[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



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





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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 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word or 
WordPerfect document, in compliance with the formatting requirements 
listed below, by the close of business on Thursday, June 6, 2013. 
Finally, please note that due to the change in House mail policy, the 
U.S. Capitol Police will refuse sealed-package deliveries to all House 
Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days' notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
    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:]
    
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    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:]
    
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    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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