I ask that you consider this--I 
can say for a fact that with the possible increases now in the Medicare 
premium (just read talk of another one planned for next year), 
prescription drugs, additional health plans to Medicare raising 
premiums each year, and increases in everything else--food, gas, 
clothes, shelter etc that even at the current COLA rate I am getting 
less every year and my expenses continue to increase at a rate that the 
COLA never compensates for. Supposedly Social Security was never set up 
to be a sole source of income, but for many who are disabled, including 
myself, who can never work again, it truly is our only source of income 
for the rest of our lives. Since the amount we get is the same as those 
who are retired we will always be kept in poverty status as we have no 
other way to increase our funds/savings since we can no longer work. It 
is a continual source of stress which just makes our health conditions 
worse. I hate the fact that I am doomed to live the rest of my life 
being sick and in poverty. It is no wonder the depression and suicide 
rate is so high among the disabled population of this country!
    Disabled Americans are often viewed as ``disposable'' people, and 
nowhere is that more obvious than in this debate on Social Security 
privatization, and in the way majority of Congress up to this point has 
kept us out of it. Yet, we are the ones who will be most adversely 
affected by any changes that might take place. I hope you will take the 
steps to change that and address the fear and frustration that is 
resulting from the prospect of having our benefits taken away or cut. 
Since the SS Disability program is so closely tied to the retirement 
aspect of the Social Security program, you cannot make changes to one 
without directly affecting the other. Rather than create a crisis that 
doesn't exist at this time, Congress should focus on the REAL Social 
Security reform crisis that all Americans need to be made aware of, and 
affects ALL of them UNDER retirement age. We also have many other 
programs in crisis that provide for the health and well being of the 
nation, that need immediate attention in addition to Social Security 
Disability, such as Medicare and Medicaid. It is also crucial that we 
come up with affordable health insurance for ALL Americans. The 
American people have told their leaders many times over that this is 
what they want, and Congress should not be wasting precious time and 
tax dollars on a manufactured ``crisis''. The solvency of Social 
Security can be protected with bi-partisan measures such as it was in 
the 80's under President Reagan and then Congress can focus on the real 
problems at hand.
    Disabled Americans who are trying to access their benefits NOW can 
lose everything they have ever owned and worse yet even die in the 
process. The Social Security Disability Program is severely 
understaffed, violating Federal regulations, their own SS policies and 
destroying/abusing disabled Americans on a daily basis. The money saved 
by fixing these problems would be more than enough to keep SS solvent 
for years to come, and some disabled Americans could possibly return to 
the workforce contributing back to the system, which is almost 
impossible now, since often irreparable damage is caused during the 
application process. It would also alleviate some of the Medicaid 
crisis which every state faces, since often Social Security Disability 
applicants due to the devastation on their lives while trying to get 
SSD benefits, are forced into the Medicaid and other Social Services 
programs in their states as well. As a result of the problems with the 
current SSD program they are forced to live in poverty and rely on two 
programs instead of just one for the rest of their lives.
    The disabled members of the Social Security Disability Coalition, 
along with the rest of the disabled citizens of this country are scared 
that they will not be able to get the SSD benefits they need, and those 
of us already getting SSDI benefits fear we will face benefit cuts or 
even total benefit loss. We are very stressed and concerned with the 
changes that could take place. And it is commonly known, that stress of 
any kind is very detrimental to those with disabilities. Our group and 
experiences, are a very accurate reflection and microcosm of what is 
happening to millions of Social Security Disability applicants all over 
this nation.
Social Security: The Hidden Dangers of Privatization
    Since the talk of privatization has been focused on the retirement 
aspect of Social Security, I ask that you address the hidden dangers of 
Social Security privatization that the American people are not being 
told about. Disease, tragedy and death do not discriminate on the basis 
of age, sex, race or educational background. They can strike at anytime 
throughout your life without warning, and you may need to file claims 
for other essential Social Security insurance benefits. Currently you 
are asking the American people to not only gamble with their money, but 
you are asking the disabled to gamble with their lives!
    Social Security Disability Benefits--to qualify individuals must 
have a severe physical or mental impairment that has lasted or is 
expected to last at least 12 months or result in death that prevents 
them from working. Most people qualify for Medicare after receiving 
disability benefits for 2 years. When a person stops working because of 
their disability, they may qualify for disability insurance if they are 
below normal retirement age. Then, if they are still disabled when they 
reach normal retirement age, their benefits automatically convert to 
retirement insurance, but they get the same amount. In 2001, the 
Government Accountability Office (GAO) studied several plans to change 
Social Security. It concluded that, compared to the current program, 
people with disabilities would get much lower benefits under plans that 
would use payroll taxes to create individual private accounts.
A Downward Spiral Into Poverty For Millions of Americans
    Since talk of Social Security privatization started, Congress has 
had to deal with a manufactured ``crisis'' and has not been able focus 
on actual crisis areas, such as the Social Security Disability program 
(designated by GAO several times to be a high risk area), Medicare and 
Medicaid. The following chilling scenario already happens to millions 
of Americans of all ages everyday, due to the crisis with the other 
programs mentioned above. If privatization of Social Security is 
approved, the chances of this happening on a even wider scale will 
increase dramatically, and the effects will be even more devastating 
than they are today. Keep in mind when reading this example, that under 
the proposed Social Security privatization plan, people will be allowed 
to put up to $1000 per year of their payroll taxes into a private 
investment account that cannot be touched under any circumstances, 
until they reach retirement age. Also keep in mind that the average 
American has very little money, if any at all in savings accounts, in 
case of emergency. Most would not have enough savings to survive on for 
more than two months if they could no longer work. Those that have 
investment accounts rather than savings accounts, which often pay 
higher interest rates, are at the mercy of the very unreliable stock 
market and millions of dollars as we all know have already been lost 
there.
    EXAMPLE: It is 2006 and the Social Security Privatization Act has 
passed. Americans are now allowed to divert a maximum of $1000 a year 
from their payroll taxes into a relatively safe government managed 
investment account. They are not under any circumstances (according to 
current proposals) allowed to touch this money until retirement age. 
Our subject John graduates from college at 21 and lands an entry level 
job right out of school at a local computer firm in his area. His 
starting salary is $30,000 per year. The company offers a traditional 
pension plan and after 5 years he is vested in the plan. After the 
first year of employment, if he should he lose his job, he can transfer 
the money into a private account of his own choosing outside the 
company plan or keep it where it is until he reaches retirement age. 
When the SS Privatization plan took effect, the company dropped the 
401k plan that they offered, in addition to the traditional pension 
plan, in order to cut costs. They do offer health insurance with a 
choice of 3 different HMO plans, and again to cut costs, the employee 
must contribute a portion of their own pay in order to be covered under 
one of these plans. Also to keep costs down the company does not offer 
any private disability insurance plans.
    Jump ahead to the year 2011 and John at 26, is now earning $50,000 
per year. He has been taking full advantage of the new SS Privatization 
plan and for the last five years has diverted $1000 a year of his 
payroll taxes to his private account. He also has about $50,000 in a 
traditional savings account and decides he wants to purchase a new 
house. He decides to put down $30,000 out of his savings on the new 
house, and the mortgage payments are $650 per month for the next 30 
years. In 2014 John decides he needs a fuel efficient hybrid vehicle 
and decides to buy a new $25,000 car taking out a 4 year loan. After a 
$3000 down payment out of his savings, and trading in his old vehicle, 
his payments are around $350 per month, since he was able to take 
advantage of a no interest loan incentive offered by the manufacturer.
    It is now January of the year 2016, and John at 31 is still single, 
paying the mortgage on his house and the payments on car he bought back 
in 2014. His salary is now at $60,000 per year and he has continued for 
the last five years to divert the full $1000 per year of his payroll 
taxes to his private account. His savings account due to the house and 
car payments has remained fairly stagnant at around $17,000. By most 
standards he is living the ``American Dream''--nice house and car, good 
job, health insurance, modest savings and a retirement account. Then 
suddenly in the month of June, and without any warning, John 
experiences a life altering event (accident/illness) and his doctors 
determine that he is permanently disabled, and will never be able to 
work at any job, ever again.
    John, as a result of this unfortunate circumstance looses his job 
of 10 years, and remember his company did not offer him private 
disability insurance. He is then told by his doctors that he should 
apply for Social Security disability/SSDI. He begins the benefit 
application process by himself and the waiting game begins. He now has 
no income and must live off that $17, 000 savings account that he has. 
Four months go by and finally John hears back from Social Security that 
his disability claim has been denied (68% of all cases are currently 
denied at the initial phase of the process). He now has 60 days in 
which to file an appeal for a reconsideration, or in some states a 
hearing, and at this point decides to hire an attorney. Once the appeal 
is filed John is forced again to wait while his claim sits in an SS 
office for months with not enough staff to look at it. In the meantime 
John's savings are quickly being used up on paying his mortgage, car 
payments and all the other bills he has. His company no longer pays for 
his health insurance so he must take advantage of COBRA for the next 18 
months. His health insurance premium under COBRA now costs him $250 per 
month instead of the $40 per month he was paying through his job. That 
does not include the co-pays. John's expenses for just his mortgage, 
car payment and health insurance alone are at $1250 per month now. At 
this point, John's savings account is all gone and he has to roll over 
the pension money he got from his employer into a money market IRA at 
his credit union--because he is disabled they allow him to take it 
early without penalties. There is about $25,000 there for him to live 
on.
    Another 6 months goes by and due to severe backlogs within the SS 
system there is still no word on his claim. At this point the $25,000 
is gone and the bill collectors start harassing him. He has no money 
left to pay the mortgage, car payments or health insurance, let alone 
any other bills. He has no choice but to start maxing out all his 
credit cards. Another 4 months goes by and still no word on his SS 
claim. With all his credit cards used up, no financial resources at all 
for backup, he goes down to Social Services (welfare/food stamps/
Medicaid) and asks for help. He finds out that much to his dismay, he 
does not qualify because of his assets (the private account that he 
diverted his payroll taxes into is considered an asset even though he 
cannot touch it until he retires). At this point John is so far in debt 
that the bank threatens to foreclose on his home. They have already 
repossessed his car, and he no longer has health insurance. He is in a 
panic by this point and his lawyer contacts SS to let them know that 
his client is in dire need, and requests that the process for his SS 
claim be given more attention. Again due to backlog and lack of SS 
employees to process claims quickly, this process takes another two 
months and by that time John has lost his home, his credit is ruined 
and he must now file for bankruptcy. He has had to move back home with 
his parents. Finally John gets his Social Security Disability claim 
approved and since he hired an attorney to get his Social Security 
disability benefits, John must now pay him 25% of all the retro pay he 
got up to $5300 from waiting for his claim to be processed. John still 
cannot afford health insurance and under current laws must wait 24 
months from disability date of eligibility before he can get Medicare 
benefits.
    Under traditional Social Security/SSDI, John would receive 
disability/retirement pay of $30,432 per year. Because he diverted that 
$1000 per year into a private account and paid less into the Social 
Security program he will now only receive a YEARLY disability benefit 
of $5464 to live on for the next 36 years (provided they do not raise 
the retirement age again). (Note: the money that has been diverted into 
his private account each year, according to current proposals cannot be 
touched under ANY circumstances until he reaches retirement age). When 
John finally does reach retirement age, and his SS disability benefits 
automatically turn into retirement benefits, John will get $5,464 from 
SS, $14,133 from his private account for a total of $19, 567 per year 
to live on. That is a total yearly retirement benefit cut under SS 
privatization of $10,835 or 36%!

    To see how you will do try this:

    Social Security Benefits Calculator--Based on proposed Social 
Security privatization plan

    http://www.schumer.senate.gov/calc/index.html

    All numbers are annual benefits adjusted for inflation. 
Calculations are based on Congressional Budget Office (CBO) economic 
assumptions. Individual accounts will do nothing to restore long-term 
solvency there is talk that further benefit cuts are necessary. Since 
there is no specific proposal, these estimates assume that benefits are 
``price indexed,'' a proposal made in Plan 2 of the Social Security 
Commission. Check here for more information on how these figures were 
calculated: http://www.schumer.senate.gov/calc/images/ss-
calculator_assumptions.pdf

    Needless to say John's American dream has now become the American 
nightmare under Social Security privatization. Many more people may 
have to file for bankruptcy and now Congress is passing legislation to 
make that process even more difficult for needy Americans. Currently it 
can take anywhere from 4 months to 4 years to get approved for Social 
Security Disability benefits. Since January 2004 there have been over 2 
million NEW applications for Social Security Disability benefits and as 
of October of that same year there were still over 1,200,000 people 
still waiting for decisions on their claims. Among Disability Insurance 
beneficiaries (disabled workers, their spouses and children), 88% were 
under age 62. Unless something is done to fix this crisis the numbers 
will continue to grow. Congress needs to take the time to fix the 
problems within that part of Social Security instead of diverting its 
attention to a privatization plan that is going to cut benefits and 
create a legacy of poverty. If these problems aren't solved NOW, not 
only will Americans get less benefits in the future but it will take 
even longer to access them. We need legislation quickly to provide the 
funds necessary to hire and train more SS workers, and educate 
claimants and physicians on the Social Security Disability process and 
what is required to make the benefit application process quicker and 
more simplified. We also need Congress to pass legislation removing the 
2 year wait for Medicare for Social Security disability recipients. 
Once a Social Security Disability claim is approved, Medicare should 
become available immediately. When the flaws in the Social Security 
Disability program are fixed, this will also reduce the number of 
people forced into state social service programs, Medicaid, and having 
to file for bankruptcy since many are forced into those programs now, 
as a result of these problems.
ISSUES CONCERNING THE SOCIAL SECURITY DISABILITY PROGRAM
    The current Social Security Disability program and the process that 
an applicant endures when filing for disability benefits, causes 
irreparable harm and has many serious side effects including unbearable 
stress, depression, and in some cases the depression is so severe that 
suicide seems to be the only option to get rid of the pain, of dealing 
with a system riddled with abuses against the disabled, already fragile 
citizens of this country. According to past GAO reports, the SSD 
program is at HIGH RISK but Congress for the most part continues to 
ignore this problem and has been forced to spend time on other issues 
that are not as critical.
    The time it takes to process a Social Security Disability claim 
from the original filing date is now, in many cases, at least 1-3 years 
or longer. If claimants provide sufficient medical documents when they 
originally file for benefits they shouldn't be denied at the initial 
stage, have to hire lawyers, wait years for hearings, go before 
administrative law judges and be treated like criminals on trial. The 
current SSD process seems to be structured in a way to be as difficult 
as possible in order to suck the life out of applicants in hope that 
they give up or die in the process, so that Social Security doesn't 
have to pay them their benefits. To a population that is already 
compromised, this is unacceptable and this issue must be made a 
priority for every member of Congress since it is a life and death 
situation for millions. Many SSD applicants are losing EVERYTHING in 
the process of applying for benefits, their homes, all their financial 
resources, their healthcare and worse yet their lives. The stress and 
worry that applicants are forced to endure while applying for SSD 
benefits, also causes further irreparable damage to their already 
compromised health and is totally unacceptable. Those who do lose 
everything, are now in addition to their illnesses, forced into a level 
of poverty, which they will have to live with the rest of their lives 
since they can no longer earn a living. Due to the devastation on their 
lives and health, the Ticket to Work program, and any chance of 
possibly getting well enough to return to the workforce, even on a part 
time basis, becomes out of the question.
    The current claims process is also set up to line the pockets of 
the legal system, since you are encouraged from the minute you apply to 
get a lawyer. Why should you need to pay a lawyer to get benefits that 
you have paid into all your working life? The SSD program is structured 
so that it is in a lawyer's best interest for your case to drag on 
since they automatically get paid a percentage of a claimant's retro 
pay--the longer it takes the more they get even if they do almost 
nothing. From the horror stories I hear from claimants many attorneys 
are definitely taking advantage of that situation.
    SSA customer service is extremely poor and in major need of 
improvement across the board. If any corporation in this country did 
business like the SSA, the majority of employees would be fired on the 
spot, and the company would be shut down within a year. Here is just a 
small sampling of the constant complaints we receive about the Social 
Security Disability system and its employees:

    Extraordinary wait times between the different phases ofthe 
disability claims process

    Severe understaffing of SSD workers at all levels of the program

    Employees are poorly trained, greatly lacking in knowledge of and 
in some cases purposely violating Social Security and Federal 
Regulations (including Freedom of Information Act and SSD Pre-Hearing 
review process).

    Employees being rude/insensitive to claimants

    Employees outright refusing to provide information to claimants or 
do not have the knowledge to do so

    Employees not returning calls

    Claimants getting conflicting/erroneous information depending on 
whom they happen to talk to at Social Security--causing confusion for 
claimants and in some cases major problems including improper payments

    Complaints of lack of attention or totally ignoring--medical 
records provided and claimants concerns by Field Officers, IME doctors 
and ALJ's.

    Fraud on the part of DDS/OHA offices, ALJ's, IME's--purposely 
manipulating/ignoring information provided to deny claims.

    Complaints of lost files and files being purposely thrown in the 
trash

    Complaints of having other claimants information improperly filed/
mixed in where it doesn't belong causing breach of security

    Poor/little coordination of information between the different 
departments and phases of the disability process

    These complaints refer to all phases of the SSD process including 
local office, Disability Determinations, Office of Hearings and Appeals 
and the Social Security main office in MD (800 number).
SOCIAL SECURITY DISABILITY COALITION REFORMS
    We want disability benefits determinations to be based solely on 
the physical or mental disability of the applicant. Neither age, 
education or any other factors should ever be considered when 
evaluating whether or not a person is disabled. If a person cannot work 
due to their medical conditions--they CAN'T work no matter what their 
age, or how many degrees they have. This is blatant discrimination, and 
yet this is a standard practice when deciding Social Security 
Disability determinations and should be considered a violation of our 
Constitution. This practice should be addressed and eliminated 
immediately.
    All SSD case decisions must be determined within three months of 
original filing date. When it is impossible to do so a maximum of six 
months will be allowed for appeals, hearings etc--NO EXCEPTIONS. 
Failure to do so on the part of SSD will constitute a fine of $500 per 
week for every week over the six month period--payable to claimant in 
addition to their awarded benefit payments and due immediately along 
with their retro pay upon approval of their claim. SSD will also be 
held financially responsible for people who lose property, automobiles, 
IRA's, pension funds, who incur a compromised credit rating or lose 
their health insurance as a result of any delay in processing of their 
claim, which may occur during or after (if there is failure to fully 
process claim within six months) the initial six month allotted 
processing period.
    Waiting period for initial payment of benefits should be reduced to 
two weeks after first date of filing instead of the current five month 
waiting period.
    Prime rate bank interest should be paid on all retro payments from 
first date of filing due to claimants as they are losing it while 
waiting for their benefits to be approved.
    Immediate eligibility for Medicare/Medicaid upon disability 
approval with NO waiting period instead of the current 2 years. The 
current Medicare program discriminates against disabled Americans. 
Applicants filing for Social Security Disability benefits face a very 
daunting system and the claims process can take several months to years 
before approval of benefits. In addition they may have to file for 
bankruptcy, become homelessness and even death while trying to get 
their benefits. Once they finally get through that nightmare, those 
that need healthcare the most must now wait even longer to get Medicare 
benefits being forced to wait TWO years after their disability 
determination date to get coverage. They are sick NOW and need 
healthcare NOW! They often have to go without health insurance or pay 
as much as half the amount of their meager benefit checks for basic 
health coverage, and that does not even include the cost of doctor 
visit co-pays or prescription drugs. This is an outrage and crime 
against the disabled citizens of this nation.
    Too much weight at the initial time of filing, is put on the 
independent medical examiner's and SS caseworker's opinion of a claim. 
The independent medical examiner only sees you for a few minutes and 
has no idea how a patient's medical problems affect their lives after 
only a brief visit with them. The caseworker at the DDS office never 
sees a claimant. The decisions should be based with much more weight on 
the claimant's own treating physicians opinions and medical records. 
Independent medical exams requested by SSA must only be required to be 
performed by doctors who are located within a 15 mile radius of a 
claimants residence. If that is not possible--Social Security must 
provide for transportation or travel expenses incurred for this travel 
by the claimant. Also in the cases where SSD requires a medical exam, 
they should only be performed by board certified independent doctors 
who are specialists in the disabling condition that a claimant has 
(example--Rheumatologists for autoimmune disorders, Psychologists and 
Psychiatrists for mental disorders). Currently this is often not the 
case.
    All Americans should be entitled to easy access (unless it could be 
proven that it is detrimental to their health) and be given FREE copies 
of their medical records including doctor's notes at all times. This is 
crucial information for all citizens to have to ensure that they are 
receiving proper healthcare and a major factor when a person applies 
for Social Security Disability.
    ALL doctors should be required by law, before they receive their 
medical license, and made a part of their continuing education program 
to keep their license, to attend seminars provided free of charge by 
the SSA, in proper procedures for writing medical reports and filling 
out forms for Social Security Disability and SSD claimants.
    More Federal funding is necessary to create a universal network 
between Social Security, SSD/SSI and all outlets that handle these 
cases so that claimant's info is easily available to caseworkers 
handling claims no matter what level/stage they are at in the system. 
All SSA forms and reports should be made available online for 
claimants, medical professionals, SSD caseworkers and attorneys, and be 
uniform throughout the system. One universal form should be used by 
claimants, doctors, attorneys and SSD caseworkers, which will save 
time, create ease in tracking status, updating info and reduce 
duplication of paperwork. Forms should be revised to be more 
comprehensive for evaluating a claimant's disability and better 
coordinated with the SS Doctor's Bluebook Listing of Impairments.
    Institute a lost records fine--if Social Security loses a claimants 
records/files an immediate $1000 fine must be paid to claimant.
    Review of records by claimant should be available at any time 
during all stages of the SSD determination process. Before a denial is 
issued at any stage, the applicant should be contacted as to ALL the 
sources being used to make the judgment. It must be accompanied by a 
detailed report as to why a denial might be imminent, who made the 
determination and a phone number or address where they could be 
contacted. In case info is missing or they were given inaccurate 
information the applicant can provide the corrected or missing 
information before a determination is made. This would eliminate many 
cases from having to advance to the hearing and appeals phase.
    The SSA ``Bluebook'' listing of diseases that qualify a person for 
disability should be updated more frequently to include newly 
discovered crippling diseases such as the many autoimmune disorders 
that are ravaging our citizens. SSD's current 3 year earnings window 
calculation method fails to recognize slowly progressive conditions 
which force people to gradually work/earn less for periods longer than 
3 years, thus those with such conditions never receive their 'healthy' 
earnings peak rate.
    A majority of SSD claimants are forced to file for welfare, food 
stamps and Medicaid, another horrendous process, after they have lost 
everything due to the inadequacies in the Social Security Disability 
offices and huge claims processing backlog. If a healthy person files 
for Social Service programs and then gets a job, they do not have to 
reimburse the state once they find a job, for the funds they were given 
while looking for work--why are disabled people being discriminated 
against? Claimants who file for Social Service programs while waiting 
to get SSD benefits, in many states have to pay back the state out of 
their meager SSD/SSI benefits once approved, which in most cases keeps 
them below the poverty level and forces them to continue to use state 
funded services. They are almost never able to better themselves and 
now have to rely on two funded programs instead of just one. This 
practice should be eliminated. In all states there should be immediate 
approval for social services (food stamps, cash assistance, medical 
assistance, etc) benefits for SSD claimants that does not have to be 
paid back out of their SSD benefits once approved.
    The claims process should be set up so there is no need whatsoever 
for claimant paid legal representation when filing for benefits and 
very little need for cases to advance to the hearing and appeal stage 
since that is where the major backlog and wait time exists. The need of 
lawyers/reps to navigate the system and file claims, and the high SSD 
cap on a lawyer's retro commission is also a disincentive to 
expeditious claim processing, since purposely delaying the claims 
process will cause the cap to max out--more money to the lawyer/rep for 
dragging their feet adding another cost burden to claimants. Instead, 
SS should provide claimants with a listing in every state, of FREE 
Social Security Disability advocates/reps when a claim is originally 
filed in case their services may be needed.
    Audio and/or videotaping of Social Security Disability ALJ hearings 
and during IME exams allowed at all times to avoid improper conduct by 
judges and doctors. A copy of court transcript should automatically be 
provided to claimant or their representative within one month of 
hearing date FREE of charge.
    Strict code of conduct for Administrative Law Judges in determining 
cases and in the courtroom. Fines to be imposed for inappropriate 
conduct towards claimants.
    We have heard that there is a proposal to give SSD recipients a 
limited amount of time to collect their benefits. We are very concerned 
with the changes that could take place. Since every patient is 
different and their disabilities are as well, this type of ``cookie 
cutter'' approach is out of the question. We especially feel that 
people with psychological injuries or illness would be a target for 
this type of action. Some medical plans pay 80% for treatment of 
biological mental heath conditions, but currently Medicare only pays 
50% for an appointment with a psychiatrist. This often prohibits 
patients from getting proper treatment and comply with rules for 
continual care on disability. The current disability review process in 
itself is very detrimental to a patient's health. Many people suffer 
from chronic conditions that have NO cures and over time these diseases 
grow progressively worse with no hope of recovery or returning to the 
workforce. The threat of possible benefits cut off, and stress of a 
review by Social Security again is very detrimental to a recipients 
health. This factor needs to be taken into consideration when reforming 
the CDR process.
    NOTE: The problems with the Federal Social Security Disability 
program cause an extra burden on state Social Service programs, which 
could be greatly reduced once this Federal program is fixed, and the 
states along with the claimants would reap the benefits in the long 
run. State politicians need to put pressure on congress to put more 
funds into the SS system to hire more qualified claim examiners and 
better educate employees, doctors and the claimants themselves to speed 
up the process.
Social Security Disability Application Process Timeline 2002--
        conditions are much worse now.
    http://www.ssa.gov/disability/disability_process_frameset.html
    Initial Stage--125 days--in now it can be up to 180 days
    Reconsideration Stage--291 days from initial application filing 
date to find out whether claimant is approved or denied--NOTE: not 
applicable in 10 test states in the U.S. where this phase has been 
removed.
    Hearing and Appeals Stage--722 days--There is no time limit on when 
judge has to have their written decision completed and sent out, and it 
currently often takes several weeks to several months for a claimant to 
receive this decision.
    Appeal to District Court Stage--1153 days or more
    District Court Appeal Stage--1760 days or more

    NOTE: SSA conducts reviews of some cases for consistency and 
accuracy. Once claim is approved it may be randomly selected by 
computer for Federal Quality review. 7 out of every 10 cases are 
selected and this process adds another minimum 30-60 days to process. 
Once finally cleared at ALL stages for approval, cases are sent to a 
Processing Center for final payment which could take at least an 
additional 30 days for payments to be processed. These times periods 
are in addition to the days mentioned above.

    Total--January through October for year 2004

    Number of Social Security Disability Applications--1,837,266

    Number of Social Security Disability Awards--667,931

    Total--January through December for year 2003

    Number of Social Security Disability Applications--1,895,521

    Number of Social Security Disability Awards--777,905

    Awards as a percentage of applications is a crude allowance rate. 
This rate expresses the number of awards in a given time period as a 
percentage of the number of applications in the same time period. Some 
of the awards in any time period, however, resulted from applications 
in previous time periods.

    Appeals Council Request for Review Statistics

    November 2004--Average processing time 251 days

    November 30, 2004--47,906 requests for review pending

    Summary Data Graph On Disabled Workers Under Disability Insurance--
(Numbers in thousands) Updated November 8, 2004

    http://www.ssa.gov/OACT/STATS/dibGraphs.html#1

    Applications For Disability Benefits And Benefit Awards

    http://www.ssa.gov/OACT/STATS/table6c7.html

    Flow Of Cases Through The Disability Process--Fiscal Year 2002 Data

    http://www.ssa.gov/disability/disability_process_welcome_2002.htm

    NOTE: These Federal regulations are being violated on a daily basis 
all over the country:

    404.1642 Processing time standards

    http://www.ssa.gov/OP_Home/cfr20/404/404-1642.htm

    (a) General. Title II processing time refers to the average number 
of days, including Saturdays, Sundays, and holidays, it takes a State 
agency to process an initial disability claim from the day the case 
folder is received in the State agency until the day it is released to 
us by the State agency. Title XVI processing time refers to the average 
number of days, including Saturdays, Sundays, and holidays, from the 
day of receipt of the initial disability claim in the State agency 
until systems input of a presumptive disability decision or the day the 
case folder is released to us by the State agency, whichever is 
earlier.
    (b) Target levels. The processing time target levels are:
    (1) 37 days for title II initial claims.
    (2) 43 days for title XVI initial claims.
    (c) Threshold levels. The processing time threshold levels are:
    (1) 49.5 days for title II initial claims.
    (2) 57.9 days for title XVI initial claims.
    [46 FR 29204, May 29, 1981, as amended at 56 FR 11020, Mar. 14, 
1991]
    404.1643 Performance accuracy standard
    http://www.ssa.gov/OP_Home/cfr20/404/404-1643.htm
    In closing, I ask that in future Congressional hearings, members of 
the Social Security Disability Coalition including myself, be allowed 
to actively participate in the hearing process instead of being forced 
to always submit testimony in writing, after the main hearing takes 
place. We are willing to testify in person or via teleconference before 
Congress and we should be permitted to do so. We seek creation of a 
task force made up of disabled Americans, members of Congress, members 
of the National Social Security Council and members of the Social 
Security Disability New Approach program to reform the Social Security 
Disability program which actually is in crisis now. We want to have 
claimants who have actually gone through the SSD system themselves to 
be part of this task force that participates in any and all discussions 
on the future of the Social Security and especially the Social Security 
Disability program. We also want major input and influence on the 
decision making process before any final decisions/changes/laws are 
instituted by members of Congress or the SSA. This is absolutely 
necessary, since nobody knows better about the flaws in the system and 
possible solutions to the problems, then those who are forced to go 
through it and deal with the consequences when it does not function 
properly. Any changes that occur have a direct major impact on our 
lives and well being.
    Most of us were once hard working, tax paying citizens with hopes 
and ``American dreams'' but due to an unfortunate accident or illness, 
have become disabled to a point where we can no longer work. Does that 
mean we are not valuable to our country, or give the government and 
politicians the right to ignore or even abuse us? Due to circumstances 
beyond our control, and on top of our disabilities, we now live the 
American nightmare with no hope of relief in sight! Contrary to popular 
opinion, nobody willingly chooses this type of existence. Anyone 
reading this, could suddenly find themselves dealing with these issues 
in the future. Nobody thinks this horrible existence could ever happen 
to them, but there are millions of Americans who are suffering and 
dying due to this negligence, and our lives depend on your cleaning up 
this mess immediately! We are often considered a drain on society, 
rather than the valuable citizens, that we have proven many times over, 
in spite of our disabilities to be. Congress is supposed to work FOR 
us, yet our cries and screams are continually ignored, in hope that we 
just shut up or die. I am here to tell you that is not going to happen 
and we are holding Congress accountable for the future health and well 
being of the disabled citizens of this nation. You have the power and 
ability to fix these problems and rather than leave a legacy of 
devastation and death, I hope Congress will create one of health and 
well being for ALL Americans. We want to help you make that happen, and 
look forward to the challenge. We are watching, we are waiting, we are 
disabled and we vote!

                                 
           Statement of Sandra E. Thompson, Rocky River, Ohio
    This letter is written to encourage changes to an unfair and 
discriminatory practice that exists within Social Security. In 
particular, the Windfall Elimination Tax is treating many teachers 
unfairly. Although the No Child Left Behind act stresses the importance 
of hiring highly qualified teachers, when a highly qualified person 
goes into the teaching field they may discover that their social 
security benefits will be drastically reduced. I believe that Social 
Securityneeds to evolve to meet the needs of a changing society.
    I am facing this situation when I retire next year. I worked in 
scientific research for 17+ years before becoming a certified teacher. 
I paid social security taxes on my salary as a research associate. At 
the time I changed careers I also changed states. Little did I know 
that I would lose most of my social security benefits by teaching in 
Ohio. I do not pay social security taxes but am paying into the State 
Teachers Retirement System. When I retire after teaching 15 years, my 
social security benefits will be reduced by 2/3rds. Many teachers 
retire with 30 years and great benefits. I was counting on the 17 years 
with social security to take the place of the 15 years I cannot attain 
in the teaching field.
    Many people are unaware of this discriminatory practice. I have met 
a number of people (40-50 years of age) changing careers to become 
teachers. For the most part they are highly qualified and will bring 
great experiences to the classroom. When they learn that their social 
security benefits will be reduced, they have to decide whether to 
pursue teaching or not. At age 50, they may not be hired in time to 
start a career in education and work enough years to qualify for 
certain retirement benefits through a teacher retirement program.
    It is unfair to be penalized for changing careers and bringing 
great experiences into the classroom. Highly qualified teachers are 
needed! In leaving no child behind, let's not leave our teachers 
behind.

                                  
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