[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.
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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.
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\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.
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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.
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\9\ Social Security: Distribution of Benefits and Taxes Relative to
Earnings Level, GAO-04-747 (Washington, D.C.: Jun. 15, 2004).
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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.
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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.
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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.
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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.
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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\
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\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.
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\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.
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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\
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\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.
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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.
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\1\ See Redefining Retirement: Options for Older Americans. GAO-05-
620T. (Washington, DC: April 27, 2005).
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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\
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\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.
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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.
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\2\ Id., page 5.
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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\
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\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.
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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.
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\1\ Social Security Reform: Considerations for Individual Account
Design, GAO-05-847T (June 23, 2005), p. 13.
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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.
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\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.
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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\
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\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.
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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\
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\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.