[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
UNDERSTANDING SOCIAL SECURITY'S
SOLVENCY CHALLENGE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON SOCIAL SECURITY
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 21, 2016
__________
Serial No. 114-SS07
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
DEVIN NUNES, California CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois XAVIER BECERRA, California
TOM PRICE, Georgia LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida MIKE THOMPSON, California
ADRIAN SMITH, Nebraska JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota RON KIND, Wisconsin
KENNY MARCHANT, Texas BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee JOSEPH CROWLEY, New York
TOM REED, New York DANNY DAVIS, Illinois
TODD YOUNG, Indiana LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina
David Stewart, Staff Director
Nick Gwyn, Minority Chief of Staff
______
SUBCOMMITTEE ON SOCIAL SECURITY
SAM JOHNSON, Texas, Chairman
ROBERT J. DOLD, Illinois XAVIER BECERRA, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
MIKE KELLY, Pennsylvania JIM MCDERMOTT, Washington
JIM RENACCI, Ohio
TOM RICE, South Carolina
C O N T E N T S
__________
Page
Advisory of September 21, 2016 announcing the hearing............ 2
WITNESSES
Stephen C. Goss, Chief Actuary, Social Security Administration... 6
Keith Hall, Ph.D., Director, Congressional Budget Office......... 32
MEMBER QUESTIONS FOR THE RECORD
Stephen C. Goss.................................................. 70
Keith Hall....................................................... 96
SUBMISSIONS FOR THE RECORD
Center for Fiscal Equity......................................... 107
Generation Opportunity........................................... 113
UNDERSTANDING SOCIAL SECURITY'S
SOLVENCY CHALLENGE
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WEDNESDAY, SEPTEMBER 21, 2016
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Social Security,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:05 a.m., in
Room B-318 Rayburn House Office Building, the Honorable Sam
Johnson [Chairman of the Subcommittee] presiding.
[The advisory announcing the hearing follows:]
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Chairman JOHNSON. Well, good morning and welcome to today's
hearing on the difference between the Congressional Budget
Office and the Social Security Trustees' projections of Social
Security solvency.
Are you guys ready for some assault? [Laughter]
We all know how important Social Security is to the
millions of Americans who rely on it, but Social Security is in
trouble. And the longer we wait, the tougher it becomes to fix
it. It is up to Congress to make the tough choices based on the
best, most accurate information we can find and is available.
As Chairman of the Social Security Subcommittee, I take
this responsibility seriously, and I am committed to making
sure our children and our grandchildren can count on Social
Security just like seniors and individuals with disabilities do
today.
Nearly every year, we hold a hearing on the latest Social
Security Trustees' projections to learn the latest about the
challenges Social Security faces. But the Trustees aren't the
only ones that look at Social Security's long-term finances,
the Congressional Budget Office does too and so do the Dems,
especially my friend.
Both CBO and the Trustees have been looking at Social
Security's finances for decades, and as you can see on the
screens today, the Trustees and CBO paint a very different
picture of just how much trouble Social Security is in. But it
hasn't always been that way, and just a few years ago, when CBO
was still using many of the same assumptions as the Trustees,
the estimates were fairly similar.
Today, CBO and the Trustees look at the same historical
data but use different approaches to make different assumptions
about the future, and those differences have a real impact. CBO
and the Trustees don't agree on whether Social Security's
finances got better or worse this year. They also don't agree
on when Social Security's trust funds will be exhausted.
Last year, their estimates of Social Security's shortfall
were over 60 percent apart. Now, they are over 75 percent
apart. That is why, earlier this year, Chairman Brady and I
asked CBO and Social Security's Chief Actuary to take a look at
each other's projections and help us understand how they can
come to such different views of Social Security's future.
Today, I hope you are going to tell us what you learned.
With CBO and the Trustees so far apart, it is hard to know if a
Social Security plan will actually make the program solvent.
While a plan may be solvent, according to the Trustees, it
might not even get close, if you ask CBO.
I know we have all looked at ideas on ways to fix Social
Security, and while we may not agree on the best way to do it,
we should at least agree that we need an accurate as possible
picture of Social Security's financial health. Americans want,
need, and deserve to be able to count on Social Security, and
it is up to us and the Congress to make the changes so they
can.
We count on the experts like CBO and the Trustees to help
us figure out how best to do that, and we appreciate what you
all do. So this hearing is about understanding why these two
well-respected organizations have come to very different
conclusions on just how much trouble Social Security is in. I
look forward to hearing from our witnesses, and I am sure the
rest of us do too.
And I now recognize Mr. Becerra for his opening statement.
Mr. BECERRA. Mr. Chairman, first, great to see you back and
look forward to having you finish up this year and come back
ready to go again as well, and so thank you for holding this
hearing. I thank our two witnesses for being here and am
pleased that we are having another conversation about Social
Security.
Probably the most important thing we should start off by
doing is comparing the facts that we know versus the
projections, which are speculation based on the experts' best
guesses of what we know from the data, the data that is from
the past and what we are collecting today. But what we do know
is what has happened in the past and where we are today, so
here are some facts.
Social Security has paid earned benefits to American
workers, tens of millions of them, on time and in full for over
three-quarters of a century. On time, in full, for over three-
quarters of a decade. I have a chart that you can see now.
Social Security currently has a $2.8 trillion surplus in its
trust fund. That exists only because American workers have made
tax contributions into the system and into the fund, and it is
very simple math. You put taxpayer dollars in, and then they
are drawn out, and you can see what has been drawn out. It is
less than what has been put in.
At the same time, those of us who have savings accounts
know the beauty and the magic of compound interest, and because
those funds that the trust fund has held earn interest, even
though it is small interest, low interest, it has earned
interest, over a trillion dollars in interest, and so, as a
result, we have a $2.8 trillion surplus today in Social
Security to help cover the benefits of future retirees and
future recipients of Social Security benefits.
That is not to say that Social Security doesn't face a
challenge into the future as that surplus is consumed. I think
we all understand that, and that is why we all, I think,
bipartisanly, know we want to try to tackle this together. But
Social Security in those 81 years or so has weathered 13
recessions. It has, as I said, paid in full and on time at all
times and meanwhile has been able to accrue a $2.8 trillion
surplus dedicated to the future needs of those workers.
What other program, private or public, can say this? There
isn't a one. No other program that serves tens of millions of
Americans can say it has that kind of a track record.
So now the projections. And let's recognize again: these
are projections. They aren't fact. They aren't based on hard
data. They are based on our sense of what is going to happen.
And I must say: both CBO and the actuaries at Social Security
have tremendously talented people who give us those estimates,
but they are still just estimates.
Now, the Social Security Administration's actuaries have
been doing this since the beginning of Social Security. The
Congressional Budget Office has begun doing this over the last
10 to 12 years. I know that CBO has far more responsibilities
than just monitoring Social Security. The actuaries are
concerned about Social Security and Social Security and its
impact through other programs, but Social Security alone, and
so let's make sure we are looking at apples versus apples, not
apples versus oranges, as we make our projections, because they
are very important and, in fact, affect the lives of so many
Americans.
We should mention that, as we move forward, I think most
people agree that that surplus in the trust fund is going to be
consumed over the next 16, 18 years, somewhere in that area,
maybe a little longer. It depends on what economic growth is.
But let's look at this in the broader context because it is not
just about where Social Security is. It is where our government
and our operations are moving forward.
So let me give you a quick example. Social Security
provides services, benefits to 60 million Americans. Okay. Let
me give you another comparison. Department of Defense protects
all Americans. The Department of Defense has a budget annually
somewhere right now of about $600 billion. Social Security,
through the moneys it has collected and then paid out, we are
talking about $900 billion that are sent out to Americans who
work and earn their benefits. There is a dedicated stream of
money for Social Security, the contributions that we mentioned
before that people pay out of their paychecks, the FICA tax.
There is no dedicated source of money for the Department of
Defense. If we were to do a projection of what the costs for
our defense would be over the same 75 years that we are trying
to project for Social Security, we would find that we would be
spending trillions upon trillions of dollars that we don't
have. Now, we are going to find the money because we want to
protect our Nation, but when we make the comparisons about what
is going to happen to Social Security, let's remember that it
has a secure source of funding. Department of Defense doesn't.
And so, quite honestly, the projected deficit or debt
created by Defense would be greater than the projected deficit
created by Social Security, and I could say that about others
things. Tax breaks. We have a tax break for capital gains and
dividends. It costs us about $100 billion a year. We don't pay
for that. If we were to run the projected deficits created by
providing tax breaks to folks who take advantage of capital
gains and dividends tax cuts, that would be trillions as well.
That is all I would say, Mr. Chairman, as I close, that we
want to put everything in perspective. We want to remember what
we are out to do, and we are out to make sure that Americans
can rely on something as secure as what Social Security has
been for generations. That is our task. We can do that on a
bipartisan basis.
And the first thing we should do is make sure that Social
Security, the Social Security Administration has the resources
it needs to actually administer its programs for the tens of
millions of Americans who are paying into it and the tens of
millions of Americans who are receiving their benefits after
having paid into it.
With that, I will yield back the balance of my time.
Chairman JOHNSON. Thank you.
As is customary, any member is welcome to submit a
statement for the hearing record.
And before we move to our testimony, I want to remind our
witnesses to please limit your oral statements to 5 minutes,
unlike what my friend did.
However, without objection, all the written testimony will
be made a part of the hearing record.
We have two witnesses today. Seated at the table are
Stephen Goss, Chief Actuary, Social Security Administration,
and Dr. Keith Hall, Director, Congressional Budget Office.
Welcome, and thanks for being here.
Mr. Goss, please proceed.
STATEMENT OF STEPHEN C. GOSS, CHIEF ACTUARY, SOCIAL SECURITY
ADMINISTRATION
Mr. GOSS. Thank you very much, Chairman Johnson, Ranking
Member Becerra, Members of the Subcommittee. It is a pleasure
to be here today on this topic. Let me start with just saying
that really reiterating a point that has been made: actuarial
projections, actuarial valuations have been done for Social
Security since actually before 1935, before enactment. They are
critical, obviously, to you as lawmakers. At the start of the
program, they were, and they are today again as we have to move
forward with this program.
The annual Trustees reports required by law have been
forthcoming every single year, starting 1941 through 2016, and
a key point in the requirement in those reports is to speak to
the actuarial status, which we do by 75-year projections. These
are obviously quite different from a 5-year or 10-year budget
projections; 75-year actuarial valuation is really quite a
different animal.
In our office, we do have 45 actuaries and demographers. We
also have eight economists and statisticians. Obviously,
because we have been around for a while, we have immense
experience. We also have access to all data internal to Social
Security and throughout the rest of the government.
Now, what our office actually does in the Trustees report
process--we are not the Trustees; we are an office that works
with the Trustees. We do develop the methods. We draft the
reports, and we also propose assumptions to the Trustees every
year.
Now, I can give you assurance as to the reasonableness of
the assumptions and the appropriateness of the methods because
the law also requires that the Chief Actuary put a statement of
actuarial opinion in each report, and that has been there every
year. We have not had exception to the assumptions per se of
reports in the past.
Transparency, you are probably familiar, we have technical
panels put forth by our advisory board. We have a full scope
audit of our work in incredible detail. And we share everything
with everybody who asks, including our friends a CBO. We share
immense detail with them.
One of the hallmarks of what the Trustees have stood for
over all the years--and I am so proud to be able to say that I
have been a part of this process--is stability and incremental
change, to only have incremental change. Every year, for our
portfolio, we have got one more year of data. That is it. And
so we always just do incremental change.
Now, let me--oh, great. Okay. Next slide. So let me just
show you here a picture of--this is the so-called actuarial
balance that you are familiar with and I think Chairman Johnson
was referring to. It is really just an expression of over 75
years of what our shortfall looks like as a percentage of the
payroll over that 75-year period.
The blue line is what we have been projecting in our
Trustees reports for 2002 through 2016. Of course, it goes all
the way back to 1941, and you can see sort of the relative
stability. We think that is really important. You can see CBO
has--they started in 2004. At that point, the CBO projections
were only half as large a shortfall as the Trustees were
saying.
As of 2012, that sort of changed, and CBO is now projecting
a much larger shortfall than Social Security, and it has been
getting even larger and larger, which is sort of part of the
point of this hearing, to sort of understand that, I assume.
On the next slide, I just want to indicate that there are
really currently--and this has changed over time. We have much
detail in the written testimony of this. Currently, there are
four main reasons why we have differences in the projections.
It relates to birth rates; employment rates; earnings
inequality; other, mainly methods. You can see here the cost
rates. We have the cost rates going up because of the aging of
our population, and CBO has a much, much larger increase in the
cost rates as we go forward.
Now, let's just take a look at the birth rates. The birth
rates historically have been around--since 1990 to 2008, We had
great stability. Now, the recession came along and affected
many things, including birth rates dropping temporarily. This
year, CBO has decided to alter their long-term assumption, so
they have matched us in every year prior to this going back to
2004. They dropped down to 1.9 below the 2.0 that we and our
Trustees are assuming. And I would just alert you to NCHS does
birth expectation surveys of women in our population, and their
birth expectations have been above 2 even throughout the
recession. So we don't really believe that there is a basis at
this point for dropping that assumption.
Labor force participation rates, one of the main economic
variables, is a place where we have kind of really we think
remarkable differentiation. We have expressed labor force
participation rates here on like--on assuming there is no
change in the age distribution of the population. So we get a
pure look of what is happening, what sort of employment and
desire to be employed. And you can see that the recession again
had a big effect. We had a big drop in the recession. We are
assuming we will come back from that and then grow a little bit
as people over 65 get more and more in the labor force.
CBO has as, I would say, fairly dramatic drop in the labor
force participation rates, back to levels that were existent
really before women were largely getting into the labor force.
And the last slide I have here of some real serious content
about a difference for us speaks to something that is really
important, the earnings concentration at the top. And you can
see on this slide that, between 1983 and 2001, we had a rather
dramatic drop in this taxable ratio, the share of all the
earnings that we have covered under Social Security that are
taxable, and that speaks to the earnings concentration. That
drop was so dramatic over that period, but over the last 13
years, 2001 to 2014, the rate of decline in that has been only
one-third what it was in the earlier period, real deceleration.
It has really slowed. And our Trustees and we are projecting
that it will further decelerate in the future.
I am hoping that is not optimistic. We think that is an
absolutely reasonable and appropriate place to be. You can see
the red line of where CBO is having really an acceleration to a
rate of decline that we have not really seen before.
And, with that, I think I had better stop. I just want to
say, again, thank you so much for the invitation, and we look
forward to continuing these projections and working with you on
the shortfalls for Social Security in the future.
[The statement of Mr. Goss follows:]
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Chairman JOHNSON. Thank you.
[The prepared testimony of Mr. Goss follows:]
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Chairman JOHNSON. You are recognized, sir.
STATEMENT OF KEITH HALL, PH.D., DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Mr. HALL. Chairman Johnson, Ranking Member Becerra, and
Members of the Subcommittee, thank you for inviting me to
testify this morning. For some time, both the Congressional
Budget Office and the Social Security Trustees have projected
that, if full benefits are paid under the formula specified in
current law, Social Security spending would rise significantly
during the coming decades.
In contrast, total revenues for the program are anticipated
to grow more slowly than outlays. The faster growth projected
for total benefits than for total revenues means that a
shortfall in the program's finances is expected to continue.
Although both CBO and the Trustees project such a
shortfall, we differ in our assessment of its magnitude. Over
the next 75 years, if current laws remain in place, CBO
projects that the program's actuarial deficit would be up 1.55
percent of gross domestic product. There are several ways to
explain what the actuarial deficit represents. For instance, it
would be possible to pay the benefits prescribed by current law
and maintain the necessary balances in the program's combined
trust funds through 2090 if payroll taxes were raised
immediately and permanently by 1.55 percent of GDP, scheduled
benefits were reduced by an equivalent amount or some
combination of tax increases and spending reductions of equal
present value was adopted. In 2017, 1.55 percent of GDP would
be about $300 billion.
Another way to understand the magnitude of the shortfall is
to consider the effects of policies that could be combined to
address it. Last year, we estimated the effects of 32 options
that would provide the actuarial balance. For example,
gradually increasing the payroll tax rate by 3 percentage
points over 60 years would improve the 75-year actuarial
balance by one-half of 1 percentage point of GDP, as would
reducing benefits across the board by 15 percent by the mid-
2030s.
The Social Security Trustees' projection of the 75-year
actuarial deficit is 0.95 percent of GDP, six-tenths of a
percentage point less than CBO's projection. Two-thirds of the
difference comes from four major inputs into estimates of the
system's finances. First, the Trustees' higher estimate of
earnings subject to the program's payroll tax explains 23
percent of the difference. Key components of nominal GDP growth
projected by the Trustees--higher labor force participation
rates partially offset by higher unemployment rates, higher
productivity growth, and higher inflation explain 22 percent.
Demographics--projections by the Trustees of higher fertility
rates partially offset by lower immigration rates and of slower
improvements in mortality rates explain 15 percent.
The Trustees' projection of higher interest rates, higher
real interest rates in the long run--that is, rates adjusted to
remove the effects of inflation--explain 6 percent.
The remaining one-third of the difference arises mainly
because the approaches used by CBO and the Trustees to make
estimates differ in various ways, even when the four major
inputs are the same. For example, in CBO's modeling, payroll
taxes collected from and Social Security benefits received by a
retired worker are calculated on the basis of earnings
projected for that person, thus ensuring consistency in the
projections of payroll taxes and benefits.
The Trustees project benefits on the basis of earnings data
for a recent cohort of beneficiaries who are retired workers.
Those data are adjusted to account for future earnings growth
and for other projected changes in the labor market. The
Trustees project payroll taxes separately.
The exhaustion date of the programs combined trust funds is
another measure of its finances. CBO projects that the trust
funds will be exhausted in 2029. If CBO adopted the Trustees'
projections of the four major inputs, it would project the
trust funds to be exhausted in 2033, 1 year earlier than the
Trustees project.
Each of the major inputs into our estimates is uncertain,
especially over a 75-year period. We update our projections
each year to incorporate the best information available from
the research community as well as feedback on our analytical
approach and other improvements in modeling.
As a result of updates in the past year, for instance, our
estimates of the actuarial deficit in 2016 is slightly larger
than it was in 2015. Contributing factors include lower
projected interest rates, GDP, and taxable payroll amounts,
changes to projected educational attainment and to the ages at
which future retirees choose to claim Social Security, and the
effects of the 1-year shift in the projection period. Those
factors are partially offset by revised demographic projections
and lower projected rates of disability incidents.
My written testimony provides much more information about
the basis for CBO's projections. I am happy to answer any
questions that you may have. Thank you.
Chairman JOHNSON. Thank you, sir. I appreciate your
testimony.
[The prepared testimony of Mr. Hall follows:]
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Chairman JOHNSON. We will now turn to questions, and as is
customary for each round of questions, I will limit my time to
5 minutes and ask my colleagues to also limit their questioning
time to 5 minutes as well.
We all know experts aren't going to agree exactly. In fact,
they never do. You both represent well-respected organizations
that do good work, but given these huge differences, I just
don't know how you both can be right. Can either one of you
tell me?
Mr. HALL. I am happy to start. Let me start out with how we
are the same. Both projections show a system with significant
financial shortfalls. Both CBO and the Trustees expect the
combined trust funds to be exhausted in the second decade of
the projection, but we differ in our estimate of the cost
relative to GDP. The Trustees' forecast of costs is about 4
percent lower than CBO's, and their forecast of income is about
7 percent higher. So we do have a difference.
But I do want to stress that there is uncertainty. All
projections are uncertain. And to give you an idea, we haven't
done it this year yet, but last year, when we projected an
actuarial balance of negative 1.45 percent of GDP, we did an
analysis looking at the historical variations and the
variables, and we put out an 80-percent certainty range. We
think we are 80 percent certain within a certain range. That
range was negative 0.8 percent of GDP to 2.2 percent of GDP. So
that is a pretty significant range.
Mr. GOSS. I would just want to add, on certainty,
absolutely the only thing we know for sure is that any point
estimate will be wrong with almost certainty in the future, so
we really do come up with the best possible projection we can
here. As I mentioned initially, I think one of the most
important things that we try to go for is to have a stability
and have only incrementalism in the changes because we
understand that if you all are going to be making modifications
to this program and other programs, having the goal posts
moving around is really, really kind of a problem.
Dr. Hall mentioned something about the way that we project
benefits and the way CBO does. I mean, I would just remind,
back in 2004, when CBO had only half as large a deficit as we
did, it was suggested by folks at CBO at the time that, in
fact, we were projecting benefits to be too high at that time,
and that is why we had a larger deficit. We believe that that
differential kind of dissipated over 5 or 6 years. Now, through
methodologies, it appears as though CBO is suggesting we are
projecting benefits too low.
So we have been very, very consistent the way we are
approaching things, and I think we have a pretty good track
record on making projections. You will probably recall, for
example, the reserve depletion dates for the DI program, which
back at the time of the 1994 reallocation, we were projecting
around 2016. Well, lo and behold, it pretty much came out to be
around that before the reallocation that you all enacted just
last year.
Chairman JOHNSON. Have you all changed the way you look at
things?
Mr. HALL. We have over time. And I suppose our philosophy
is a bit different. Our goal is to be independent and objective
and offer the best estimate available, and so we look at a lot
of things. We look at historical data. We look at other
people's forecasts. We vet things with our panel of advisers.
We look at what the Social Security technical panel says. And
we look at literature. And we make judgments based on this. And
things change over time.
I think one of the difficulties right now is coming off the
Great Recession, in general, some things have changed
permanently; some things, well, will not change as much. So
part of what one has to do, for example, in economic
forecasting is sort of decide what is going to revert back to
prior to the Great Recession and what has been a permanent
change, and of course, we have some significant differences on
the demographic side.
Chairman JOHNSON. Well, you all just started doing these in
the early 2000s. What made the CBO start doing the estimates as
compared to the Trustees?
Mr. HALL. Well, the short answer would be we were asked to,
that there was an increased interest and concern with the long-
term budgetary implications of current laws. And part of it, of
course, is that it was a prelude for us to evaluate any
legislation that is aimed at trying to improve the Social
Security balance.
Chairman JOHNSON. Well, you talk about a lot of assumptions
used in the CBO Social Security estimates. Are these
assumptions only used in Social Security projections, or do you
use them in other estimates as well?
Mr. HALL. Yeah. Actually, our assumptions are kind of mixed
in with a lot of things that we do. For example, the 75-year
Social Security projection is built upon the long-term budget
outlook projection that we make. So we go from 75 years down to
30 years. We make sure those are consistent. And then that 30
years is based on our 10-year economic and budget forecast. We
do that three times a year.
So all three of these things are consistent, and in fact,
when we just do regular work on the 10-year budget forecast
even, we spend a lot of time looking at changes and variables
and changes in things that we think are going to impact the
long run.
For example, one of the things that we looked at most
recently over the long run is we have done a significant amount
of work on labor force participation, and we think that there
is looking like there is some significant decline in labor
force participation based on cohorts. So, for example, if you
look at people who are age 25 to 34 right now, their labor
force participation is significantly below other cohorts. Baby
boomers had much higher participation, and part of what looks
to us like is that that is going to maybe be a permanent impact
on labor force participation going forward. So we do these
things all the time. It is all mixed in, but we try to be
consistent.
Chairman JOHNSON. Okay. Well, thank you very much.
I will recognize Mr. Larson.
Mr. LARSON. Thank you, Mr. Chairman, and let me add, it is
great to see you back. What a privilege to serve on a committee
that has two American iconic heroes in Sam Johnson and John
Lewis. We should all take stock in that, and always good to see
you back.
Chairman JOHNSON. Thank you.
Mr. LARSON. And I think it is a great hearing. I think it
is going to give us an opportunity to explore, and I have more
of a statement to begin with and I hope which will follow with
other questions. But the last time we really constructively as
a Congress really looked at Social Security in any meaningful
and significant way was in 1983.
This is an insurance program, an insurance program. People
talk about this as though it is an entitlement. Yes, you are
entitled to your Social Security because you paid for it. It is
an insurance program. Has anyone's--in this audience--insurance
premiums gone up since 1983 when this was last touched? I dare
say that everyone's hand in the audience, if I requested, would
go up. Yet Social Security has not been adjusted and yet has
not missed a payment, as Javier Becerra was pointing out
earlier on.
So what we have here is there are statistics, as has been
indicated by two venerated groups, both in the Social Security
actuaries and CBO; one doing it over a long period of time, the
other since 2004, but both with outstanding results. I think
what the American people want to see is, what is Congress going
to do? Because you both say that this is based on projections,
and those projections depend upon what we are actually going to
do.
And I think what we need to do, it is kind of like what the
AARP puts out there, you have got to show what your proposal is
to--with regard to Social Security. We have to strengthen this
program. We have to strengthen it for a number of reasons,
largely because of what happened in 2008 when people saw their
401(k)s become 101(k)s, but the only program during that time
that remained consistent was, of course, Social Security.
So it is incumbent upon us to make sure that it meets those
actuarial standards so they are solvent for the next 75 years.
And not only do we have to--and we are constantly arguing up
here about whether we have to cut it or increase the premiums,
as I like to say.
I don't think we can afford to cut it. All you have to do
is go back home and look at your constituents and find out the
situation that they find themselves in. What we need to do is
expand it and then expand it in a way that makes sense for the
American people.
We have a proposal out there that says we should increase
the funding by what people receive by 2 percent across the
board. We should make sure that no one retires into poverty who
has participated in the program. We should make sure that our
cost of living, our COLAs, reflect actual cost, and you know
what else? We should give people a tax break. We can do all
that, but we would have to increase the premium.
Well, how would you increase the premium? Well, under our
proposal, we would scrap the cap. Over-$400,000 people would
pay, and they would receive more benefits for what they pay in.
And then what I truly believe, because there has to be skin in
the game for everybody, we increase the contribution by 1
percent, but then phase that in, just like any insurance
actuary would do looking at this program, increase it by 1
percent, phase it in over 25 years, which would be .05 percent
a year; or for a person making $50,000 a year, be 50 cents a
week; or if you bought one of these Starbucks lattes for $4.50,
that would represent 9 weeks of Social Security payments.
My point is this: This is an insurance issue that is very
solvable actuarially by just making sure that we adjust
premiums that haven't been touched since 1983 but do it in a
way that is not going to burden anybody; 50 cents a week for
someone making $50,000 a year is not going to be a significant
burden. And when you look at what we get in terms of Social
Security, most importantly its guarantee, then we can combine
the genius of what we have through insurance, a private sector
concept, tax cuts, which I think everybody on the committee
enjoys, and then the certainty for which people rely and depend
on this, including the number of quarters that you put in,
especially if you are female and you have less quarters. This
will allow an equalization of that, and I look forward to my
questions. I realize I ran over.
Thank you, Mr. Chairman.
Chairman JOHNSON. Thank you. Mr. Dold, you are recognized.
Mr. DOLD. Thank you.
I look forward to going over to Starbucks with you, John.
Absolutely.
Mr. Goss, I wanted to just start with you, and again, I
think those that are tuning into the hearing and trying to
understand what is going on and the difference between what is
happening at CBO and at Social Security, your office really
supports the work of the Trustees, but ultimately, it is going
to be their report that is reported out. So can you talk a
little bit about your office's role in the process and how
decisions and assumptions are made, and do you make
recommendations to them?
Mr. GOSS. We definitely do. Thank you very much. For every
Trustees report, the process within the Trustees working group
starts out with our recommendations to them. We do not disclose
them to you or to anybody else, but we do make recommendations
to those within the working group and to the Trustees. There is
much discussion and opining and then a decision as to what the
Trustees want to go with.
I would suggest that there is usually pretty much
similarity between what we recommend. And the one thing that I
can assure you is that if ever the Trustees' process ends up
resulting in as assumption that is really dramatically or
unreasonably different from what we believe should be the case,
we will report that to you in the actuarial opinion.
Now, in the process of determining these assumptions----
Mr. DOLD. Yeah.
Mr. GOSS [continuing]. We get incredible amounts of input.
For example, labor force participation rates that were
mentioned just a moment ago, labor force participation rates,
we have talked over the past year or two to folks from the
Federal Reserve Board who have sort of fostered the notion of
looking at cohort analysis, and what is really happening in
this recession is quite remarkable. People under 25, labor
force participation rates, which are really just the extent to
which the American people are trying to get a job to feed their
families, So the labor force participation rates under age 25
have really dropped a lot in this recession. Cohort analysis,
by some who have done this, suggested those cohorts are
permanently affected, damaged, whatever, and they are going to
work a lot less at all higher ages in the future.
We kind of don't believe that. We are not projecting that
kind of notion into the future, and our last two technical
panels, by the way, have suggested that our projections of
labor force participation rates are too low. They have
recommended that we go even higher. We, the Trustees, and we
have recommended to the Trustees, we have collectively resisted
the idea of getting more optimistic about labor force
participation rates, but we really do not believe that labor
force participation rates should be taken down to the levels of
the early 1980s, before women were largely engaged in our
workforce.
So we just think that that is kind of an interesting thing.
We look forward to dealing with Keith and company more about
how they come up with that assumption.
Mr. DOLD. Okay. But the labor force participation rate is
one of the key ones that you are looking at.
Mr. GOSS. It is one of the major ones. At this point,
probably one of the three biggest ones, other than
methodological differences, as Dr. Hall mentioned, and that is
something that is a very interesting area because our
methodologies are really quite different.
Mr. DOLD. Sure. I look forward to diving into more of that,
but I did want to talk, as we look at the administration, we
are coming up to the close of this administration, and we still
don't have public Trustees, right. So that is obviously an
issue. There are six Trustees, two of them public Trustees.
The next Trustees report is going to be due in April, just
when we are going to have a new administration coming in, about
the same time they are getting settled. And these are big
reports that can take almost a year to produce. So who is
making the decisions on that now, and what happens if the new
Trustees disagree with some of the assumptions that are made in
the report?
Mr. GOSS. Well, for better or for worse, I have been around
for a few transitions of administrations.
Mr. DOLD. We will say that is better.
Mr. GOSS. Thank you very much. Experience counts,
hopefully, a little bit.
We have gone through a number of transitions, and as you
would imagine, we are required, we really have an obligation
with our current Trustees and with our staffs to be working
toward the next Trustees report, and we will be working on
developing assumptions, developing projections. However, when
we have a new administration come in, whoever it is, and if
they bring in different people, they get people confirmed,
whoever they bring in, if they have different views, we will
move in the direction of the different views because, as you
mentioned, this is the Trustees report, and they do get to make
the call on what assumptions we absolutely have.
So if new Trustees come in and they bring in new people and
they want to do things differently and have different
assumptions, clearly, the Trustees report will reflect that. If
they make dramatic changes that we think are unreasonable,
though, again, we will report that in the actuarial opinion at
the end of the report, so we can give you that assurance.
Mr. DOLD. Can you shed a little bit of historical light?
Have you seen that happen from administration to administration
where there has been real changes from one trustee--set of
Trustees to a second set?
Mr. GOSS. I think the wonderful thing is that when people
put that hat on, the trustee's hat, regardless of their
politics, we have been really impressed, I have been impressed
for a few decades now, at how people take that so seriously
because they know how important this program is. And we tend
not to have a lot of sort of flip-flopping around in terms of
the assumptions that people get. They really get it is a long-
term projection; incrementalism really matters. And we really
had tremendous consistency across the different people coming
in. We sometimes have presentational issues that have changed
from one administration to the next, but the basic assumptions
that we used have really been quite consistent.
And I think having public Trustees really helps on that
because we have really not just one party represented on the
Board of Trustees.
Mr. DOLD. Mr. Goss, thank you.
My time has expired, Mr. Chairman.
Chairman JOHNSON. Thank you.
Mr. Blumenauer, you are recognized.
Mr. BLUMENAUER. Thank you very much, Mr. Chairman.
And I appreciate the thrust of the hearing to be able to
get into some of the details, not only because how serious the
deficit--or how immediate, I guess, the deficit we have to
contend with really serves to, I think, constrict what Congress
does. If it is more immediate and bigger, that might be a
greater incentive for action, although given some of past
congressional behavior, it might inspire more paralysis because
it is really big and complex.
But piecing out the differences in terms of workforce
participation, interest rates, what is going to happen with
payroll, I think is a very important picture for us to be able
to have the better understanding of the workings of the
economy.
And, basically, I am of the opinion that the 4 or 5 years
difference that you have in terms of the exhaustion of the
trust fund balance, while not insignificant, really shouldn't
color what we do because I think all of us appreciate that if
we are getting down to the wire and it is 2 and 3 years and we
are running a persistent 8 percent deficit, that makes the
challenge more difficult, and it has ancillary effects that are
going to be more difficult for the people who follow us. And no
one is going to tolerate a reduction of a quarter in Social
Security benefits. Ain't going to happen. But what we do to
avoid that and when we do it matters a great deal.
I am hopeful that this inspires us to be able to think
about ways to move a little faster. I have opined in sessions
before that I would love for us to come together and declare a
national Save Social Security Day sometime early in the next
Congress where we invite people to come together and look at
this information, where we invite people to come together to
look at what the choices are.
And I have tried this experiment at home in high school
civics classes, retirement homes, rotary clubs, and I find that
most citizens, even without using some of the sophisticated
calculators that are available to us, most citizens are willing
to take action. They are willing to make a little adjustment.
They are willing to pay a little more or look at adjustments in
the long term for some benefits that they think maybe some
people don't need.
They don't want to undercut the integrity of this service
that is becoming more critical for more people. Certainly,
there are lots of people in Congress can continue serving
indefinitely. I mean--but for a lot of people who have more
demanding positions in the workplace, whose life expectancies
are actually shortening, we need to be careful about how we
maintain what they get.
I am hopeful that this is something that we might be able
to come together to promote because I think the American public
would like to roll up their sleeves and help us discuss it. I
think they can help us develop alternatives that are not
draconian and that could be phased in earlier in a way that
would avoid the cliff, avoid disruption, and avoid making this
one more political battlefield. We don't know--we don't need
any more political battlefields, and we don't need any unease
for the people who rely on this service.
I wondered if either of you could help me understand. You
talk about assumptions about covered payroll. How does this
change if we are looking at total Medicare payroll in terms of
making a modest adjustment to what tax people pay if we get rid
of the arbitrary limit and we are operating on Medicare wages?
Mr. GOSS. I would just offer if we were to go that
direction, that hypothetical--and by the way, we have on our
website estimates for several proposals to eliminate the
taxable maximum or raise it to some higher level--that
basically would eliminate, I think, to a large extent, if not
completely, the difference that we have in our projections
about the share of earnings that will be dropping down below
this taxable maximum; that is, the share that we are
concentrating much more so up above. The earnings concentration
would not matter nearly as much if we did not have the taxable
maximum as, you are exactly right, as Medicare does not at this
point.
Mr. BLUMENAUER. But I should go to your website.
Mr. GOSS. Yeah.
Chairman JOHNSON. The time of the gentleman has expired.
Mr. BLUMENAUER. Thank you.
Thank you, Mr. Chairman.
Chairman JOHNSON. Can you all send him an answer in
writing?
Mr. GOSS. Absolutely. We can even get you--right after the
hearing, we will give you this stuff.
Mr. BLUMENAUER. Thank you, Mr. Chairman.
Chairman JOHNSON. Mr. Buchanan, you are recognized.
Mr. BUCHANAN. Thank you, Mr. Chairman.
I want to thank both of our witnesses today. They keep us
focused and dialed in, and this is very good information.
I can tell you that the numbers I hear, a third--I am from
Sarasota, Florida, and in Florida, 237,000 recipients count on
Social Security just in my district. I think it is second
highest in the country. But a third of the people that receive
Social Security, that is all they have. There might be a
different number; another third, it is something but not
enough, I mean, or whatever. And then I read the other day, 62
percent of Americans don't have $1,000 in the bank, so that is
why--it was out of USA Today, I think, I read that, but I had
to read it twice because it is hard to imagine.
But the bottom line is I agree with my colleagues totally.
We have got to find a way to work together on a bipartisan
basis to look at Social Security long term, the viability,
whether it is 5 years short or not, and we have got to find
also the other--even the bigger issue is Medicare in terms of
dealing with that from a viability standpoint.
And then the other thing is just, you know, we all know the
number, 10,000, 12,000 people a day turn 65 for the next 30
years. I can see--you know, come to Sarasota; you see a lot of
people at 90. My mother-in-law just celebrated her birthday,
97. Her sister is 103. Another one is 101. You see a lot of
that in Sarasota. I don't know about up north, but you see it
down--you see it down in the Sunshine State, I can tell you
that much.
Mr. LARSON. They are from the north.
Mr. BUCHANAN. I am just telling you. I did want to touch on
two things. One is COLA. There is a projection--last year, they
didn't get an increase. I do a lot of townhall meetings. It is
a big issue. I can't believe how big it is, but it is a big
issue. I think one of you is projecting .2; the other one is
.6. What is the difference, if you could do that quickly
because I have one other question, comment?
Mr. HALL. The big difference for us is that our economic
projection was done well in advance of the long-term budget
outlook, so we didn't have very much data for this year. That
is the big reason why we were so low.
Mr. BUCHANAN. Okay.
Anything?
Mr. GOSS. Our projection was actually developed sort of
very, very early in this calendar year--because, as Chairman
Johnson mentioned before, it takes a while to get the reports
together after we get all the assumptions together.
Mr. BUCHANAN. So what are you both projecting as the COLA
rate next year?
Mr. GOSS. We, in the Trustees report, were projecting a .2
percent. And remember, we were in the hole on the CPI----
Mr. BUCHANAN. Okay.
Mr. GOSS [continuing]. For the last COLA, four-tenths
negative change in the CPI, so we didn't have a COLA. So we
have to make up that four-tenths and have even more increase in
the CPI in order to have a COLA.
Mr. BUCHANAN. Okay.
Mr. GOSS. Our Trustees report at the time was suggesting we
would have a net .2. At this point, our best guess is about .4,
which wonderfully is right in between----
Mr. BUCHANAN. Right in the middle----
Mr. GOSS [continuing]. Where CBO and----
Mr. BUCHANAN [continuing]. Split----
Mr. GOSS [continuing]. Our best guess at this moment--by
the way, it is through September of this year--the prices--so
it is pretty much locked----
Mr. BUCHANAN. Let me say to you all this one other comment
I want to make, and I am an optimist by nature, but I do have
to put this out here because I have seen too much as a guy that
has been in business about being overleveraged. You know, I was
born in Detroit, grew up in the Detroit area, great American
city. It is on the comeback, but it was in bankruptcy. I looked
at General Motors, iconic. A lot of our friends, you know,
worked at General Motors. Both of these, the city and General
Motors, a lot of their benefits got cut.
So, when I look at this whole thing, and I--you know, about
the ability to pay, it concerns me when we got--we used to be
at, when I got here, was $8 trillion and change, $9 trillion,
now we are close to $19 trillion, $20 trillion in debt. Does
that concern either of you, or are we just kind of kidding
ourselves? I mean, Social Security has had a great history and
great ability to pay, but it does concern me, because I have
seen a lot of great iconic companies, and I have seen big
cities, and just the ability to pay. And what happens to those
Americans--a lot of them were family and friends of mine--a lot
of their benefits they were counting on all their life, paid in
for 30 years, earned it for 30 years, and then got shortchanged
at the end.
And just in terms of looking forward--and I know in the
trust fund, there is no money basically. You are counting on
the ability of the government to be able to make its
commitments. What is either of your thoughts quickly because I
am sure my time is running out? Mr. Goss.
Mr. GOSS. I would just say that really you cannot compare
Social Security and its solvency challenge to the Federal
Government as a whole, because the Social Security trust funds
really are so very different. The Social Security trust funds
cannot go negative. There is no borrowing authority. So we do
have $2.8 trillion. That is small relative to the long-term
obligations it brings us. So it is a pay-as-you-go basically
system, and really, I think the assurance that I would suggest
that the American people should take about having the benefits
come forward is your commitment.
We are absolutely confident that you, people on the Senate
side, will maintain this program for the American people who
elected you because it is so important to them, and that really
is the ultimate----
Mr. BUCHANAN. Mr. Hall, quickly, do you have any comments?
I just would like, both of you, to just get your thoughts on
it.
Mr. HALL. Sure. Well, certainly, by assumption, in our
forecast, and we assume that you are going to live up to your
commitment on this. We have never done a scenario, but if we
did a scenario where if you all did not and let the trust funds
go down, we would have a pretty significant impact on not only
the budget but probably economic growth and a lot of the
economic numbers that would be shocking probably.
Mr. BUCHANAN. Well, I thank both of you.
And I yield back.
Chairman JOHNSON. Thank you.
Mr. Smith, you are recognized.
Mr. SMITH. Thank you, Mr. Chairman, and thank you to our
witnesses here today. Obviously, despite the differences in
various reports, both of you point to some realities that are
out there.
Mr. Goss, your office routinely produces memos on Social
Security reform plans introduced by Members of Congress and
others. Along with information on Social Security solvency,
these memos also show the effects of any benefit changes the
plan makes. However, the memos do not include any information
about additional taxes an individual pays due to the plan. Yet
some plans, the tax changes are the big story, so why not show
these effects? And certainly I would add that tax changes
affect workers as well. Can you respond to that?
Mr. GOSS. Very, very good point, and we have been talking
with members of your collective staff about changing this.
Really, I think, essentially, the reason for this has been
that, by and large, when there would be a change in revenue,
most proposals through change in revenue would be to simply
change our 12.4 percent tax rate, 6.2 percent paid by the
employee, to raise it to something higher; or for people who
have earnings above our $118,500 taxable maximum, to start
applying the tax rate there as opposed to not. And that is
relatively straightforward. That is a lot easier to comprehend
what is going on there and just sort of understand that than it
is to say, if we change the normal retirement age by a year,
what does that really mean for benefits?
I think we really should have--point well taken. We are
working towards developing sort of a comparative table that
would show something about revenues as well, because some of
the revenue proposals can get more complicated, as many people
on this bench today know. So we are going to move toward that.
Mr. SMITH. I appreciate that.
And this discussion we are having today, I think, is
especially productive. I would share the sentiments of my
colleague from Connecticut that it is an insurance program, and
I would add that we should probably keep it that way and be
mindful of those dynamics of what an insurance, you know,
structure is, and what it is not.
But back to the labor force participation. I mean, you are
suggesting that the labor force participation goes back up.
What assumptions would that be based on?
Mr. GOSS. Well, recessions have happened before. Our most
recent recession was a special recession. Many have opined it
is sort of the worst thing since the Great Depression, but this
is a strong country. We have recovered from recessions before,
and we assume absolutely we are going to recover from this
recession.
Being as deep and strong a recession as it was, we are not
surprised that it is taking longer than the recovery from those
past recessions. We are pretty confident it is going to keep
coming back. On the labor force participation rates, the place
where they have been hit most are people who are younger. Some
have opined that the people under 25, the share of them that
are either in the workforce or in education hasn't really
changed a lot.
So we are pretty confident that, as the economy gets
stronger, as more jobs become available, that people will get
back in the labor force and want to work, and most
particularly, people under 25 who have been out of the labor
force in this bad recession, we do not believe that as they get
to be 35, 45, and 55, they are going to be permanently not in
the labor force. We don't see how they can possibly have lower
participation rates in the future really than cohorts in the
past.
And the only reason that we have our overall age-adjusted
rate going up is because that includes people over 65. People
over 65 in the future, I will attest to this, I hope, we
believe are going to be living longer. At any given age, they
are going to be living healthier, and they are going to be more
capable than people at those ages in the past.
That being the case and knowing they are living longer,
they know they are going to have to live--they are going to
have to work longer to build up their nest egg, and they will
have a greater ability to do so. So we believe that all these
things suggest we will not only recover, because people want to
eat, they need to have a job, and that people at older and
older ages will be wanting to work somewhat longer in the
future and have a greater ability to do so.
Mr. SMITH. So what growth rate would you suggest would--I
didn't see it here, would trigger a return to a labor force
participation rate that you find to be optimal?
Mr. GOSS. Well, if we look at labor force----
Mr. SMITH. And probable----
Mr. GOSS [continuing]. Participation rates sort of age by
age, which I would suggest is the way to look at it, if you say
our population is changing its age distribution and you allow
that to affect what you are saying is the labor force
participation rate, then that will be very difficult to
understand what is going on, could be misleading. So we will
look age by age, look age-adjusted, and we basically are
returning to essentially the labor force participation rates we
had at younger ages, below 65, as in the past. But for higher
ages, over maybe 55, because of the longevity factor, because
we all agree that people are going to be living longer and
living healthier, we believe that people will have the ability
and even the need to be working longer in the future.
I mean, there has been considerable mention here of defined
benefit plans by large corporations have been on the wane for
quite some time now, so people, we believe, are understanding
and will be understanding a greater need to work longer in the
future.
Mr. SMITH. Thank you.
Thank you, Mr. Chairman.
Chairman JOHNSON. Mr. Kelly, you are recognized.
Mr. KELLY. Thank you, Mr. Chairman. It is great to see you
back.
Mr. Larson, Mr. Blumenauer, it is good to be with you all.
Because what you are touching on, now, the two of you, the
one thing you do agree on is that this thing hits a wall, one 5
years later than the other. But you both agree on that, and you
both come down to it is just because of--and just maybe explain
it, very short, where does the revenue for Social Security come
from? How are the benefits paid? Where does the money come
from?
Mr. HALL. Well, obviously, it is from the labor force, the
number of people working.
Mr. KELLY. Right.
Mr. HALL. We have pretty different forecasts of GDP growth,
I think, nominal GDP growth. That is one of the big differences
and, of course, the labor force participation. We talked about
that a little bit, but I didn't mean to be misleading when I
pointed out that one of our differences is that the
historically low levels of labor force participation by almost
all ages below baby boomers, but the biggest difference is we
see a bigger impact of the retirement of baby boomers.
We see a bigger age impact. So, for example, right now, we
look at labor force participation about 67.1 percent. We think
it is going to go down to 62.5 percent and then down to 60
percent in 10 years. That is a pretty big drop, and those are
baby boomers retiring. And to give you some idea, right now,
those 65 and older are about 25 percent. They are about--of all
the people who are working age 20 to 64, the people above--65
and above is about 25 percent of those folks.
In 75 years, it is going to be about 50 percent of those
folks. So it is this demographic, this aging, that is having
the biggest impact on revenues going forward, and then, of
course GDP growth. We have really lowered our GDP growth for--
--
Mr. KELLY. Yeah, I think there is confusion sometimes when
I am back home--and it is almost 40 percent of the people in
the district that I live receive Social Security benefits.
Mr. KELLY. Now, not all those who receive benefits are
actually donors to the fund, but we have changed that
dramatically from what Social Security started at to what it is
today. In other words, who puts money in and who gets to take
money out, that also distorts the model.
But I think the confusion does come down to when you talk
about the participation rate, the money does not come from the
government. The money comes from working people. That is where
the money comes from. Also, this is so basic, and I think when
we talk about these things, we make it something that is really
complicated that is not that complicated. You either have more
money going in and less money going out, or if there is too
much money going out, you have got to get more money going in.
It is just that simple. And, unfortunately, when they first
devised this plan, people weren't living as long. For somebody
my age, I am glad that they were wrong, but we still have a
problem with revenue. It doesn't change.
A dynamic and robust economy is the only thing that fixes
this, right? Is there something I am missing here? Because,
unless we get more people working, we are not going to have the
revenue that we need. And so when we talk about all these
marvelous plans and what we could do to save Social Security,
the one thing we better do is find people jobs. It is just that
simple. My whole life--listen, I own a business; 12.4 percent
of every paycheck went into Social Security, right? That is
just by law: 6.2 from the owner of the business, 6.2 from the
person out there working. So we play this ring-around-a-rosy
about who is going to do what. I tell you what to do: Get
people back to work. Give them a chance to get up in the
morning and go to work. They will put money in. They don't have
any problem with helping to fix it, but they have to have a job
to do it.
So a dynamic and robust economy is the whole answer to
this. And while we talk about how we could adjust the plan, I
would rather fix it at the source. And that is the people who
put it in. I know you guys do marvelous work. And, believe me,
the Chairman said we need to get ready. Here is what we need to
get ready for: We are all partners in this. We are joined at
the hip, not as Congressional people and you as working. As
Americans, we are joined at the hip. Why we can't see that--and
I don't want people to think that somehow there is somebody in
a beautiful knight's outfit on a white charger is going to come
running and save the day. It is going to happen with working
people and Congressional leaders and government people who work
together to fix it. So I know you are 5 years apart, but there
is one thing you agree on.
Mr. GOSS. Could I just add on the labor force participation
rates----
Mr. KELLY. Yeah, sure.
Mr. GOSS. Dr. Hall was mentioning what we would call sort
of like an overall or a gross participation rate. It is really,
really important, because we do have demographic assumptions,
and we have economic assumptions, and separating them is really
important.
No question our population is aging in the future. We are
going to have a greater share of our adult population over 65.
That is absolutely true. But when we talk about labor force
participation, if you just want to look at it sort of all the
16 and over, a smaller share will be working, yes, because a
lot of people will be over 65, more than in the past. If we
really want to talk about the tendency for people to be in the
labor force, though, we have to look age by age or taking out
the age distribution effect. And that is what we have really
done in these projections, and that is where we are showing
that we are going to be basically stable with a little bit of
rise in the future because people living beyond 65, we believe,
will be healthier and living longer and have a greater ability
and that we will return after the recession, for people under
65, back to levels similar to what we had before the recession.
If we don't, then we----
Mr. KELLY. I get it. I get it. The number one problem that
people have who are trying to hire people is finding people who
are qualified to do the jobs that are available today. It
starts at a level of educating people. I sat on a school board,
and I would go in and talk to guidance counselors. You know
what they talked about? They talked about the kids who were
going to Harvard, the guys who were going to Yale, the guys who
were going to Princeton. I said: Don't tell me about that. Tell
me about the kids who aren't going anywhere. Tell me about the
kids who, when they graduate, have no place to go. Are we
getting them ready for any jobs that are out there?
I come from a steel town in a railroad-car-making town. And
if there is anything that has been hit worse than that, I would
like to see where it is. But it is getting people ready for the
world we live in today so that they can walk out of that
schoolroom and onto the field and play and participate. It is
the low participation rate that is killing us.
Now, we changed the metrics of how we were going to pay out
Social Security. I get that. Beneficiaries, not every single
beneficiary ever put any money in the account. As a guy that
handles a pension account for my own people, I could not do
what the government has done to the account. If I did it with
my pension plan, I would be in jail. So we have played with
this thing for far too long. I agree with my colleagues on the
other side, and we talk about this when we are off the floor
and sometimes on the floor. We have got to fix this thing.
The other thing, we have got to get the American people
aware that you have got to get to work. It is about jobs, jobs,
jobs, and more jobs. We have got to get this labor force
participation rate up. That is where the answer is. We have got
to create a dynamic and robust economy where every single
American can get up every day and not just walk to their job
but run to their job, because they can take care of themselves,
their families, and the future.
Mr. Chairman, thank you so much for calling this. Listen,
John and I and Earl, we get along so well in this, I just think
people at home would be shocked at how well we get along
because they seem to listen to people on the Internet rather
than people who actually are here. So God bless you for what
you are doing. We want to work with you.
Chairman JOHNSON. Thank you.
Mr. Rice, you are recognized.
Mr. RICE. Thank you, Mr. Chairman. Thank you for holding
this hearing today, and I am glad to see you back.
You know, this is a difficult problem. It is not terribly
complex. As Mr. Kelly says, we make it more complex than it is,
but it is just math. We have got less money coming in than
going out in the long run, and that money will run out
eventually, and so people's benefits will have to be reduced
unless we do something. Everybody in the room knows that,
eventually, we will do something. The President says the Social
Security trust fund will expire sometime in this timeframe,
2030 to 2033. Every Republican, every Democrat in the House and
the Senate, they all say the same thing. They all go home, tell
all their people back home: this is happening and needs to be
dealt with.
And yet there is a dearth of solutions, specific solutions
offered. Why? Because it is difficult. Why? Because if you talk
about reducing the outgo, cutting people's benefits, you make
that population angry. If you talk about raising the revenue,
you make another population angry. And politicians are loath to
make people angry. But we have to offer solutions. I believe it
is one of the factors that is holding our economy back. I
believe it is one of the five major issues that are holding our
economy back, that are holding our job creation back, that are
holding our American optimism back, and that it is something
that is solvable. We just have to--as AARP used to run
commercials just recently--take a stand. Of course, if you ask
them what their plan is, they won't tell you. They won't take a
stand.
So what we have to do is we have to show political courage
here, and I am very, very hopeful that this committee through
these hearings is preparing to do exactly that, to offer a plan
to solve this problem, to take this problem off the table, once
and for all, and to resolve it so that we can move forward. But
if we have CBO and we have the Social Security Trustees
differing on the numbers so that we don't know exactly what
target we need to hit, that obviously makes the problem a
little more difficult--a lot more difficult.
When we deal with this problem, we want to get to 75-year
solvency. That is how both of you-all defined solvency, right,
75 years, right, both of you? So I really hope that you can sit
down together and pull a little closer on exactly what that
will take, because if we have to, when we come up with our
solutions and put those on the table and go through the
wrangling that we need, we sure don't want to have to revisit
this in just a few years. Once we resolve it, let's get it
resolved and put it to bed.
So I am hopeful that you all can come together and
compromise on your assumptions like we are going to have to
compromise on our solutions and put this thing to bed for the
American people so that they don't have to be threatened by the
fact, by Republicans and Democrats, by the President and the
House and Senate, every time we speak about Social Security and
this potential for the trust fund to go bankrupt. Thank you.
Chairman JOHNSON. Thank you.
Mrs. Black, you are recognized.
Mrs. BLACK. Thank you, Mr. Chairman.
And it really is good to see you back looking so good and
out kicking butt with a new knee. We are really happy to have
you back and being the Chairman of this Subcommittee.
Such an important issue for us to discuss, and as my
colleague to my left has indicated, you have got to have good
information in order to make good decisions on how you fix the
problem.
So, Mr. Hall, I want to go to you. In the past, the CBO
used some of the Trustees' demographic assumptions in their
forecast of Social Security solvency, but recently that has
changed. How does CBO decide which numbers to use from those
external sources, including the actuary, and which numbers to
produce internally?
Mr. HALL. Sure. First of all, to put this in perspective,
up through 2012, we simply used the demographic assumptions as
the Social Security Trustees. In 2013, we changed that, and
that actually was the biggest change I think, in our actuarial
balance. And the biggest change we made there was we looked at
the rate of increase in mortality, mortality improvements over
time, which would, which looked to be going--the improvements
were much quicker, I think, than our previous assumption. So we
followed the recommendations of demographers. We followed the
recommendations of the Social Security technical panel, and we
did our own analysis when we made the decision to increase the
improvements in mortality, and it raised the longevity of the
population 75 years from now, and that had a pretty big impact
on our actuarial balance.
So the way we are operating is we are there to be
independent and objective and make decisions that we think are
the best. So we continually talk with our panel. Most of our
changes, we talk to our panel of economic advisers. They are
very prominent people. We look at research. We do our own
research, and I say we look at what Social Security folks are
doing and what the technical panel is recommending, and we make
decisions that we think give us the best forecast at any point
in time for the next 75 years.
Mrs. BLACK. Mr. Goss, do you want to respond to that?
Mr. GOSS. Yeah--actually, I am going to--perhaps the
detail, but actually CBO was using our population projections
lock, stock, and barrel through 2010. Then, in 2011 and 2012,
CBO made some changes to use somewhat different immigration
assumptions. Dr. Hall is exactly right. It was in 2013 that
truly dramatic changes were made at CBO on the mortality
projections. They stopped using ours. Also disability incidence
rate assumptions were changed at CBO. Lots of different things
were changed, but the mortality in particular was really,
really critical.
Longevity is really, really important. One thing that we
have recognized over the years is that there is an age
gradient, that mortality rates tend to drop, have dropped
historically, a lot faster at younger ages than at older ages.
And in 2012, based on the recommendation of one of our
technical panels--and by the way, we get recommendations from
people all over the place. Every 4 years, another technical
panel, we get lots of recommendations. We and the Trustees look
at them all and take them all under advisement. But that
panel--and CBO went with it--said let's go to roughly 1.2
percent per year reduction, all ages the same. And we are
assuming about .8 percent overall with a slower rate of decline
at high ages and a faster rate of decline at younger ages.
Now, I am happy to say that Keith and CBO have now gone
away from that assumption that they went to in 2013, and as of
2016, they have modified their mortality assumptions in a way
now that come back very, very much closer to ours. I think the
net effect on mortality should be very similar to ours, from
the best we understand it, because we actually put out an
actuarial note, No. 158, right around the time of our last
Trustees report that analyzed some work by Ron Lee, a really
good demographer out, formerly of Berkeley. I think our
impression is that what CBO is doing now is very similar to
what Ron Lee did. Ron Lee has a little bit faster rate of
overall decline in death rates, but a much bigger
differentiation between high and low ages. And the impression
we have at least is that's where CBO is at this point. The
bottom line, though, is the net on mortality is now very
similar. So CBO, as of 2016, is not having as big an extra
shortfall from mortality as it did in 2013, 2014, and 2015. But
at the same time that change was made, also the birth rate was
altered at CBO that literally went in the direction of assuming
a substantially lower birth rate going on indefinitely into the
future, which would result in a big change in our age
distribution and, therefore, in the cost as a percent of
payroll for this program.
Mrs. BLACK. Would you like to respond?
Mr. HALL. Sure. Let me just jump to, I was sort of giving
you an idea of why we started changing things, because we
really started changing things in 2013. Where we are right now,
the biggest difference comes from the share of earnings subject
to Social Security tax. That accounts for the biggest
difference. Second is our nominal GDP, our economic forecast,
is pretty significant. That makes a big impact. And then the
third thing is the demographics. So, at the moment now, most of
the differences are more basic than that. They are sort of
economic differences rather than demographic differences.
Mrs. BLACK. Thank you for that clarification.
I yield back.
Chairman JOHNSON. Thank you.
Mr. Becerra, do you care to question?
Mr. BECERRA. Yes, Mr. Chairman. Thank you very much.
First, gentlemen, thank you for your testimony and your
work over the years. I know you have covered a number of
things, so let me just zero in on a few.
Mr. Hall, you just talked about the earnings subject to
Social Security tax. I suspect the two of you will agree that
the earnings subject to Social Security tax has remained
consistent for--how long has it been since we have had the 12
and a quarter, 6 and an eighth, 6 and an eighth? So----
Mr. GOSS [continuing]. 6.2 for----
Mr. BECERRA. Mr. Goss, clarify. How much is paid in by a
worker, and how much is paid in by the employer of the worker?
Mr. GOSS. For wage and salary workers, they paid in 6.2
percent of the employee's wage and salaries each. So they split
it even. Self-employed workers are responsible for paying the
whole thing.
Mr. BECERRA. 12.4.
Mr. GOSS. 12.4.
Mr. BECERRA. Okay. So 12.4 percent, Mr. Hall, you'd agree
with that?
Mr. HALL. That is right, although let me just clarify, when
I say the share of earnings subject to tax, I am really talking
about the effects of the maximum, the tax max, on a payroll.
Mr. BECERRA. Let's go there. Let's go there, because there
is a maximum amount that you can have withdrawn from your
paycheck to cover the 6.2 plus 6.2 percent of the payroll tax.
And, Mr. Hall, what is that maximum now?
Mr. HALL. Oh, the tax max?
Mr. BECERRA. Yeah, the tax maximum.
Mr. HALL. I don't remember now. $116,000?
Mr. GOSS. $118,500.
Mr. HALL. So the real difference for us is we forecast
growing income inequality. We think that income inequality is
going to continue to grow----
Mr. BECERRA. I want to go in a different direction. What I
am trying to just do is establish what we do know as fact and
the hard things that we can work with because from there, we
make our projections. And as it has become clear, you have
differences in your projections. And which one comes true,
probably none of us will be alive to see. But they are
projections, and they are very important because that is how we
are going to base our policy and how we act.
But we know that Americans are contributing 6.2 percent of
their paycheck and their employers are contributing another 6.2
percent for a total of 12.4 percent. I showed a chart that
indicated that, over the course of the 80 or more years that
Social Security has been around, we have contributed a total of
about $19 trillion--well, it is $19 trillion that the trust
fund has collected and the Social Security system has
collected, but that would include also the money that has
earned interest on those tax contributions that have been paid
in.
Mr. Goss, how much of that money that Social Security has
brought in under the program, Social Security program, has come
from the interest earned on the tax contributions of American
workers?
Mr. GOSS. We do have that in our Trustees report. I could
look it up. I don't know if we have the time to do that now.
Mr. BECERRA. I know it is roughly $2 trillion. I just don't
know how close to the $2 trillion----
Mr. GOSS. It is a relatively small portion because really
the aim historically of Social Security is not to be a fully
advanced--a little actuarial term here--a fully advanced funded
system like a private pension.
Mr. BECERRA. Spoken like a true actuary, that $2 trillion
is a small portion.
Mr. GOSS. Sorry. The $2.8 trillion, in the context of this
program, it is only 3 years' worth of our benefits, and the
kind of pensions that we might be familiar with out in private
industry typically to be fully advanced funded have to have
about 25 times annual outgo.
Mr. BECERRA. So here is what I think is important that
gives us a chance to come up with some policy solutions to
track that challenge that is coming up, and that is that, along
with those $2 trillion that have been earned in interest from
Americans' tax contributions into Social Security over 80
years, that complements--the number I have here is $17 trillion
that Americans have paid into Social Security since its
inception in 1935. To me, what is remarkable about that number,
$17 trillion plus $2 trillion, $19 trillion, is that we
continue to pay it. A lot of Americans could have been
skeptical about the program and said: You are taking money out
of my paycheck. That is money out of my pocket that I could be
using right now to buy that house or maybe save for my
retirement myself.
But we continue to do it to the point now where tens of
millions of Americans are now benefitting from having believed
that the system was going to work. And so far, every American
who paid in, as I said, has been able to know that he or she is
going to get his or her money in full on time until they die.
And that is the beauty of Social Security, where the reason why
I think we are going to find Americans saying: You better make
sure you fix Social Security the right way because it is about
the only thing that we have found reliable over the years,
public or private.
And if you think about what has gone on with the financial
services institutions, with Wells Fargo and how it defrauded a
number of Americans, you need to have confidence in your
programs. And that is where I think your testimony, both of
you, has been valuable.
Mr. Chairman, I am glad we are doing these hearings because
this is going to take us a little closer to having those
conversations we need to actually come up with some policy. So,
Mr. Chairman, I thank you for holding this hearing.
I thank our two witnesses for their expert testimony.
Chairman JOHNSON. I do too.
And we all know Social Security is in trouble, and just how
much depends on who you talk to. While 75-year estimates aren't
ever going to be perfect, having CBO and the Trustees so far
apart does raise questions, and rightfully so. Congress relies
on these well-respected experts to give us the best information
so we can make decisions on the best ways to strengthen Social
Security for our children and grandchildren so they can count
on it, just like seniors and individuals with disabilities do
today.
And I appreciate you two being so straightforward with us.
Thank you for being here. Thank you for your testimony.
And thank you to all the Members who are still here. I
appreciate that too.
And that concludes our testimony today. And, with that, the
Subcommittee stands adjourned.
[Whereupon, at 11:24 a.m., the subcommittee was adjourned.]
Member Questions for the Record
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