[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

                              ----------                              


                     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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                 -------

    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:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    

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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:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                                 ---------
    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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