[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE PRESIDENT'S AND OTHER BIPARTISAN
ENTITLEMENT REFORM PROPOSALS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SOCIAL SECURITY
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MAY 23, 2013
__________
Serial No. 113-SS5
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman
SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota DANNY DAVIS, Illinois
KENNY MARCHANT, Texas LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio
Jennifer M. Safavian, Staff Director and General Counsel
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON HUMAN RESOURCES
SAM JOHNSON, Texas, Chairman
PATRICK J. TIBERI, Ohio XAVIER BECERRA, California
TIM GRIFFIN, Arkansas LLOYD DOGGETT, Texas
JIM RENACCI, Ohio MIKE THOMPSON, California
AARON SCHOCK, Illinois ALLYSON SCHWARTZ, Pennsylvania
MIKE KELLY, Pennsylvania
KEVIN BRADY, Texas
C O N T E N T S
__________
Page
Advisory of May 23, 2013 announcing the hearing.................. 2
WITNESSES
Ed Lorenzen, Executive Director, The Moment of Truth Project,
Committee for a Responsible Federal Budget..................... 73
G. William Hoagland, Senior Vice President, Bipartisan Policy
Center......................................................... 6
Jason Fichtner, Ph.D., Senior Research Fellow, Mercatus Center... 20
Leticia Miranda, Senior Policy Advisor, Economic Security Policy,
National Council of La Raza.................................... 36
Donald Fuerst, Senior Pension Fellow, American Academy of
Actuaries...................................................... 47
C. Eugene Steuerle, Ph.D., Institute Fellow, Urban Institute..... 59
SUBMISSION FOR THE RECORD
RetireSafe, statement............................................ 115
QUESTIONS FOR THE RECORD
Donald Fuerst.................................................... 95
Eugene Steuerle.................................................. 98
Jason Fichtner................................................... 102
Jason Fichtner, attachment....................................... 106
William Hoagland................................................. 108
Ed Lorenzen...................................................... 110
THE PRESIDENT'S AND OTHER BIPARTISAN
ENTITLEMENT REFORM PROPOSALS
----------
THURSDAY, MAY 23, 2013
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.
The subcommittee met, pursuant to call, at 9:29 a.m., in
Room B-318, Rayburn House Office Building, the Honorable Sam
Johnson [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
HEARING ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
Chairman Johnson Announces Hearing on the President's and Other
Bipartisan Entitlement Reform Proposals
Washington, May 2013
U.S. Congressman Sam Johnson (R-TX), Chairman of the House
Committee on Ways and Means Subcommittee on Social Security, today
announced the third in a series of hearings on the President's and
other bipartisan entitlement reform proposals. This hearing will focus
on proposed adjustments to Social Security benefits, as included in the
President's Fiscal Year 2014 Budget, the report by the National
Commission on Fiscal Responsibility and Reform, and the report of the
Bipartisan Policy Center's Debt Reduction Task Force. The hearing will
take place on Thursday, May 23, 2013, in B-318 Rayburn House Office
Building, beginning at 9:30 a.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 Subcommittee and
for inclusion in the printed record of the hearing.
BACKGROUND:
The Social Security Act (P.L. 74-271), signed into law by President
Franklin D. Roosevelt on August 14, 1935, established the original
retirement age of 65 for all retired workers. The early retirement age
of 62, which allows workers to claim benefits earlier but permanently
reduces the monthly level, was established first for women only in the
Social Security Amendments of 1956 (P.L. 84-880) and for men in the
Social Security Amendments of 1961 (P.L. 87-64). The Social Security
Amendments of 1983 (P.L. 98-21) gradually increased the full retirement
age, reaching 67 for those born in 1960 and later. Life expectancy for
a person at age 65 has increased from 12.7 years in 1935 to 19 years
today.
The Social Security Amendments of 1977 (P.L. 95-216) enacted the
new benefit formula, under which benefit amounts are determined by
applying a three-tiered formula to the monthly average of the highest
35 years of wage indexed earnings. The benefit formula is designed to
replace a certain percentage of a worker's career earnings and is very
progressive, replacing 90 percent of lower earnings and only 15 percent
of higher earnings. As a result, retirees who had lower earnings
throughout their careers have more of their average lifetime earnings
replaced than retirees with higher career earnings.
Bipartisan proposals to adjust benefits have included increasing
both the full and early retirement ages to account for increases in
life expectancy, including a hardship exemption from retirement age
increases for certain workers, indexing the benefit formula to account
for increases in longevity, allowing beneficiaries to receive up to
half of their benefits beginning at age 62, slowing the growth of
benefits for higher lifetime earners, increasing benefits for low
lifetime earners, and increasing benefits for long-time beneficiaries.
In announcing the hearing, Subcommittee Chairman Sam Johnson (R-TX)
stated, ``At this hearing we will carefully examine the impacts of
bipartisan proposals to adjust benefits for future beneficiaries. With
Social Security already in the red, Americans know the longer we wait
to fix Social Security, the tougher it will be to do so. It's time we
work together to make sure Social Security is there for today's workers
and their children and grandchildren.''
FOCUS OF THE HEARING:
The hearing will examine bipartisan proposals to adjust Social
Security benefits and their impacts on the program's finances,
beneficiaries, workers, and the economy.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit
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From the Committee homepage, http://waysandmeans.house.gov, select
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for the record.'' Once you have followed the online instructions,
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Finally, please note that due to the change in House mail policy, the
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Note: All Committee advisories and news releases are available on
the World Wide Web at http://www.waysandmeans.house.gov/.
Chairman JOHNSON. Good morning and welcome to the third
hearing in the Committee's series on the President's and other
bipartisan entitlement reform proposals. I appreciate all of
you being here. Workers have worked hard, played by the rules.
Workers have earned the right to a secure retirement that
no one can take away, yet unless Congress acts to protect and
preserve Social Security, beginning in 2033, Social Security
will be unable to pay full benefits, according to the Board of
Trustees.
Here is why Social Security has to be fixed. Under Social
Security, workers' payroll taxes aren't saved in the worker's
own retirement account. Instead, their taxes are immediately
used to pay benefits for today's retirees. This kind of system
works when many people are paying in and very few collecting
benefits. In the 1950s, for instance, there were 16 workers
paying for each retiree collecting benefits, but today,
families are having fewer children and people are living
longer. As a result, even though the number of workers is
growing, the number of retirees is growing much faster. Today
there are just over three workers supporting each retiree. In
the future there will be less than two.
Back in 2008 the first baby boomers started collecting
retirement benefits. Costs rose quickly, and 2 years later in
2010, Social Security began running permanent cash flow
deficits, reaching $1.3 trillion over the next 10 years. And
those deficits will grow larger and very fast.
When today's 47-year-old workers reach their full
retirement age in 2033, they and everyone else already
receiving benefits face a 25 percent cut unless Congress does
its job.
Fixing Social Security is a serious challenge. If we wait,
it will become a crisis. The sooner we act, the sooner changes
can be phased in gradually over a number of years. If we fail
to act, future generations will be faced with changes that are
sudden and even larger.
Today our witnesses include representatives from two
bipartisan groups who have taken a hard look at Social Security
and come up with ways to fix it. It wasn't easy work, but they
know we can't afford to wait. Their two plans have a lot in
common. They would slow the growth of benefits for higher
earners, take into account the fact people are living longer,
and make important changes to improve benefits for some of
those poorly served by the current system.
Since these plans were written, Social Security's 10-year
cash flow deficit has increased by over 450 percent. Across-
the-board cuts will occur 7 years sooner, and Social Security's
long-term shortfall is almost 60 percent larger. It is unfair
and wrong to leave with our kids and grandkids a Social
Security system that can't pay full promised benefits.
The good work of Simpson-Bowles and the Bipartisan Policy
Center Debt Reduction Task Force shows us there are bipartisan
solutions to fix Social Security, and as I have said before,
the President likes to say if we agree on a policy, then we
should act and not let our differences hold us up. Today we
will again carry out our responsibility to every American to
closely examine each bipartisan policy option. When we agree,
we ought to act, and we will.
I now recognize the ranking member, Mr. Becerra, for any
opening statement you care to make.
Mr. BECERRA. Thank you, Mr. Chairman, and I think we can
all agree on some basics. First, Social Security has never
contributed a penny to our current deficit or to our national
debt. So any changes to Social Security should be solely to
address its long-term challenges and not to make Social
Security pay for the debts run up by tax cuts for the rich or
two unpaid-for wars.
Second, Americans support Social Security. They have earned
it through their weekly payroll contributions, and they are
counting on their elected representatives to protect it as
well.
And finally, at least for me, the America I grew up knowing
and loving has always risen to the challenge of building a
better place for our children, providing for that in any way
possible, whether that means college, a strong and secure
Nation, or Social Security once we retire. We build; we don't
tear down in America.
And so here we go, Social Security has never contributed a
penny to our current deficit or debt. I want to emphasize that.
Social Security today has $2.7 trillion in Treasury
certificates that have never been used and are available for
those who need retirement, to go into retirement or are
disabled, or if you happen to have lost your parent who was a
worker, you then as a survivor get to receive Social Security
benefits. $2.7 trillion.
And I would like to show a chart at this stage that I think
proves that Americans not only have supported Social Security,
but continue to support Social Security today, overwhelmingly,
and they are counting on their elected representatives to
protect Social Security. As you can see from the chart, even
though lots of folks have heard a lot of scare talk about
Social Security being bankrupt or going under, and sometimes
Americans' confidence may fluctuate, the reality is this, as
this chart shows, Social Security has always had the confidence
of the American public.
How many people in America think Social Security spends
about the right amount, or maybe it doesn't give quite enough
in its benefits? Well, that has always hovered somewhere around
89 percent of Americans who think it is too little or about
right. Less than 10 percent of Americans since 1984 have said
that Social Security pays out too much, that it is too
generous. And so support for Social Security is strong. The
vast majority of Americans are there. A recent poll by the
National Academy of Social Insurance found that 74 percent of
Republicans and 77 percent of people born after 1980 said they
wanted to preserve Social Security even if it meant working
people would have to pay a little more in taxes.
Now, the America I know can and will rise to this challenge
of meeting Social Security's future challenges. There is no
question that Social Security will need to make some changes to
ensure its future that is vibrant, but in the America I know,
we wouldn't start by planning to cut benefits for seniors,
disabled workers, and children who have lost their parent.
America's workers deserve much better than that. The vast
majority of Social Security recipients, both today and in the
future, have very modest incomes and few resources. For six out
of 10 retirees in our country, Social Security provides the
majority of their income.
There are some who seem to suggest that deep Social
Security cuts are inevitable, so we should just make them now.
That to me is discouraging, and that is certainly not the
America I grew up in. To give up and to say that we can't
assure a measure of dignity to those who have worked hard all
their lives, paid into Social Security, and were planning on it
for retirement, that we have no choice? No.
Let me show you a different chart. Here is the average
benefit on the far right that you see that Americans earn from
Social Security. On average, about $14,000 per retiree comes
from Social Security and a little less if you are a disabled
worker. Now, that is quite a bit less than what the average
worker today makes, which is about $50,000, as you see on the
chart. But then look at the most fortunate in our country, the
most well-off people in society, the top 1 percent of workers
earned five times as much as the average worker in America and
18 times as much as the average Social Security beneficiary who
is retired. When you get to the stratosphere, the top one-tenth
of 1 percent, they made an average of 41 times what the typical
Social Security retiree gets, and if you look all the way to
the left, you see what an average CEO in America would make,
about $12 million in 2011, on average. On average. That is 869
times what the average retiree receives from Social Security.
So I ask you, where shall we start as we think about how to
address Social Security's challenges in the future? Should we
take it from the Social Security beneficiaries' modest checks
or should we look to those most fortunate and see if they can
contribute a little bit more? Should we ask the widow to give
up her modest benefit or ask the CEO to pitch in a little bit
more?
Social Security will face a challenge, there is no doubt.
But in America, at least the America I know and love, we can
rise to this challenge. And, so Mr. Chairman, I am looking
forward to this hearing. I think we need a lot, we can learn a
lot from the witnesses who are here, and we need to listen
quite a bit, so I am anxious to hear their testimony, and I
yield back.
Chairman JOHNSON. Thank you. The gentleman's time has
expired. I would like to just state that Congress has been
raising taxes on workers since the beginning of the program,
and it still hasn't worked. In 1935 the tax rate for employers
and employees was just 1 percent on earnings up to $3,000 a
year. Congress has raised the payroll tax rate 14 times since
then.
As is customary, any member is welcome to submit a
statement for the hearing record. Before we move on to our
testimony, I want to remind our witnesses to please limit your
statements to 5 minutes. However, without objection, all of the
written testimony will be made a part of the hearing record.
We have one witness panel today, one of whom is stuck in
traffic, as I was this morning, so I understand that. G.
William Hoagland, senior vice president, Bipartisan Policy
Center; Jason Fichtner, Ph.D., senior research fellow with
Mercatus Center; Leticia Miranda, senior policy adviser, the
Economic Security Policy, National Council of La Raza; Donald
Fuerst, senior pension fellow, American Academy of Actuaries;
and Eugene Steuerle, Ph.D., institute fellow, Urban Institute;
and Mr. Lorenzen isn't here, so Mr. Hoagland, I am going to
recognize you. Please go ahead.
STATEMENT OF G. WILLIAM HOAGLAND, SENIOR VICE PRESIDENT,
BIPARTISAN POLICY CENTER
Mr. HOAGLAND. Thank you, Mr. Chairman. Mr. Becerra, Members
of the Committee, thank you for inviting me here today to
discuss the recommendations to the Social Security program made
by the Bipartisan Policy Center's Domenici-Rivlin Debt
Reduction Task Force. I was privileged to serve on that
bipartisan group that released its recommendations in November
of 2010. Our report came out about the same time as the
President's National Commission on Fiscal Responsibility and
Reform upon which Dr. Rivlin also served along with Mr.
Becerra.
The Domenici-Rivlin report was designed as a total plan of
policies to spur economic recovery and to reduce our debt to
GDP down to our goal then was 60 percent by the year 2020. But
as we examined the various options to address the Social
Security program, the overarching question was not how do we
produce savings for the program, but rather more, how can we
improve the current system, make it fairer, and ensure that it
is a viable program around for decades to come.
Our benefit recommendations were four. The first was
indexing the Social Security benefit formula to account for
longevity; the second was to increase the progressivity of the
benefit formula; the third was to provide a more robust minimum
benefit; and the fourth was to implement a benefit bump-up for
older beneficiaries.
Now, related to the first recommendation on indexing of
longevity, the biggest issue confronting Social Security today,
and of course it is due to demographics. As the large cohort of
baby boomers, of which I am one, retire, we will collect
benefits for longer than previous age cohorts. Our task force
felt that any viable reform package must confront this trend
head on. We also understood that certain individuals,
particularly those working in hard industries, such as mining,
fisheries, loggers, firefighters, steel mills, among others,
they may want and they may need to take early retirement at age
62, unlike those of us who work for soft think tanks.
Therefore, beginning in 2023 instead of indexing both the
early and the normal retirement age to longevity, meaning that
they would increase by 1 month every 2 years, we proposed to
index the benefit formula for increases in life expectancy.
This would ensure that those seniors who could not remain in
the labor force well into their 60s would retain the option to
begin collecting reduced benefits at age 62.
Now, specifically the provision would index the bend points
to longevity by reducing those factors starting in 2023 to
reflect the ratio of, the life expectancy at 67 measured in
2018 to the life expectancy at 67 for 4 years before the
initial benefit eligibility. This change in life expectancy is
estimated today to reduce the benefit levels by about three-
tenths of a percent a year, and this policy of indexing the
benefit formula to longevity comprised nearly half of the
savings achieved by the plan to get to actuarial balance.
The second recommendation was a modest increase in the
progressivity of the benefit formula. Currently, as you know,
monthly wages above roughly $4,800, the top most bend point are
replaced at 15 percent. We recommended gradually phasing that
down over a decade to 10 percent.
The third recommendation related to the minimum benefit.
Our task force proposed to provide a special minimum benefit
tied to 133 percent of the Federal poverty level for retirees
who have at least 30 years of creditable work.
Fourth, we similarly agreed to the importance of providing
some protection to beneficiaries from the danger of outliving
their savings, and to address this, we suggested a benefit bump
of 1 percent of the average monthly Social Security benefit to
be administered each year between the ages of 81 and 85, and
these two proposals, the minimum benefit and the old age bump-
up, would be integral to one of the task force's other
proposals, I realize that is not the purpose of this hearing,
and that was indexing the cost of living adjustment to the
chain weighted price index. Further, beginning in 2020, the
task force also proposed that newly hired State and local
government workers be incorporated into the program.
Finally, and again, a subject for another day, our total
package recommended restoring the taxable maximum to cover 90
percent of all earnings, and as part of our task force's
broader tax reform, we proposed to cap and phase out the
exclusion of employer-provided health insurance, which would
bring additional payroll receipts into the trust fund.
The Domenici-Rivlin Task Force members concluded that this
package would accomplish sustainable solvency, and it was
verified by the chief actuary of Social Security. It would do
this in a progressive manner, protecting vulnerable
beneficiaries and distributing the burden in an evenhanded and
responsible manner among taxpayers and retirees while assuring
Social Security will be there for our children and our
grandchildren in the years to come. Thank you, Mr. Chairman.
Chairman JOHNSON. Thank you. I appreciate your comments.
[The prepared statement of Mr. Hoagland follows:]
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Chairman JOHNSON. Mr. Fichtner, you are now recognized for
5 minutes.
STATEMENT OF JASON FICHTNER, PH.D., SENIOR RESEARCH FELLOW,
MERCATUS CENTER
Mr. FICHTNER. Thank you, sir. Good morning, Chairman
Johnson, Ranking Member Becerra, and Members of the Committee,
thank you for inviting me to testify here today. My name is
Jason Fichtner, and I am a senior research fellow at the
Mercatus Center at George Mason University where I research
fiscal and budgetary issues, including Social Security. I am
also an adjunct professor at Georgetown University, Johns
Hopkins University, and Virginia Tech, where I teach courses in
economics and public policy. All opinions here today are my own
and do not necessarily reflect the views of my employers.
For my oral remarks, I want to briefly discuss how various
features of Social Security, from the technical details of the
benefit formula to the benefit eligibility at age 62 to the
nonworking spouse benefit all act to encourage early retirement
and as a disincentive to continued work.
Most analyses of Social Security have concluded that its
current design offers substantially negative incentives for
work, especially for younger seniors and for secondary
household earners. Research has found that Social Security's
return on payroll tax contributions by those age 62 to 65 is a
negative 49.5 percent, meaning that the program literally pays
back just pennies in additional benefits for each additional
dollar contributed. Other research has found that the broader
array of Federal laws strongly inhibits continued work by
seniors, with disincentives growing stronger as they age. It is
notable that labor force participation did not decline for
those younger than 65 until Social Security's early eligibility
age of 62 was established. After the creation of the EEA, labor
force participation by males age 55 to 64 also began to trend
downward, dropping over 20 percent, from 87.3 percent in 1960
to 67.7 percent in 1990.
Workforce participation trends among older workers are not
driven primarily by issues of physical incapacity. Labor force
participation among males over 65 was much higher in the mid
20th century than it is now, despite substantial gains in
national health and longevity since then. Incentives have
played a much greater role. The design of the basic Social
Security benefit formula imposes net incremental income losses
on those extending their careers. The primary reason for the
work disincentive is that Social Security's benefit formula is
progressive while also based on a worker's top 35 years of
earnings on average.
Indeed, someone who takes a part-time transition job on the
way to full retirement may well pay a full year's worth of
additional taxes while receiving no additional benefit credits
whatsoever. This is a substantial work disincentive at
precisely the time when a worker is likely to make a retirement
decision. Social Security's early retirement age of 62 is
actually the most common age of benefit claiming. In fact, over
70 percent of beneficiaries take advantage of the opportunity
to claim Social Security retirement benefits before the normal
retirement age, despite receiving lower monthly benefits by
doing so. Early retirement is only certain to make
beneficiaries better off in the short run. The reduction of
monthly benefits that accompanies early claims also results in
net lifetime benefit reductions for those who live to
especially advanced ages, often a time in life when
beneficiaries are most likely to rely on Social Security
benefits to pay their expenses.
Also, Social Security specifically provides a disincentive
to taxpaying work by more than one earner per household.
Incremental returns on taxes paid by women have been estimated
at negative 32 percent relative to what they would receive by
staying out of the paid workforce altogether and instead often
collecting the nonworking spouse benefit. As a general rule,
Social Security aggressively distributes income from two-earner
married couples to one-earner married couples, penalizing a
household decision to have both spouses work and contribute
payroll taxes.
A medium-wage two-earner couple both born in 1955 can
expect to receive back only 80 cents from Social Security of
each dollar contributed, whereas a one-earner couple can expect
to receive $1.39. Much of the original welfare system was
designed to support single earner families. Today, 61 percent
of married women participate in the labor force compared to
only 32 percent in 1960. Social Security needs to reflect the
evolving workplace and not penalize two-earner couples.
It is unsurprising that our future economic growth outlook
is depressed by current projections for labor force
participation, relative to what would be the case if more of
our national gains in longevity and health were converted into
longer periods of taxpaying work. Extending workforce
participation would pay dividends for individual seniors and
for the economy.
With age 62 now the most popular age to claim benefits,
raising the EEA would necessarily delay many claims and would
likely correlate to continued employment. Researchers estimate
that raising the EEA to 65 would increase the long-run GDP by 3
or 4 percent. Another reform would be to offer the full
retirement credits as a lump sum option, which could
potentially provide an incentive to continued working without
additional financing costs to the system. I would also point
out that you could change the benefit formula from instead of
being on 35 years of work history to looking at an average and
doing it per year. This would help take care of complications
caused by the windfall elimination provision and government
pension offset.
Others have suggested that payroll tax relief be offered to
seniors. We should be careful if we do this, but the overall
positive effect that such a policy can have on labor
participation by seniors should not be dismissed. Thank you for
your time and opportunity to testify today. I look forward to
your questions.
Chairman JOHNSON. Thank you, sir.
[The prepared statement of Mr. Fichtner follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman JOHNSON. Mr. Lorenzen found his way through
traffic, but I am going to come back to you, since we have
already started.
Ms. Miranda, you are welcome. Please go ahead.
STATEMENT OF LETICIA MIRANDA, SENIOR POLICY ADVISOR, ECONOMIC
SECURITY POLICY, NATIONAL COUNCIL OF LA RAZA
Ms. MIRANDA. Thank you for inviting me to speak with you
today. I am a senior policy adviser at NCLR. NCLR has been
working to advance retirement security among Hispanic Americans
for over a decade, and my work is centered on this topic.
Social Security serves 56 million retirees, disabled
adults, and survivors of deceased workers and their families.
The focus of today's hearing is to discuss options to
strengthen Social Security so that this critical program can
continue providing benefits into the future. In this regard, I
want to make three key points:
First, Social Security benefits are modest yet critical to
most seniors, especially because pensions are becoming weaker.
Second, most--the proposed benefits will cause deep harm to a
vast majority of seniors. Third, we need meaningful benefit
enhancements for the most vulnerable.
I will close my remarks with some principles for reform.
First, Social Security provides modest benefits that are very
important to those who receive them. The average Social
Security retiree benefit last year was approximately $14,800.
Seniors rely heavily on their benefits. Two-thirds of
beneficiaries rely on Social Security for at least 50 percent
of their income, and one-third rely on it for almost all of
their income. Among seniors of color, 55 percent of Hispanics,
49 percent of African-Americans, and 42 percent of Asians rely
on Social Security for almost all of their income.
Low-income workers face inadequate benefits. Social
Security replaces only 40 percent of prior earnings for low-
income workers who retire at age 62. Pension coverage is
getting weaker. Pension coverage among private sector workers
has fallen from 50 percent in 1979 to 42 percent now. American
men have lost the most ground over this time period.
The quality of pension coverage has also declined. Risky,
inadequate 401(k)-style plans have replaced more secure defined
benefit plans, and Americans are not saving enough in their
401(k)s. More and more, the only stable form of retirement
income that most people can count on is Social Security. Given
all of this, our Nation should not reduce Social Security
benefits. Yet many ideas are being proposed to cut Social
Security benefits. I will talk about two of these harmful
proposals.
First, the partial price indexing option deeply cuts
benefits for seniors with already modest income. Under one PPI
plan, the average monthly benefit would fall from $1,250 to
less than $900 per month. Second, increasing the retirement age
or enacting longevity indexing also cuts benefits for all
workers, including those with the lowest incomes. Each 1-year
increase in the statutory retirement age is equivalent to a
benefit cut of approximately 7 percent.
The most important problem with these proposed benefit cuts
is that vulnerable people will be pushed into greater poverty
and hunger. NCLR held six town halls with Latino seniors in
2011 to hear their views on Social Security's future. One
senior in Los Angeles, who spoke from his wheelchair, said he
lives alone on $750 per month, and he cannot afford to buy food
after paying for rent and other bills. He relies on local food
banks to survive. People like him cannot afford further
reductions to their already inadequate benefits. Basic living
expenses do not decline simply because the overall population
is living longer.
My third major point is that we do need benefit
enhancements for the lowest income workers, but these need to
be meaningful. Benefit increases that are only proposed to
lessen the impact of a benefit cut do not constitute a benefit
improvement. Neither does structuring a benefit improvement so
that few people will qualify.
Lastly, I would offer a few principles to keep in mind as
you approach reform. First, maintain what works with Social
Security. For example, don't make it a means-tested program,
and keep it universal. Second, include revenue as part of the
solution to get to long-term solvency. Americans will support
this, as many surveys show. Revenue increases can make harmful
benefit cuts unnecessary. Third, truly improve benefits so that
low-income workers can retire with benefits that keep them out
of poverty and protect low and moderate income people from any
benefit cuts. Thank you. I am happy to answer any questions.
Chairman JOHNSON. Thank you.
[The prepared statement of Ms. Miranda follows:]
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Chairman JOHNSON. Mr. Fuerst, you are welcome here and
please go ahead.
STATEMENT OF DONALD FUERST, SENIOR PENSION FELLOW, AMERICAN
ACADEMY OF ACTUARIES
Mr. FUERST. Chairman Johnson, Ranking Member Becerra, and
distinguished Members of the Subcommittee, thank you for the
opportunity to appear before you to assist in your examination
of bipartisan proposals to adjust Social Security benefits. I
am here on behalf of the American Academy of Actuaries, where I
am the Senior Pension Fellow. The Academy is the nonpartisan
association representing all actuaries in the United States on
public policy issues. My statement will focus on retirement
age.
Americans are living longer. Of particular relevance to
Social Security, the life expectancy of the elderly is
increasing. A longer life creates numerous benefits for
individuals but brings with it an expensive challenge--how to
provide financial security for our seniors. Simply put, the
longer someone lives, the more benefits Social Security must
pay. Since 1940, the life expectancy of a 65-year-old has
increased 6 years for both males and females, and we expect
this trend to continue.
An increase in longevity among the elderly, without a
corresponding change in the full retirement age, actually
constitutes an increase in lifetime benefits. Although the
monthly amount a retiree receives is unchanged, the number of
payments increases with longer life spans.
Raising the full retirement age addresses Social Security's
long-range financial problems while responding to changing
demographic factors. In particular, raising the full retirement
age will compensate for increases in longevity, preserve the
current benefit formula, increase labor force participation,
and preserve disability benefits.
The Academy supports retirement age changes but does not
advocate a specific proposal. An increase in the retirement age
should not be the sole solution to the imbalance in the system.
Potential methods for increasing the full retirement age
include both fixed schedule and indexing methods. The Simpson-
Bowles report includes a proposal to index both full and early
retirement ages to increases in longevity, and a hardship
exemption for workers who cannot continue working past age 62
but do not qualify for disability benefits.
The Bipartisan Policy Center proposed adjusting benefits
for longevity by decreasing the formula as people live longer.
This method could produce the same benefit amounts as a change
in the full retirement age. However, it does not deliver the
same message to American workers as an increased retirement
age, which signals workers that they can and should continue in
the labor force.
We recognize that there are obstacles to raising the full
retirement age. This would have a disproportionate effect on
low-wage workers because longevity increases are not uniform
across all demographic groups. Additionally, jobs may not be
readily available for all older workers. But there are targeted
policy options that might address these problems, including
liberalizing disability benefits for older workers, revising
the early retirement factors to provide a lesser reduction on
benefits below the first bend point, enhanced job training and
incentives for employers to hire and retain older workers.
Raising the early eligibility age beyond 62 should also be
considered to encourage individuals to work longer, to help
avoid the problem of inadequate benefits caused by early
retirement reduction. This would not significantly change
Social Security's financial position. Forty-four percent of
workers receive benefits at age 62, the most popular age for
electing benefits, despite the larger benefits that are
available at later ages. Retaining age 62 as the early
retirement eligibility, or allowing partial benefits at age 62
is likely to result in many people selecting commencement at
this early age, with a smaller benefit which may prove to be
inadequate.
Estimates show that the proportion of jobs that are
physically demanding has shrunk to less than 8 percent of our
workforce, and less than 20 percent of workers who retire early
do so for health reasons. The problems of these groups could be
addressed by other programs, and Social Security benefits could
be designed to provide adequate lifetime income at appropriate
ages.
In closing, I again thank the subcommittee for this
opportunity. Addressing Social Security's solvency now permits
more modest changes that Congress could phase in over many
years. This would ensure that the system will continue to
provide retirement security for generations to come. Thank you.
Chairman JOHNSON. Thank you.
[The prepared statement of Mr. Fuerst follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman JOHNSON. Mr. Steuerle, welcome again. Please go
ahead.
STATEMENT OF C. EUGENE STEUERLE, PH.D., INSTITUTE FELLOW, URBAN
INSTITUTE
Mr. STEUERLE. Chairman Johnson, Members of the Committee,
subcommittee, thank you for this opportunity to testify before
you. In my testimony, I provide a fairly lengthy set of
proposals that follow principles that I believe apply to Social
Security, but I don't want to spend my brief 5 minutes here
talking about them so much as to make a pitch with you that we
want to do Social Security benefit reform, that is the subject
of this hearing, regardless of the level of taxes you collect,
regardless of the imbalances of the system, and that is because
Social Security has increasingly failed to target its money
towards, I think, needs that we would all agree are most
important or even meet various principles such as equal justice
under the law.
So let me give you an example just in terms of lifetime
benefits. A newly retiring average wage couple today will
receive about $580,000 in Social Security benefits. That is
what they would need in a bank account if it was to earn, which
it won't earn today, but it would earn about 2 percent in real
interest rates. And if you add in Medicare, they are scheduled
to get about $1 million in Social Security and Medicare
benefits. That largely derives from the large number of years
of benefits that are paid.
But even if we thought that that was a level we had to
maintain, mind you that in the budget as a whole, we are now
cutting benefits in other programs for children, we are cutting
programs for middle-income families, but in Social Security and
Medicare, every year we bump up these lifetime benefits by
about $20,000, so that if we take a couple retiring, say a
couple that is in their 40s today, they are scheduled to get
about $1.4 million in the Social Security and Medicare benefits
versus the $1 million for the couple retiring today. That is
where all the growth in government is going, even while we
derail almost everything else that government is about.
Now, there are other problems in Social Security. Social
Security has really morphed into a middle-age retirement
system. Typical couples now retire for close to three decades
in terms of getting benefits, that is the longer living of the
two. If people retired today for the same number of years as
they did when physical demands of work were larger, that is,
the retirement age of 68 that they retired on average in 1940,
today they would be retiring at about age 76.
Meanwhile, all this pushing of more and more benefits to
younger and younger ages relative to death means that fewer
benefits, a smaller and smaller share of benefits are going to
people who are truly old, which is the purpose of the program,
and so soon close to one-third of adults will be on Social
Security, retiring on average for about one-third of their
adult lives.
Now, Social Security did do a good job in reducing poverty
in its early years, but in recent years, despite spending
hundreds of billions of dollars more every year, it has only
made very modest progress on this front. Meanwhile, in the
midst of a recession, when we are worried about the
nonemployment rate going up, the Social Security system
encourages an increase in this nonemployment rate at the very
time when our older members of our society are perhaps the most
underused source of human capital in our economy and a group of
people that we should be encouraging to work.
And then, finally, along with this long list of failures,
the failure to provide equal justice just permeates the system.
It discriminates against single heads of households, often
abandoned mothers, it discriminates against spouses with
relatively low earnings, it discriminates against those who
bear their children before age 40, which is when most people
bear their children, it discriminates against long-term workers
and many, many others for which I provide details.
And then finally, as a couple other members of this panel
have mentioned, the private retirement system also needs
addressing because it leaves most elderly households very
vulnerable.
Unfortunately, the Social Security debate has largely
proceeded on the basis of being for the box or against the box.
We have to sort of be for Social Security or against Social
Security. The contents of the box, as I say, deserve scrutiny
regardless of the size of the system overall.
So how might one break through this stalemate in a
political way? While I applaud the efforts of the Simpson-
Bowles Commission and the Bipartisan Policy Commission, I think
we can go much further if we start with a basic set of
principles and we just see where they lead us. Now some
changes, by the way, would lead to an increase in benefits.
Some changes might lead to a decrease in benefits, but we don't
want to decide them one at a time. We want to see how the
aggregate pulls together. So inevitably balancing my way should
proceed in the following order.
So first consider reforms aimed at meeting Social
Security's primary purposes, let's provide greater protections
for those who are truly needy and for those who are truly old,
let's support the work and saving base that is necessary to
undergird the system and provide the taxes we need, that means
we have to encourage work, and let's provide more equal justice
for those suffering needless discrimination in the system. So
some of the changes cost money, some raise money, but we
shouldn't address them one at a time. After we do these
changes, then we should come in and adjust minimum benefits
even further, I have some suggestions in, adjust the rate
schedules, adjust the indexing of benefits, so then we hit our
targets for distribution and our targets for final cost.
Now, if you do what I say, we could work together across
the aisle to fix up the system for the bottom half of the
distribution and save, if you want to, that fight over whether
higher income taxpayers are going to pay more taxes or if they
are going to get reduced benefits, which is where the fight
really leads.
So my testimony, as I say, provides a detailed way of
engaging this type of reform process. It is largely the logic
that I followed when I served as economic coordinator of the
Tax Reform Act of 1986. I get called to testify all the time on
how did we get this to work? Well, we started off to see where
our principles led us, then we came back in, then we came back
in and adjusted things like rate schedules, minimum benefits,
things like that, to hit our distributional and revenue
targets. It is the same type of suggestion I made to the
Simpson-Bowles Commission on taxes.
Chairman JOHNSON. Your time has expired, can you close?
Mr. STEUERLE. That is the end of my recommendations. Thank
you, Mr. Chairman.
[The prepared statement of Mr. Steuerle follows:]
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Chairman JOHNSON. Mr. Lorenzen, thank you for braving the
traffic in Washington today. I had the same problem, so I
understand it. Thank you, you are recognized.
STATEMENT OF ED LORENZEN, EXECUTIVE DIRECTOR, THE MOMENT OF
TRUTH PROJECT, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET
Mr. LORENZEN. Thank you. Good morning, Mr. Chairman,
Members of the subcommittee, it is a pleasure to be before you
again to talk about the recommendations of the final report of
the Simpson-Bowles Commission regarding Social Security,
particularly those regarding benefit formula and retirement
age. I would also like to associate myself with all the
comments of Mr. Steuerle, whose advice and writings had a major
impact on the work of the Commission, even if we were not as
aggressive as he would like.
The executive order that created the Fiscal Commission
charged the Commission with two mandates, one to identify
policies to improve the fiscal situation in the medium term,
but also to achieve fiscal sustainability over the long term.
Commission members had differences of opinion of the role of
Social Security in the medium-term fiscal outlook, but there
was a general consensus among Commission members that meeting
the mandate of improving the long-term fiscal sustainability
required looking at the Social Security system and making the
Social Security program sustainably solvent.
Therefore, the recommendations in that count Social
Security reform in meeting deficit reduction in the near term
but were important for long-term recommendations. In the
report, we outlined the approach the Commission took this way:
To save Social Security for the long haul, all of us must do
our part. The most fortunate will have to contribute the most
by taking lower benefits than scheduled and paying more in
payroll taxes. Middle-income earners who are able to work will
need to do so a little longer. At the same time, Social
Security must do more to help reduce poverty among the very
poor and the very old who need help the most.
The provisions in the Commission's report directly
affecting benefits, including changes in the benefit formula,
retirement age, and cost of living adjustments, among other
changes were responsible for approximately 60 percent of the
savings over 75 years, and the provisions related to revenues,
increasing the taxable maximum faster than current law and
requiring State and local workers to pay into the system were
responsible for approximately 40 percent of the savings over 75
years, but if you look in the 75th year, the net increase in
revenues would be--just 22 percent of the shortfall in the 75th
year, and that is why we felt it was necessary to include
changes in the benefit formula in the retirement age to make
the program sustainably solvent.
So the first area of benefit changes we recommended were
gradually moving to a more progressive benefit formula, which
would slow the benefit growth relative to the current law,
particularly for workers with incomes above the median.
Specifically, the plan would gradually phase in changes and
replacement rates of 90, 32, and 15 percent under current law
to 90, 30, 10, and 5 percent by 2050, phased in over a 30-year
period. The current 32 percent bracket would be split at the
median income level and ultimately reduced to 30 percent, so
there would be only a very modest change in the benefit formula
for workers with incomes below the median level.
Future retirees would receive higher benefits than can be
provided under current law for most seniors, except for the
highest earning workers. Because the bend point factors would
continue to be wage indexed, full benefits would continue to
grow faster than inflation for nearly all beneficiaries and
grow nearly as fast as wages for those in the bottom 50 percent
of income distribution.
One of the Commission's key principles was that Social
Security must ensure the program will meet its basic mission to
prevent people who can no longer work from falling into
poverty. In order to achieve this goal, the Commission
recommended creating a new minimum benefit, which would provide
stronger poverty protections than current law, and reduce
poverty among seniors relative both to current law scheduled
benefits and payable benefits.
The minimum benefit would provide a full career minimum
wage worker with a benefit equal to 125 percent of poverty, and
the minimum benefit would then be indexed to wages, which would
provide substantially stronger poverty protection over time.
Although the plan in the final report of the Commission
would provide substantially higher benefits for most low-income
workers, we did find that there were unintended consequences
with a slight reduction in median benefit for workers in the
bottom quintile, and the Commission cochairs committed to the
members of the Commission to identifying changes to address
that concern, and we spent a great deal of time over the last
couple of years looking at ways to tweak the minimum benefit
and the benefit formula in order to do so.
I have outlined those changes in my testimony, and I would
say that with those changes, we would have substantially
stronger poverty protections than current law, and relative to
payable benefits would have 50 percent reduction in poverty and
relative to scheduled benefits a 10 percent reduction. One of
the key lessons I also learned in this process was the
importance of looking at workers with intermittent work
histories who often have--were most likely to fall short of the
adequate benefits and not always protected by minimum benefit
provisions, but in doing so, it is important to distinguish
between those who truly are low-income workers and those who
simply look like they are a low-income worker based on the
Social Security income calculations, but in fact, were
relatively affluent because they had a great deal of earnings
over their lifetime that were not covered by Social Security
for working abroad, uncovered employment, and the like.
Chairman JOHNSON. Can you close it down?
Mr. LORENZEN. Certainly. Finally, we had increases in the
retirement age, we indexed the retirement age to longevity.
Both the early retirement age and the normal retirement age
under the current projections would be growing by 1 month every
2 years. However, it is--would actually be based off the
increases in longevity, therefore if longevity is growing
faster than currently projected, the age would increase more
rapidly, but conversely if the longevity grows more slowly, the
retirement age would grow less aggressively.
Chairman JOHNSON. Thank you.
[The prepared statement of Mr. Lorenzen follows:]
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Chairman JOHNSON. We are going to do something a little
different here. I appreciate the testimony of all of you, and I
am going to ask you this question: How soon should we act to
fix Social Security? I would like each one of you to tell me.
Mr. Lorenzen?
Mr. LORENZEN. I would say that the sooner that Congress can
act, it would be better. I can say this as someone who has been
working on Social Security reform for much longer than I like
to admit, that at each successive time, I have gone through the
process of looking at the options of what you have to do on
benefits and on revenues and the level of benefits you can
provide at a certain level of taxes, that the choices become
substantially more difficult each time I have gone through this
process.
Chairman JOHNSON. The question is how soon should we start?
Mr. LORENZEN. And so, I think it needs to be starting soon.
I think we have already waited too long.
Chairman JOHNSON. Okay. Mr. Hoagland?
Mr. HOAGLAND. You should start now, I agree that you should
not hold up on this exercise.
Chairman JOHNSON. Mr. Fichtner.
Mr. FICHTNER. Congressman, 10 years ago. In some ways we
are already too late. They are saying act now. We should have
done this a long time ago. I used to go around saying that we
could change benefits and hold current retirees harmless, we
are getting closer to not being able to do that, so we are
late, but definitely now.
Chairman JOHNSON. I agree with you. I have been on this
committee a long time myself and, you know, we can work. This
is one thing we can work.
Mr. THOMPSON. Look at me, I just got on this subcommittee.
Chairman JOHNSON. Well, do you want to wait a while? Ms.
Miranda?
Ms. MIRANDA. The sooner the better.
Chairman JOHNSON. Thank you. Mr. Fuerst?
Mr. FUERST. Acting sooner enables more options of a less
drastic nature and allows changes to be phased in gradually.
The 113th Congress should act to implement sustainable
solvency. So I will give you to the end of next year.
Chairman JOHNSON. How about the end of this year?
Mr. FUERST. That would be even better.
Chairman JOHNSON. We are working on it, let me tell you.
Mr. Becerra and I have been working on it a long time together,
and I think I agree with you. Mr. Steuerle?
Mr. STEUERLE. Mr. Chairman, it is yesterday. Every year we
wait, we put more and more of the burden on the young, and we
who are a little bit older bear less and less of the burden,
and that is simply unfair.
Chairman JOHNSON. Yeah, I know. You and I are worried about
it, aren't we?
Mr. STEUERLE. Yes, I think you and I should pay--I mean, it
is hard to adjust--everybody keeps saying we shouldn't pay any
of the costs, but in point of fact, I think we should bear some
of it, too.
Chairman JOHNSON. You know, in your testimony, Mr.
Steuerle, you say Social Security was designed for a different
era. I agree. What are the impacts of putting close to a third
of all adults on Social Security and the impact of the current
law retirement age on workers, beneficiaries, and the economy?
Mr. STEUERLE. Well, it simply means with a smaller work
base to support the system, no matter what tax rate we agree
upon, whether it is a higher rate or a lower rate, with fewer
workers, we have got less money coming into the system, so in
point of fact, although we are talking about benefit
adjustments today, to the extent we can encourage more work
through changes in the retirement age, through adjustments,
backloading the system so a few more benefits are paid at old
age, if we encourage work, we get more revenues at any tax
rate. And, by the way, I should comment at the same time that
given that our economy is now in a state of still high
unemployment, we should really be looking at the nonemployment
rate, and one of the major factors on the nonemployment rate is
the encouragement of older people to retire.
Chairman JOHNSON. Well, thank you for your comments, all of
you. I appreciate your testimony. Is Xavier coming back?
Mr. DOGGETT. He is coming back eventually, but he has a
conflicting meeting.
Chairman JOHNSON. Okay. Then Mr. Doggett, I am going to
recognize you for 5 minutes.
Mr. DOGGETT. Well, thank you very much. Dr. Steuerle, I
understand your testimony to be that whatever the committee
might recommend on revenue changes, there must be some benefit
changes?
Mr. STEUERLE. [Nonverbal response.]
Mr. DOGGETT. Is the converse also true? Because I
understood that to be Mr. Hoagland's findings of the Bipartisan
Policy Committee and also on the Bowles-Simpson, that it is
impossible to resolve this problem equitably unless there are
additional revenues?
Mr. STEUERLE. Well, personally I do support additional
revenues for the system. I do have a problem, however, which
goes beyond the Social Security issue is that for the most
part, if I am going to raise additional revenues, particularly
if I am going to raise additional revenues on higher income
people, I don't want that money to keep going for these elderly
programs, they are absorbing all of the growth in government.
So I have this dilemma. While I think revenues is part of our
broader budgetary issues, I don't know that I want to keep
devoting additional taxes and revenues to supporting elderly
programs at the cost of programs for younger people.
So I, therefore, confine the extent to which I would have
tax increases in Social Security, which is not the same thing
as the extent to which I would confine tax increases outside of
Social Security.
Mr. DOGGETT. So you are basically agreeing with the
Simpson-Bowles and the bipartisan policy recommendations that
we will not get our national debt in shape unless we have some
additional revenues to go along with this, but you don't
necessarily support additional revenues for Social Security
specifically?
Mr. STEUERLE. I do support some additional revenues for
Social Security. I actually--like the Commission's, I would
bump up the taxable maximum back up to approximately 90 percent
of wages, so I do actually support that type of change.
Mr. DOGGETT. I got the impression from your testimony that
to some extent, looking at Social Security changes is an all-
or-nothing proposition, that there has to be broad
comprehensive change along the lines of your policy objectives,
not doing it a single item at a time, such as cost of living or
retirement age. Is that your position?
Mr. STEUERLE. Yes, Mr. Doggett. Let me give you an example
with the retirement age. The simple fact that we all get now
about, say, 6 more years of benefits than--that is actually we
take about 11 or 12 because we retire earlier, but if we didn't
retire earlier, we get about 6 or 7 more years of benefits.
That has inured mainly to the benefit of higher income people
because we get a higher benefit to begin with, and in fact, if
I don't live to 62, I don't get anything out of all those
additional years of benefits, and if I am disabled I don't get
anything, so a lot of, most of the benefits from not indexing
the retirement age over its history has inured to the benefit
of higher income people. So if you cut back on that, we still
have to worry about other distributional effects. You know, as
I say, for people who are disabled, for people who don't make
it to 62, for people who have trouble working, we have to worry
about that. But not adjusting the retirement age is like
throwing the money off the roof in a poor area of the city and
hoping some of the poor get it. It is just not very target
effective.
So, yes, I would increase the retirement age and then I
would try to come back into other provisions like minimum
benefits and other things to make a system that, in my view,
should be more progressive than it was. I think the system is
less progressive than people think it is because it has a lot
of regressive features that people didn't pay attention to in
the beginning, and so my goal is to make the system more
progressive, better at the bottom, say the bottom half of the
distribution, recognizing that because it is out of balance,
people at the top are either going to have to take benefit cuts
or tax increases, one or the other, to pay for it.
Mr. DOGGETT. Ms. Miranda, what do you think the effect of
the changes you have heard the other witnesses testify that
they feel must be made in Social Security will have on working
families?
The changes that you have heard recommended, they have
indicated they want to compensate for some of those changes
with other adjustments and that the current program, they
believe, does not adequately address the needs of poorer
retirees. What is your reaction to their recommendations?
Ms. MIRANDA. Well, we agree that the system does not
adequate--provide adequate benefits for low-income retirees and
others. However--and we are very much in favor of a lot of the
ideas to improve benefits for the low income. However, these
ideas are often coupled with a benefit cut, so there is no net
improvement for low income. I did the math for Hispanic men and
women. Hispanic women have the lowest average Social Security
benefit for any gender or race or ethnicity, so their average
benefit is below the poverty line. It is $10,438. And I did do
the math on the chained CPI plus the age bump-up, and it is
still a loss. It is still about a 1\1/2\ percent loss to these
low-income women already.
So there is no net gain from doing it if you couple it with
a benefit cut. So we are in favor of things like the bump-up
for the age, but we are not in favor of it being coupled with a
cut. So we like some of those ideas. However, I would like to
say with the special minimum benefit, I have also looked into
it, including Dr. Steuerle's research from the Urban Institute,
and you see that low-income people, the lowest income people
have the shortest career histories in covered earnings, so
something like 80 to 95 percent of low-income workers would not
meet the requirements to get the full special minimum benefit.
The requirement is 30 years in covered earnings, and only
something like 3 to, at the most, 20 percent of low-income
workers would meet that requirement. So you are excluding
almost everybody. It is practically the null set. So I don't
know. I mean, every proposal seems to have that in there, and
it doesn't do much good----
Chairman JOHNSON. We have already heard your testimony, and
his time has expired.
Ms. MIRANDA. Oh, sorry.
Mr. DOGGETT. Thank you very much.
Chairman JOHNSON. Thank you, Lloyd. Mr. Renacci, you are
recognized.
Mr. RENACCI. Thank you, Mr. Chairman. I want to thank all
the witnesses and thank you for all your testimony. It is
interesting because prior to coming to Congress I was a CPA and
was brought into businesses in many cases that were failing,
and when you looked at their failures, it was many times the
owners would say, well, you know, we were doing fine, and we
shouldn't touch anything, and we shouldn't have done anything,
and what they really ignored was the trend in the future, and
so I am appreciative that we are looking at the trends in the
future here because that is the key. We can sit and just bury
our head, but the trends are showing that we have got some
problems.
Mr. Steuerle, you made a comment where there is two sides,
you are either for the box or against the box. It is kind of
interesting because I would agree that some people when you say
something, they would say you are against the box or you are
for the box. I think everybody up here is making sure that
Social Security is solvent for the future. I know as a father
of three children, I want to make sure that the benefits are
available to them, too.
So when I look at things, I try and look at systemic
issues, and I would like to ask--in reading your testimony, I
see a couple things that have been brought out of your
testimony, several of you. The system does not encourage
savings, our current system, and the other thing is the system
encourages retirement before the full retirement age.
Those seem to be two real systemic problems within the
current system which aren't benefits, aren't revenue raisers,
aren't any of those. These are actual systemic problems that--
you know, I would like Mr. Steuerle or Mr. Fichtner if you
could address, what are some of the ways Congress, and even the
Social Security Administration can incentivize savings and also
we can encourage older Americans to remain in the workforce? So
I start with Mr. Steuerle.
Mr. STEUERLE. I have a number of suggestions in my
testimony. I won't go into all the details, but the basic
suggestions are to bump up the retirement age. As it actually
turns out, I would also increase the early retirement age
because it actually turns out that the people who are hurt the
worst are the lower income people who can work but don't, that
is their proportional loss in income over their retirement is
actually worse than it is for higher income people who might
have capital income on their side. And then, as I say, I would
try to make a lot of other adjustments to make sure that that
net change is more progressive. I would try to backload
benefits more, that is to the extent we can make it more of an
old age system rather than a system that is really a middle age
retirement system, that is going to encourage work by not
providing so much in the way of benefits up front. I would also
offer people partial retirement options that Social Security
doesn't offer, so that people don't have to think it is an all-
or-nothing choice, which many of them do.
On the savings front, I have suggested a number of times
that we follow Britain's example when they did Social Security
reform, and we back up Social Security reform with a private
pension reform that is aimed, by the way, at providing
substantial coverage for the vast majority of people who get
very little in private retirement benefits.
Mr. RENACCI. Before I move to Mr. Fichtner, I would just
ask you this question, instead of raising the age, how about
changing the system? I have friends back home that are retiring
because it makes no sense for them; if they work longer, they
don't get any additional benefit, and at the same time, there
is no incentive to continue to work because they get their
retirement benefits cut if they do, and they can't work and get
those benefits.
Mr. STEUERLE. The current system has something called an
earnings test, which technically doesn't reduce benefits, but
people think of as a huge tax rate on their benefits. Because
technically what happens when those benefits get reduced,
Social Security gives them an actuarial adjustment for higher
benefits later. I want to make that explicit, they recognize by
working longer that they could make that work to their
advantage in a much more explicit way. But also the suggestion
I made, and I think Mr. Fichtner made, to actually drop this
notion of only counting 35 years of work means if I work more
than 35 years, I work past 62, that can also add to my
benefits. So I make a number of adjustments along those lines.
Mr. RENACCI. Mr. Fichtner.
Mr. FICHTNER. Thank you for the question, Congressman. I
realize your time is short, so I will second everything that
Dr. Steuerle said, and then sort of add what can the Social
Security Administration do to help encourage people to maybe
delay claiming. Because those who take early retirement
basically are behind, and the monthly benefit is lower than
they would otherwise be when they get into their 80s or 90s,
then behind for the rest of their lives. Part of it is
financial literacy, which both of the Commission plans actually
endorse, which we did show the benefits and the risks and costs
of claiming early versus claiming later. And I think we should
look at raising the early retirement age.
Right now, as we said, 40 percent take it at 62, 70 percent
are taking it before normal retirement age. That means that is
actually increasing poverty in older ages. If we increased it,
but did like a hardship benefit or a special minimum benefit
bump up, that would keep lower people out of poverty, but still
give the incentive for those who continue to work.
Mr. RENACCI. Mr. Chairman, I yield back.
Chairman JOHNSON. Thank you. Mr. Tiberi, you are recognized
for 5 minutes.
Mr. TIBERI. Thank you. Thank you all. Great testimony. I
got to tell you this should be easier to get done than it is
after listening to you all. But let me tell you just a couple
stories. I was at a senior center in my district 10 years ago.
I was supposed to give a congressional update. And there were
seniors there from 62 to in the 90s. Before I could even get a
word out about my congressional update, this lady in the back
of the room wanted to know why I was on the Bush privatization
of Social Security. And I answered there was not a piece of
legislation yet, but we have to fix Social Security, maybe not
for you all, but for your kids and certainly your grandkids.
Another lady said, ``My grandkids are spoiled. Don't touch
Social Security, because I paid into it just like I paid into
Medicare.'' I have noticed over the last 10 years, and I think
it has to do with organizations like yours and yours, that
seniors are tending to understand more that they didn't pay
into Medicare every benefit they are getting out. That is been
a real struggle, by the way, a real struggle.
So I think education is the key. And you talked about the
progressivity. Dead on. But the lack of education even among
some Members is striking to me. I have a senior population who
still believes that we should fix the notch years, right? The
notch years. And I try to tell them, you know, you got a better
deal than my dad, who is going to be 80. And my dad retired at
65. You know, maybe I should be mad that somebody here changed
the retirement age and requires me to retire at 67. But I got
to tell you, my sister, who is in her 30s, doesn't even think
that even matters because she doesn't believe she is going to
get Social Security. And to say, and some in this town say,
well, this isn't a problem, they should go look at their Social
Security benefit package if they are under 50.
Here is my question to you: How do we get just Members of
Congress to understand the severity of the problem in the
system? Because I think you are absolutely right, Mr. Steuerle,
and Mr. Fuerst, you are on the same page, we can't fix these
systems that benefit us if we get there by raising more revenue
to put into those systems, because it is tragic what we are
doing to little girls and little boys who are trying to get an
education. My parents were immigrants. They never had great
jobs. They are now concerned about their grandkids.
So this shouldn't be about CEOs and NBA basketball players
and them paying their fair share. This should be about
fundamentally fixing two vitally important programs for the
future. And you have all made some really great suggestions.
But the politics of this aren't quite there yet. Mr. Lorenzen.
Mr. LORENZEN. I want to say a couple of things. First, I
think it is important to talk not only about the importance
that those programs are strong for future generations, for
future children and my soon-to-be-born child, but also to talk
about what it means for the resources for other priorities that
Dr. Steuerle was talking about, that if tax revenues are going
to those programs, those are tax revenues that are not
available for other priorities. I think that is an equally
important point to remind people.
And I would just use this opportunity to make a shameless
plug. The Committee for Responsible Federal Budget, which hosts
the Moment of Truth Project, will be coming out shortly with
The Reformer, which will be an interactive online tool that
will allow people to look at the different options for changing
benefits and revenues. And you will see what it means over 75
years and the period, and so people can see the choices and
trade-offs.
Mr. TIBERI. And let me tell you what I support. I had a
debate with a smart guy who argued with me that taking it at 62
was better because life expectancy is longer now. So there are
smart people who do that. But I got to tell you, in this town
if I say I am for fixing Social Security and Medicare, somebody
might say, well--someone has said, well, it is because you want
to do that, you want to cut benefits, you want to hurt the
program. Let me tell you, I mean, I would like to cut the
retirement age to 55, you know, as a selfish person. That is
not what this is about. I don't want to cut anybody's benefits.
I want to make sure that people who, like my mom and dad, who
depend on this program, get it, and that we don't rob future
generations to get there. So Mr. Steuerle, any final comments
on the politics of this?
Mr. STEUERLE. Yes, I don't know what else we can do here. I
am actually, and every person at this table, we all work on
trying to give you data you can use. If you look, for instance,
at the last graph in my testimony, that is the one I use when
people want to argue the trust fund balances. Because it
basically shows that when you get to about 2035, we are going
to be paying maybe 30 percent more than we got in the way of
revenues. So regardless of what you think about the trust
funds, show them that type of data. I do lifetime value of and
benefits and taxes. I keep pointing out that the package of
benefits in Social Security and Medicare is now approaching $1
million. When I say that to people, they don't say, gee, it has
got to be higher, you know, once they know the real numbers.
And then finally on the retirement age, one I strongly suggest,
and Mr. Lorenzen and I have talked about this, in their
Commission they debated how to announce it in terms of the
increase in the retirement age, this is the normal retirement
age, but if you look at their package, they actually keep
giving more and more years--which I would not do by the way--
keep giving more and more years of benefits to people as they
live longer, just less than they get now. If you go to the
public and say should it be a priority of Social Security to
continually provide more years of benefits to people or should
we have other priorities, they will usually accept--they won't
accept that as an option. And yet that is the system we have.
So that is different than saying you are increasing the
retirement age.
Mr. TIBERI. Thank you.
Chairman JOHNSON. I want to thank each of you for being
here. And we appreciate your testimony. We have got votes on
the floor. And I don't want to try to hold you during that
time. We are adjourning today for Memorial Day. How about that?
So I want to thank each and every one of you for being here,
and thank our panel for their questions, and thank you, Lloyd.
So we will stand adjourned.
[Whereupon, at 10:33 a.m., the subcommittee was adjourned.]
[Questions for the record follow:]
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