[Congressional Record Volume 140, Number 1 (Tuesday, January 25, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: January 25, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       THE MYTH OF MEANS-TESTING

                                 ______


                        HON. ANDREW JACOBS, JR.

                               of indiana

                    in the house of representatives

                       Tuesday, January 25, 1994

  Mr. JACOBS. Mr. Speaker, Bob Ball, former Commissioner of Social 
Security, and Henry Aaron, director of economic studies at Brookings, 
produced a thought-provoking piece for the Washington Post, and it was 
published there on November 14, 1993. I insert in the Record the 
column. It is worthwhile reading for all Americans, I think.

               [From the Washington Post, Nov. 14, 1993]

                       The Myth of Means-Testing

                 (By Robert M. Ball and Henry J. Aaron)

       Everyone knows that rising social security expenditures are 
     boosting the federal budget deficit. Right? Everyone knows 
     that cutting social security expenditures is the key to 
     lowering the deficit. Right? And common sense tells us that 
     the fairest way to cut benefits would be by means-testing 
     them so that benefits only of the well-to-do elderly are cut. 
     Right?
       ``Yes, yes and yes,'' says Peter G. Peterson, president of 
     the Concord Coalition, founded by former senators Warren B. 
     Rudman and Paul E. Tsongas. Peterson is everywhere with his 
     message. TV interviews galore, an Atlantic Monthly article, a 
     new book and the Concord Coalition's September report, ``The 
     Zero Deficit Plan.'' But in fact, the correct responses to 
     the three statements are ``wrong, wrong and wrong again.'' 
     Here's why:
       Far from increasing the deficit, social security is now 
     reducing the deficit. In 1993 social security revenues will 
     exceed outlays by $46 billion. If it weren't for social 
     security, the federal deficit would be that much larger.
       That contribution to deficit reduction will continue to 
     grow for many years. Without social security, the federal 
     deficit in the year 2000 would be $97 billion larger than the 
     already frightening $251 billion projected by the 
     Congressional Budget Office.
       Falsehoods repeated often enough come to be accepted by 
     many as true. In this fashion, the statement that rising 
     social security costs are a major factor in pushing up the 
     federal deficit has gained currency. But it is still false.
       Cutting social security benefits would almost certainly not 
     lower the deficit. That's because any change that would 
     increase the excess of payroll tax revenues over current 
     benefit payments would make it virtually impossible to resist 
     calls for cutting payroll taxes in tandem. Why, it would be 
     asked, should even more of the proceeds from a regressive tax 
     on earnings--justified only because it pays for a progressive 
     benefit structure, also linked to earnings--be used to offset 
     deficits generated by the failure to pay for other 
     governmental operations?
       Last year, Congress seriously considered, and the Senate 
     only narrowly rejected, a proposal to cut payroll taxes 
     enough to eliminate any excess of social security revenues 
     over expenditures. A substantial cut in benefits would surely 
     prompt Congress to action. Of course, if Congress cut 
     benefits and taxes in parallel, the deficit would not fall.
       Means-testing social security--the denial of benefits to 
     people whose income or wealth exceeds a stipulated level--
     would be unfair and undermine support for our universal 
     pension system, by far the most effective anti-poverty 
     program we have ever had. The social security system includes 
     a simple but subtle principle that is very important in 
     protecting the families of low-wage earners against poverty 
     when such workers retire, become disabled or die. Everyone 
     pays taxes at the same rate on earnings up to a limit, so 
     that everyone can claim a pension in return, as a matter of 
     right and without the stigma of welfare. But the benefit paid 
     to low earners replaces a larger share of their past earnings 
     than does the benefit paid to high earners. As a result, 
     social security is keeping about 15 million people from 
     poverty and millions more from sinking to near poverty.
       What makes it possible to pay benefits to workers with low 
     earnings histories sufficient to keep them out of poverty is 
     social security's ``weighted'' benefit formula. That formula 
     rewards low earners more generously for each dollar of past 
     contributions than it pays workers with high earnings 
     histories. High earners in fact sometimes complain that they 
     could get more privately for the taxes they and their 
     employers pay. This claim is debatable, as social security 
     has valuable insurance features no private pension can claim, 
     such as complete protection against price inflation and 
     safety from loss from business failure, industry decline or 
     poor investment results. Still, making major reductions in 
     the benefits of high earners and making uncertain the receipt 
     of all but a tiny benefits, as in the Concord Coalition plan, 
     would generate massive pressures to permit higher paid people 
     to opt out of social security.
       Given the weighted benefit formula, the system could not 
     survive if substantial numbers of higher paid earners ``opted 
     out.'' Moreover, without such a formula, millions of elderly 
     and disabled beneficiaries would find social security 
     benefits to be way too low to support them and would have to 
     turn to welfare for help. Welfare would then determine the 
     maximum income of such households, and past contributions to 
     social security would be meaningless for them.
       The succession of events arising from the introduction of a 
     means test could well destroy the social security system, 
     which is now of critical importance not only to the six out 
     of 10 workers in private industry for whom social security is 
     the only pension, but also for the vast majority of those who 
     have a supplementary private pension built on top of social 
     security. Social security is not intended to be just a 
     poverty program, successful as it is at that task. It is also 
     meant to be a base to which people can add income from 
     pensions and savings.
       The United States has taken 50 years to develop a four-tier 
     system of retirement protection, consisting of a universal 
     and compulsory social security pension system, supplementary 
     private and government pensions, individual savings and a 
     safety-net--Supplemental Security Income (SSI)--that 
     guarantees everyone some income during retirement or 
     disability, but at a level below the poverty line. The four 
     tiers are complementary. Changing one will force changes in 
     the others.
       Means-testing social security, for example, would produce 
     perverse effects in private pensions. Many companies with 
     plans that guarantee pensioners a defined level of benefits 
     are already having difficulty keeping up with funding 
     requirements. If social security benefits were cut, or made 
     uncertain, they would have to increase their plans' funding 
     or announce reductions in total retirement protection for 
     their employees. Others would drop their pension plans rather 
     than incur added expense.
       Paradoxically and perversely, the biggest losers from 
     means-testing social security might not be the intended 
     target--the wealthy. The real losers might well be middle-
     income workers now fortunate enough to receive both social 
     security and a private pension. And, of course, if social 
     security disappeared, as well it might, the SSI welfare rolls 
     for the elderly would grow 10 to 15 times their present size.
       Social security is family protection for everyone against 
     loss of income from disability, death or retirement. It would 
     be tragic if myopic deficit-cutters put at risk this most 
     widely supported of federal programs through measures that 
     would not even cut the deficit.

                          ____________________